IFRS and Vietnamese accounting standards: critical differences

International Financial Reporting Standards (IFRS) are global accounting standards issued by the International Accounting Standard Board (IASB) to guide the preparation and presentation of financial reports. Vietnam uses IFRS as a basis for its own system, the Vietnamese Accounting Standards (VAS).

To provide guidance for local and foreign enterprises in Vietnam, the Ministry of Finance recently issued circulars meant to enhance the comparability and transparency of corporate financial statements.

But there are key differences between the two that CFOs and others on the finance team must know when setting up in Vietnam.­ All foreign and local companies operating in Vietnam are obliged to conform to VAS, so foreign investors should be well aware of unique fundamental characteristics of VAS to fully comprehend compliance requirements and make informed investment decisions.

To provide guidance for local and foreign enterprises in Vietnam on the 26 Vietnamese Accounting Standards so far issues, the Ministry of Finance recently issued Circulars No. 200/2014/TT-BTC and No. 202/2014/TT-BTC. These are meant to enhance the comparability and transparency of corporate financial statements and bring the two systems closer.

Key differences between IFRS and VAS include terminology, applied methods or presentation scope. Below are several critical differences between the two financial reporting systems.

 

Presentation of financial statements

A complete set of financial statements based on IASB’s International Accounting Standard (IAS) 1 includes the following:

  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Statement of Changes in Equity
  • Notes, including a summary of significant accounting policies and other notes

 

The components of financial statements under VAS are:

  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Notes

According to VAS 21, the Statement of Changes in Equity is part of Notes, rather than a primary component of the financial statement. Furthermore, VAS does not require disclosure of management’s key judgments, assumptions about the future and sources of estimation uncertainty.

 

Cash flow statements

Under IFRS 7, cash flow statements are based on the balance sheets from the first and final period accounting reports, and can include some information from the ledger. IFRS stipulate that receivable accounts and trade payables can be separated from receivable accounts and payables on the sale of fixed assets or long-term assets. Hence, cash flow from business is distinct from cash flow from financial investment.

In Vietnam, based on VAS 24, cash flow statements are taken from the cashbook and ledger bank deposits corresponding to the side account. VAS 24 gives guidance on setting up the cash flow statement using the indirect method starting from pre-tax profits plus or minus the adjustment, including differences of payables and excluding payables related to financial investment activities.

 

Chart of accounts

Vietnam’s Ministry of Finance issued a uniform chart of accounts for enterprises’ financial statements. Circular No. 200/2014/TT-BTC introduced new accounts, including corporate restricting funds (Account 417) and price stabilization funds (Account 357), while some are omitted or amended.

Source: CFO Innovation – By Dezan Shira and Associates

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