Currently, Vietnam has only issued 26 Vietnamese Accounting Standards (VAS), so there are still many standards lacking compared to international practices such as: standards on agriculture, mineral resource exploration and exploitation, financial instruments, fair value, and asset impairment.

When enterprises have economic transactions that fall under the above-mentioned standards, they face many difficulties in preparing and presenting financial statements due to the lack of a legal basis for accounting.

For more details, the following is a list of standards that VAS lacks compared to the international accounting standards IFRS. The article is excerpted from the Project to apply IFRS in Vietnam of the Ministry of Finance.

1. Regulations relating to the revaluation of assets and liabilities at fair value

The difference between VAS and IFRS in terms of fair value recognition is not at the time of initial recognition but at the time after initial recognition when the enterprise prepares and presents the financial statements.

At the reporting date, VAS requires most assets and liabilities to be recorded at their original cost. Changes in fair value are not reflected except in the case of revaluation of foreign currency-denominated monetary items.

There are some opinions that trading securities have been revalued at fair value in the form of provision for impairment. However, the provision for impairment is only a one-way recognition of changes in fair value (decrease) and is not a complete regulation on revaluation at fair value as IFRS. Some assets and liabilities that have not been valued at fair value under IFRS can be summarized as follows:

2. Regulations on recording at present value, current price, amortized value, discounting cash flows at effective interest rates

IFRS requires certain assets such as receivables and loans to be recorded at amortized cost based on the present value of future cash flows.

Although VAS mentions it, it is only in theory (in VAS 14). In practice, this issue has never been guided, so the nature of this content is still one of the differences between the two systems.

3. Regulations relating to fixed asset accounting

Original value of fixed asset

IFRS allows to include in the original cost of fixed assets costs that may arise in the future such as dismantling costs and site restoration costs of fixed assets, but VAS does not allow to record these costs as one of the elements constituting the original cost of fixed assets.

Revaluation of fixed assets at reporting time

IAS 16 allows businesses to revalue assets at reporting time, specifically:

• When the fixed asset is valued, the increased value is recorded in the capital source after offsetting all the asset losses recorded as expenses due to the previous decrease in value;
• When assessing the decrease in fixed assets to record asset losses, the decrease in assessment is recorded in expenses after offsetting all the amounts recorded in capital due to previous increase in assessment.

However, VAS 3 only allows re-evaluation of fixed assets in case of a decision by a State agency to contribute assets to joint ventures, associations, separations, or mergers.

4. Regulations on recording property losses

According to IAS 36, assets such as fixed assets, investment real estate, investments in subsidiaries, joint ventures, associates, biological assets, mining rights, cash-generating units, and goodwill must be assessed and recorded for loss (if any) in the income statement at the reporting date.

However, all of these requirements have not been mentioned by VAS or handled differently in the Enterprise Accounting Regime, specifically:

• According to the Enterprise Accounting Regime and Financial Mechanism, enterprises are allowed to make provisions for investments in subsidiaries, joint ventures and associates if these companies suffer losses. However, the value of lost investments may be higher than the losses of these companies during the period.
• Goodwill is amortized over 10 years under VAS but IFRS requires determination of the impairment annually rather than on a straight-line basis.

5. Regulations on property lease transactions

IFRS 16 does not distinguish between finance leases and operating leases. Instead, IFRS 16 distinguishes between leasing and providing services. This means that an entity is allowed to recognise both operating leases in its financial statements.

VAS 6 is still based on the old IAS 17, so all the changes of IFRS 16 create differences between the two systems.

6. Regulations on business combination transactions

Goodwill

IFRS 3 requires that goodwill arising from the acquisition of a subsidiary must be included in the non-controlling interest, while VAS 11 only requires recognition of the parent company’s ownership interest.

In a multi-stage business combination, IFRS 3 requires that goodwill be measured only once at the date of control. Accordingly, goodwill must be measured based on the net assets of the subsidiary at the date of control and the parent company’s previous investments must be revalued at fair value at the date of control.

VAS requires that goodwill be measured as the total value of goodwill arising at each exchange, i.e. the net assets of the subsidiary are measured at each exchange and does not require the parent company’s previous investments to be revalued at fair value at the date of control.

Non-controlling interest

IFRS 3 requires that non-controlling interests be recognised up to their share of losses, even if these losses exceed the non-controlling interest’s share of the net assets of the subsidiary (i.e. the non-controlling interest may be negative). VAS 11 only allows non-controlling interests to recognise losses up to the amount of their net assets (which are not negative).

Other transactions

Some transactions have not been recorded due to VAS lacking the prescribed Standards such as:

• There is no basis for recording stock-based payment transactions and employee benefits;
• Biological assets and agricultural products are currently required to be recognised and presented together with inventories or fixed assets and are not recognised separately.

8. Regulations on Financial Reporting

Functional currency

IAS 21 clearly defines the functional currency and distinguishes it from the reporting currency. The functional currency is essentially the accounting currency.

VAS does mention this, however, VAS has not clarified the difference between functional currency and reporting currency.

Define the relationship between the investor and the investee

When determining the relationship between an investor and an investee, IFRS requires taking into account the effect of potential voting rights, while VAS only refers to current voting rights without taking into account potential voting rights.

Other comprehensive income (OCI)

VAS does not mention comprehensive income statement.

IAS 21 requires an enterprise to present a statement of other comprehensive income in one of two forms: As a separate statement or as part of the statement of financial performance.

In essence, there are some items that meet the definition of income or expense due to changes in equity but are not recorded in the income statement, but are presented in other comprehensive income statements such as:

• Fixed asset revaluations when applying the revaluation model;
• Exchange differences due to conversion from functional currency to reporting currency;
• Gains and losses recognized in defined benefit employee benefit plans;
• Gains and losses from revaluation of available-for-sale financial assets;
• Effective gain and loss of hedging instruments in cash flow hedging.

Statement of changes in equity

IAS 1 requires that an enterprise’s financial reporting system include a statement of changes in equity, but VAS 21 only requires this statement to be presented as an item in the notes to the financial statements.

Presentation of biological assets, unprocessed agricultural products at harvest, long-term assets held for sale

IAS 41 requires biological assets, such as timber, breeding animals or agricultural produce at the point of harvest, to be presented separately from inventories and fixed assets. At the same time, IAS 02 and IAS 16 also exclude these assets from the scope of application.

Due to the lack of an Agricultural Standard, biological assets and agricultural products at harvest under VAS are currently presented as either inventories or fixed assets.

Financial reporting in a hyperinflationary economy

IAS has its own Standards for presenting financial statements in a hyperinflationary economy, while Vietnam has no requirements on this issue. However, this difference has not created a significant impact in practice because the Vietnamese economy has not fallen into a state of hyperinflation, so the failure to issue this Standard basically has no impact on the financial statements of enterprises.

IFRS Auditing and Consulting Company Limited
The company provides a wide range of services such as audit of financial statements, tax advice, accounting services and valuation services with leading experts working in large auditing firms, multinational corporations