According to the Ministry of Finance’s plan for adopting IFRS in Vietnam, the Vietnamese Accounting Standards (VAS) system lacks the following regulations compared to the International Financial Reporting Standards (IFRS):
1. Regulations related to the revaluation of assets and liabilities at fair value
2. Regulations on recognition at present value, current cost, allocated value, and discounted cash flows using the effective interest rate
3. Regulations related to the accounting of fixed assets
4. Regulations on the recognition of asset impairments
5. Regulations on lease transactions
6. Regulations on business combination transactions
7. Various other transactions
8. Regulations on financial reporting
Regulations related to the revaluation of assets and liabilities at fair value
The differences between VAS and IFRS in terms of fair value recognition after initial recognition when preparing and presenting financial statements.
As of the reporting date, VAS requires most assets and liabilities to be recognized at historical cost. Changes in fair value are not reflected, except in the case of revaluating monetary items denominated in foreign currencies.
Provisions for devaluation primarily recognize one-sided changes in fair value (downward) rather than fully addressing revaluation at fair value as per IFRS. The following summarizes some assets and liabilities that have not been revaluated at fair value under IFRS:
Assets/ Liabilities
VAS
IFRS
Financial instruments (including securities and derivatives) held for trading purposes
Original cost
Fair value
Derivative financial instruments held for the purpose of hedging fair value risk or cash flow risk
Original cost
Fair value
Investments in subsidiaries, joint ventures, and associates held by venture capital funds and mutual funds
Original cost
Fair value
Investment property (except in cases where the cost model is applied)
Original cost
Fair value
Biological assets
Original cost
Fair value less costs to sell
Agricultural products that have not been processed at the time of harvest
Original cost
Fair value less costs to sell
Non-current assets held for sale
Original cost
Fair value less costs to sell
Regulations on recognition at present value, current cost, allocated value, and discounting cash flows using the effective interest rate
Regulations on lease transactions
IFRS requires certain assets, such as receivables, loans, etc., to be recognized at amortized cost based on the present value of future cash flows.
Although VAS does mention this, it is only theoretical (in VAS 14), so the essence of this content remains one of the differences.
IFRS 16 does not distinguish between finance leases and operating leases. Instead, IFRS 16 only distinguishes between lease transactions and service contracts. This means that businesses are required to recognize leased assets (even operating leases) on the financial statements.
VAS 6 still relies on the old IAS 17, so all the changes introduced by IFRS 16 create differences between the two systems.
Regulations related to the accounting of fixed assets
Regulations on the recognition of asset impairments
Cost of Fixed Assets
IFRS allows the inclusion of future costs, such as decommissioning costs and the costs of restoring the asset’s location, into the cost of a fixed asset. However, VAS does not permit the recognition of these costs as part of the fixed asset cost.
Revaluation of Fixed Assets at the Reporting Date
IAS 16 allows businesses to revalue assets at the reporting date, specifically:
• When revaluing an increase in fixed assets, the increase is recognized in equity after offsetting any previously recognized impairment losses.
• When revaluing a decrease in fixed assets to recognize an impairment loss, the decrease is recognized as an expense after offsetting any previously recognized increases in equity.
However, VAS 3 only permits the revaluation of fixed assets in cases where there is a decision by a government authority, such as in the cases of contributing assets to a joint venture, splitting, or merging.
According to IAS 36, assets such as fixed assets, investment property, investments in subsidiaries, joint ventures, associates, biological assets, mining rights, cash-generating units, goodwill, etc., must be assessed and any impairment losses (if applicable) recognized in the income statement at the reporting date.
However, these requirements are not addressed by VAS or are treated differently under the Enterprise Accounting System, specifically:
• Under the Enterprise Accounting System and financial mechanisms, businesses are allowed to create provisions for investments in subsidiaries, joint ventures, and associates if these companies incur losses. However, the value of impaired investments may exceed the loss of the companies for the period.
• Goodwill is amortized over 10 years according to VAS, while IFRS requires the annual impairment loss to be determined, rather than being calculated on a straight-line basis.
Regulations on business combination transactions
Goodwill
IFRS 3 requires that goodwill arising from the acquisition of a subsidiary be calculated for both the parent company’s share and the non-controlling interest, while VAS 11 only requires recognition of goodwill for the parent company’s share.
In business combinations occurring over multiple stages, IFRS 3 stipulates that goodwill is determined only once at the acquisition date, and that goodwill must be calculated based on the subsidiary’s net assets at the control date. It also requires that the parent company’s previous investments be revalued at fair value at the control date.
VAS requires that the value of goodwill be the total goodwill arising from each exchange transaction, meaning that the subsidiary’s net assets are determined at each exchange date, and it does not require revaluation of the parent company’s previous investments at fair value on the control date.
Non-controlling Interest
IFRS 3 requires that the non-controlling interest be recognized in proportion to their share of losses, even if the loss exceeds the non-controlling interest’s share of the subsidiary’s net assets (meaning that the non-controlling interest can have a negative balance).
VAS 11 only allows recognition of the non-controlling interest’s share of losses up to the value of the net assets they own (negative balances are not allowed).
Other transactions
Some transactions lack recognition basis due to the absence of relevant standards in VAS, such as:
• There is no basis for recognizing transactions related to share-based payments or employee benefits;
• Biological assets and agricultural products are currently recognized and presented together with inventory or fixed assets, rather than being separately recognized.
Functional currency
IAS 21 clearly defines the functional currency and distinguishes it from the reporting currency. Essentially, the functional currency is the currency used for accounting records.
VAS has not clarified the distinction between the functional currency and the reporting currency.
Determining the relationship between the investor and the investe
When determining the relationship between the investor and the investee, IFRS requires considering the impact of potential voting rights, while VAS only refers to current voting rights and does not take potential voting rights into account.
Statement of changes in equity
IAS 1 requires that a company’s financial reporting system include a statement of changes in equity. However, VAS 21 only requires this statement to be presented as a part of the notes to the financial statements.
Other comprehensive income (OCI)
VAS does not address the statement of other comprehensive income (OCI).
IAS 21 requires businesses to present other comprehensive income in one of two formats: as a separate statement or as part of the income statement.
In essence, there are certain items that meet the definition of income or expenses because they alter the equity capital but are not recognized in the income statement. Instead, they are presented in the statement of other comprehensive income, such as:
• Revaluation of fixed assets when using the revaluation model;
• Exchange differences resulting from the conversion of the functional currency into the reporting currency;
• Gains and losses recognized in employee benefit programs with defined benefits;
• Gains and losses from the revaluation of financial assets available for sale;
• The effective portion of gains and losses from hedging instruments in cash flow hedges.
Presentation of biological assets, agricultural products at the time of harvest that have not been processed,
and non-current assets held for sale
IAS 41 requires that biological assets, such as timber-producing trees, breeding livestock, and agricultural products at the time of harvest, be presented separately from inventory and fixed assets. Additionally, IAS 2 and IAS 16 explicitly exclude these assets from their scope of application.
Since no agricultural standard has been issued under VAS, biological assets and agricultural products at the time of harvest are currently presented together with either inventory or fixed assets under VAS.
Financial reporting in hyperinflationary economies
IAS has specific standards for presenting financial statements in hyperinflationary economies, whereas Vietnam does not have requirements on this issue. However, this difference does not have a significant impact in practice, as the Vietnamese economy is not in a hyperinflationary state. Therefore, the lack of this standard does not fundamentally affect the financial statements of businesses.
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