Vietnam's Journey to IFRS: What Financial Leaders Need to Know

Vietnam's financial landscape is undergoing a significant transformation with the adoption of International Financial Reporting Standards (IFRS). This shift has had a profound impact on the way businesses report their financial information, bringing Vietnam's accounting practices in line with global standards.

The move towards IFRS adoption marks a crucial step in enhancing transparency and comparability in financial reporting across Vietnamese enterprises.

Be better prepared to navigate the changing regulatory landscape and leverage IFRS updates to improve your reporting with today’s article. So, read on!

Contents

The need for IFRS in Vietnam
Vietnam's IFRS roadmap
Challenges in IFRS implementation

Vietnam's Journey to IFRS: What Financial Leaders Need to Know

The need for IFRS in Vietnam

International Financial Reporting Standards (IFRS) have become a global standard for financial reporting, providing a common language for businesses to communicate financial information across borders.

Vietnam's financial landscape is evolving rapidly. As the country continues to integrate into the global economy, the need for IFRS has become increasingly apparent. The adoption certainly offers several key benefits.

Enhanced financial reporting quality

Companies that adopt IFRS provide more transparent and reliable financial insights to stakeholders. This enhanced transparency makes it easier for investors, creditors, and others to understand and compare financial performance across different entities and jurisdictions.

IFRS also has a positive impact on corporate governance. The adoption enables Vietnamese companies to strengthen their internal controls and risk management practices, leading to better decision-making processes and increased investor confidence.

Attract foreign investment

As the country positions itself as an attractive destination for international capital, aligning its financial reporting standards with global norms is crucial. Implementing IFRS signals to the international markets Vietnam's commitment to transparency and adherence to best practices. Vietnam's commitment to transparency and adherence to best practices.

Investors and creditors often prefer financial statements prepared under IFRS, as they provide more reliable and comprehensive information for making informed decisions. This preference can translate into better opportunities for Vietnamese companies to secure funding from international sources.

Align with global standards

Currently, IFRS is widely applied in more than 140 countries and territories around the world [source]. Joining this global community of IFRS adopters allows Vietnam to ensure that its financial reporting practices are consistent with international norms. This consistency has several advantages, including improved comparability of financial information across borders and enhanced credibility in the global financial markets.

For multinational companies operating in Vietnam, the transition will streamline their financial reporting processes, enabling seamless integration with their global operations. This alignment can minimise the complexity of preparing consolidated financial statements and enhance consistency across different jurisdictions.

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Vietnam's IFRS roadmap

The Vietnamese government has set a strategic plan to adopt IFRS by 2025. Vietnam's journey towards IFRS is a carefully planned process, divided into three key phases to ensure a smooth transition from the country’s existing Vietnamese Accounting Standards (VAS).

Preparation stage (2019-2021)

During this initial phase, the Ministry of Finance (MoF) focused on laying the groundwork for IFRS adoption. Key activities included:

Introducing a Vietnamese-translated version of IFRS to facilitate understanding and implementation.

Developing and issuing guidelines for applying IFRS, ensuring clarity for businesses and financial professionals.

Establishing relevant financial mechanisms to support the transition.

Providing human resource training and implementation processes for businesses to prepare for upcoming changes.

Voluntary stage (2022-2025)

The second phase of the IFRS roadmap allows for voluntary adoption by certain enterprises. During this period:

Companies with sufficient resources and a willingness to adopt IFRS can notify the MoF before voluntarily applying the standards to prepare consolidated financial statements.

Enterprises with 100% foreign direct investment (FDI) capital that are subsidiaries of foreign parent companies can also voluntarily apply IFRS to prepare single financial statements, provided they have the necessary resources and notify the MoF in advance.

This voluntary stage allows every business to experiment with IFRS adoption, evaluate its impact, and refine its transition processes. It also provides valuable insights for regulators and policymakers to assess the readiness of Vietnamese businesses for full IFRS implementation.

Compulsory stage (After 2025)

The final phase of the IFRS roadmap in Vietnam is set to begin after 2025. During this stage:

The MoF will assess the implementation of IFRS during the voluntary phase and consider the needs and readiness of enterprises, as well as current circumstances.

Based on this assessment, the MoF will provide regulations about methods and mandatory timelines for implementing IFRS to prepare consolidated financial statements for various groups of enterprises.

Companies not subject to compulsory implementation can still voluntarily apply IFRS to prepare single or consolidated financial statements if they have the necessary resources and notify the MoF in advance.

Nevertheless, the transition also presents countless challenges. As Vietnam progresses through this roadmap, financial leaders must stay informed about IFRS updates and prepare their organisations for this vital transition.

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Challenges in IFRS implementation

Cost considerations

The transition from VAS to IFRS requires significant investment in various areas. Companies need to allocate budgets for system upgrades, training programs, and potential external support.

The cost of switching to IFRS can be particularly high in the initial years, potentially impacting profits. This financial burden may make some listed parent companies hesitant to apply IFRS voluntarily.

Training and skill development

The transition to IFRS demands a deeper understanding of complex accounting principles. The current number of Vietnamese experts who understand and have experience with IFRS is limited. This shortage extends to university faculty members, many of whom have not been fully equipped with IFRS knowledge.

To mitigate this, companies need to invest in comprehensive training programs for their accounting teams. Establishing a continuous training plan is crucial to ensure employees stay up-to-date with IFRS updates. Collaboration with IFRS professionals and external advisors can also help bridge the knowledge gap during the transition period.

System and process changes

Implementing IFRS requires significant changes to existing accounting systems and processes. Many companies will need to upgrade or replace their current accounting software to prepare financial statements according to IFRS standards.

Companies that are in the process of implementing ERP systems should consider embedding functions relating to IFRS preparation. Those without ERP plans will still need to revise their existing information systems to capture the required IFRS information.

Regulatory alignment

The legal framework in Vietnam is still evolving to fully embrace IFRS, which may lead to temporary discrepancies or uncertainties. Unlike many countries with only two sets of documents (financial reporting standards and tax policies), Vietnam currently has three types of legal documents affecting a company's financial matters: financial reporting standards, tax policies, and financial mechanisms.

This overlapping and sometimes inconsistent approach stems from a lack of clear differentiation between the scope of these various policies. As a result, businesses may face situations where the same issue is treated differently under financial reporting standards and financial mechanisms.

To wrap up, the transition to IFRS in Vietnam requires substantial investments in training, system updates, and ongoing compliance efforts, but the long-term benefits for the country's financial ecosystem are promising.

Financial leaders in Vietnam must stay informed about IFRS updates and prepare their organisations for this crucial shift in reporting standards. The phased approach allows companies to adapt gradually, learning from early adopters and refining their processes.

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If you are looking to dive deeper into this topic, check out TRG International's other resources on IFRS.

IFRS 17’s Impacts on Insurers: A Comprehensive Analysis

IFRS 18 Explained: A Quick Guide in Under 900 Words

Transition from IFRS 4 to IFRS 17: Key Differences and Challenges

Almost Everything You Need to Know about IFRS: From GAAP/ VAS to IFRS

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