Along with the current economic globalization, the preparation and presentation of financial statements in accordance with generally accepted international standards such as International Financial Reporting Standards (IFRS) have become essential and in fact an indispensable trend for enterprises.
The purpose of this is to provide some background on IFRS and its application roadmap in Vietnam for readers’ information.
What is IFRS?
IFRS refers to International Financial Reporting Standards compiled by International Accounting Standards Board (IASB) and International Financial Reporting Interpretations Committee (IFRIC).
The key objective of IFRS is to provide public companies with a generally accepted international framework for the preparation and presentation of financial statements. Instead of stipulating detailed rules, IFRS focuses on general guidance and presentation for the preparation of financial statements. Therefore, IFRS is perceived to be “a global financial language” which ensures comparable, consistent and transparent, enhances reliable financial information of publicly listed companies as well as of the financial market and stock market.
Roadmap for IFRS application in Vietnam?
On 16 March 2020, the Ministry of Finance issued Decision No. 345/QD-BTC approving the Agenda for Application of Financial Reporting Standards in Vietnam.
According to Decision No. 345/QD-BTC, the roadmap for application of IFRS in Vietnam is as follows:
- Preparation phase (2020-2021):
- Before December 2020, the Ministry of Finance to establish Board of Translation and Review to complete IFRS translation into Vietnamese.
- Before March 2021, the Ministry of Finance to develop and issue relevant legal documents to publicize the Vietnamese translation.
- Before 15 November 2021, the Ministry of Finance to develop, issue or request competent authorities to issue legal documents on methods of applying IFRS; implement, amend and issue new financial mechanisms related to application of IFRS; train human resources, provide deployment process for enterprises.
- Phase 1, Voluntary application (from 2022 to 2025):
- With respect to consolidated financial statements:Following enterprises with the need and sufficient resources shall inform the Ministry of Finance of their voluntary application of IFRS:Parent companies of state-owned economic groups on a large scale or having loans funded by international financial institutions; Parent companies which are listed companies; Large-scale public companies which are unlisted parent companies; etc.
- With respect to separate financial statements: 100% foreign direct investment companies which are subsidiaries of parent companies located overseas having the need and resources shall inform the Ministry of Finance of their voluntary application.
Upon IFRS application, enterprises must fully provide information and explanation with coherence and transparency for tax authorities, managing agencies, supervise and have responsibilities for determining obligations to the state budget.
- Phase 2, compulsory application (after 2025):
- For consolidated financial statements:Based on the assessment of application of IFRS in Phase 1, the Ministry of Finance shall rely on demands and readiness of enterprises and current conditions to specify planning and timing of compulsory IFRS application to enable the following enterprises to prepare consolidated financial statements: Parent companies of state-owned economic groups; Parent companies which are listed companies; etc.Other parent companies not specified above which have the needs and necessary resources shall inform the Ministry of Finance of its voluntary IFRS application.
- For separate financial statements:Based on the assessment of application of IFRS in Phase 1, the Ministry of Finance shall rely on demands and readiness of enterprises, relevant law provisions and current conditions to specify methods and timing of statutory or voluntary application of IFRS for the preparation of separate financial statements for each group, which ensures efficiency and feasibility.
With Vietnam’s Accounting – Audit Strategy up to 2020, with a vision till 2030, the application of IFRS would direct Vietnam to the right path of ASEAN’s policies and also allow the country to keep up with the acceleration of economic growth of other successful economies in the region and around the world.
For enterprises in Vietnam, in addition to the positive implications arising from IFRS application, businesses will face a large number of challenges ahead. Therefore, enterprises must have a specific and clear roadmap of their own to implement IFRS effectively and successfully.