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TRG in the Board Room Blog

Rethinking the real value of annual financial reports in Vietnam

Posted by Rick Yvanovich on

Annual report – As sad as it may seem, the concept of preparing/using the document is still a grey area in Vietnam. According to the Ministry of Finance, to date there are 1,690 public companies in Vietnam, 704 of which are listed in 2 stock markets. However, in 2011, only 21 out of 695 listed companies sufficiently met mandatory regulations regarding information disclosure.

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Why annual report?

Preparing an accurate and transparent annual financial report is not only significant in building a company’s reputation but also in improving business and operation management. Once a company becomes a public listed, its mission to feed investors with complete information in a professional manner is crucial, not to mention compulsory. The format is similar to the 10-K form in the US, detailing a company’s history; statement from the chairman; report from the management board; financial review; footnotes to financial statements; audit report; report on related parties; report on organisation and human resources; information about shareholders/founder/board.

A harsh reality

An ACCA report (2012) on the perception of annual reports has pointed out some criticism from users in the UK, US and Canada. Specifically, the surveyed participants tend to think the annual financial report is too long, too backward looking, too complex (in terms of reporting standards and legal requirements) and too general purpose.

The landscape is quite different in Vietnam. Although there is no methodical research conducted on the matter, it has generally been agreed that transparency is the biggest problem of annual reports. There is an unhealthy amount of doubt about the document’s value to investors, or readers. The market is used to being spoon-fed with word of mouth or rumours rather than structured, audited reports from companies themselves. Hence, this provides fertile grounds for some organisations to dominate due to a lack of transparency, e.g. by hiring non-credited auditors to give their reports a shiny seal of approval, or bribing consulting firms to shed a favourable light on their customer satisfaction report.

Another issue is a sizeable number of companies have a vague idea of how to prepare annual financial reports. The data in these documents is not rich enough, with missing or inadequate information about risk management, proposed actions or investors’ relation.

A positive sign

Although annual reports have not been rightfully embraced, change is already on the way in Vietnam. A notable example is the Best Annual Report Award, which has been given to those with the highest quality reports (mostly in terms of transparency) over the past 5 years. The contest, currently open to listed companies, is hoped to grow to a national scale by 2015.

Stay tuned to our next blog post where we'll discuss about the points of caution when analysing the financial review of companies in Vietnam.

 

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Topics: Financial consolidation, planning and reporting, Financial Accounting Management Software

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 Rick Yvanovich
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