Adapting to economic globalisation: From VAS to IFRS accounting

Posted by Thuy Tien Tran on

Globalisation has made the transition from VAS accounting to IFRS accounting a pressing issue for many organisations. It does not only apply to global companies operating in Vietnam but also to Vietnamese companies with foreign capital investment, which helps increase mutual understanding and trust for foreign investors, who do not have an insider’s knowledge of VAS.

IFRS accounting

Why are companies not yet willing to adopt International financial reporting standards IFRS?

  • Costs of IFRS adoption: Although IFRS increases financial visibility for financial report users across the world, some might think that IFRS is too complicated.  Also, to some SMEs, investing in IFRS financial accounting is costly, in terms of training and hiring qualified accountants as well as upgrading technologies to accommodate the new financial reporting standards. However, these should not be considered as disadvantages when it comes to long-term business growth.
  • Fundamental difference between VAS and IFRS accounting: The major cause of hesitation is the fundamental gaps between VAS and IFRS. For instance, the former one leans on a historical value basis, while the latter does on a fair value basis. Though it is not easy to define the fair value in certain cases, especially in the Vietnamese market context, this concept has been widely supported. Recording based on historical value basis will not give a proper view on financial situation of the business, especially for assets, whose fair value fluctuates over time, such as land and building, equipment, etc. Generally, companies in Vietnam adopting IFRS need to run parallel systems for both VAS and IFRS accounting.
  • Lack of treatment for certain items in VAS: According to Deloitte, VAS was based on IAS accounting standards that was issued from 2003 backward and VAS has not adopted any of the new IFRS or the IASB's amendments to IAS accounting standards. IFRS financial accounting includes the treatment for certain items that VAS does not have. For example, VAS has not addressed the issue of Share-based Payment transactions (IFRS 2) although equity instruments have been commonly utilised by many companies. Also, it is usual for large companies to have investments in separate projects or subsidiaries on a temporary basis, and to hold them for disposal but there is still a lack of treatment defined by VAS for Non-current assets held for sale and discontinued operations (IFRS 5). In addition, VAS has not yet defined treatments for financial instrument as IFRS 9 has.
  • Other obstacles: Translating accounting terminologies from Vietnamese to English is also challenging. Besides, like IAS, IFRS can be amended or terminated by IASB; thus, companies have to update frequently to catch up with such changes.

Why should companies be more open to IFRS adoption?

The transition from VAS to IFRS requires that new concepts be established and old concepts be changed. Companies moving from VAS accounting to IFRS accounting will have to equip themselves with the necessary knowledge to handle transactional information for detailed records and disclosures, as more strictly required by IFRS. Although this takes time and effort, adopting IFRS will lead to many benefits. Under the consistent financial reporting standards of IFRS, company’s financial position is reflected more accurately and consistently, allowing worldwide managers and investors to make better decisions. Furthermore, using IFRS accounting can help companies have a better understanding of its value in the global market. This is especially beneficial when it comes to mergers and acquisitions, comparison with competitors, forging cooperation with foreign partners and attracting foreign investors.

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Topics: Financial consolidation, planning and reporting, IFRS

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