IFRS transition roadmap Vietnam

For many foreign-invested businesses, financial reporting in Vietnam has traditionally meant working with local accounting requirements while also preparing information for a parent company overseas. As Vietnam moves closer to wider use of international accounting standards, finance teams have another task to consider: how to prepare their reporting process for IFRS without creating unnecessary disruption.

I. What are IFRS Financial Reporting Standards?

IFRS stands for International Financial Reporting Standards, which are international financial reporting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB).

IFRS represents a step forward in standardizing the language used in accounting and reporting to help investors analyze and plan finances systematically. These standards also emphasize transparency, stable growth, and sustainability for the financial market. The widespread and consistent application of IFRS globally is expected to save budget for accounting, analysis, and comparison work.

Financial reporting transformation

II. Why is IFRS necessary?

Currently, 131 out of 143 countries and territories have officially adopted IFRS in various forms. In Europe alone, 31 member states and 5 territories have fully adopted these standards.

In Vietnam, the VAS standards have revealed many limitations in the quality of financial reporting of enterprises. Simultaneously, the government’s policy of promoting FDI, developing private economic groups, building a transparent and fair competitive financial environment, reducing state-related costs and institutional risks… makes the application of IFRS an urgent requirement to overcome the shortcomings of the current accounting standards system, satisfy the requirements of institutional reform, and international integration.

III. What is the roadmap for IFRS adoption in Vietnam?

Globally, the roadmap for IFRS adoption typically takes 2 to 3 years after the government publishes the standard translation or adoption roadmap to allow businesses time to prepare. Regarding the application method, countries usually apply IFRS in full, in part, or with adjustments (only updating the national accounting standards system to closely approximate IFRS).

In Vietnam, the application of IFRS will be developed using an approach that closely approximates IFRS, striving to be as close to IFRS as possible.

The target group will include businesses that have the need, capability, and resources to apply IFRS, as determined by a suitable published roadmap, and businesses in all sectors in Vietnam except small and medium-sized enterprises, training institutions, professional associations, accounting and auditing service providers, and state management agencies including: the Ministry of Finance and related units.

IFRS compliance for FDI

The Ministry of Finance has outlined three phases:

  • Preparation phase (2019 to 2021) with the following items: Completion of IFRS translation into Vietnamese (by December 2020); Issuance of Circular announcing the Vietnamese translation of IFRS (March 2021); Issuance of Circular guiding the procedures for applying IFRS (Before November 15, 2021).
  • Voluntary application phase (2022 – 2025).
  • Mandatory application phase (From after 2025).

IV. What should businesses do to prepare for IFRS application?

Faced with the transition from VAS financial statements to IFRS, the Ministry of Finance has offered advice on key solutions to help businesses prepare best.

1. Developing a strategy and budget

  • Determine the need for IFRS application.
  • Determine a specific plan and roadmap for application for your business.
  • Disclose information about the roadmap and application plan; Business leaders actively participate throughout the IFRS implementation process.
  • Establish communication channels with policy-making bodies, auditing firms, professional associations, and consultants.
  • Develop clear and consistent accounting policies between the parent company and its subsidiaries.
  • Define the boundaries between financial statements and tax reports, and internal management reports.
  • Allocate budgets for each task to be implemented.

2. Human Resource Training

  • Equip the Board of Directors and key management personnel with fundamental financial knowledge and understanding.
  • Change leadership mindset, enhance compliance awareness, and establish strong legal departments within enterprises.
  • Develop timely, systematic, continuous, and long-term human resource training plans for the accounting and finance departments, as well as other related departments such as strategic planning, business, and sales.
  • Leverage the knowledge, understanding, support, and resources from auditing firms, consulting firms, foreign investors, and professional associations.

3. Organizing the Accounting System and Establishing Coordination Regulations Between Departments

  • Establish a suitable and efficient accounting system from the parent company to subsidiaries and affiliated units.
  • Have dedicated personnel for IFRS and consolidated financial statements.
  • The finance, business, and sales departments maintain close relationships with the accounting department to ensure the provision of information on business models, economic contracts, and financial data.
  • Establish an internal review, inspection, and audit system.
  • Prepare data for explanation to state management and supervisory agencies when required.

4. Building an Information Technology System

  • Ensure the efficiency and effectiveness of internal management.
  • Ensure connectivity between the accounting and finance departments and other departments.
  • Ensure connectivity between the parent company and subsidiaries and affiliated units.
  • Accounting software needs to be automated.

If your company is reviewing IFRS readiness, planning a reporting transformation or assessing compliance requirements for an FDI operation, contact S4B Vietnam to discuss the support your business needs.

>>>Read more: New FDI regulations for foreign investors in Vietnam

S4B Vietnam

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  • Tel: +84 24 3974 4181
  • Email: service@s4b.com.vn

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