|By Phan Vo Dang Khoa - Assurance manager Deloitte Vietnam |
International Financial Reporting Standards (IFRS) conversion helps enterprises meet investor requirements and enhances the role of corporate governance.
According to a report from the International Accounting Standards Board, more than 130 countries and territories require domestic listed companies to report and prepare financial statements under IFRS, with although about 90 countries having fully conformed.
The application of IFRS varies among countries. Some allow it to be applied to both subsidiaries’ financial statements and corporation’s consolidated financial statements, while others only apply it in the latter case. Countries that have not yet allowed IFRS tend to adjust their national reporting standards to be closer to it.
Allowing IFRS depends on development conditions and the actual situation of each country. However, the general intention is applying it to companies that have a public interest and letting other companies choose to either apply national reporting standards or to apply IFRS voluntarily.
In March, the Ministry of Finance (MoF) promulgated Decision 345, placing Vietnam on the map of countries and territories applying this global accounting and business language.
Positive signals on adoption
The Ho Chi Minh City Stock Exchange (HSX) and Deloitte Vietnam co-conducted an assessment to measure the readiness and challenges enterprises face in applying IFRS. 53 per cent of responses came from chief accountants and 33 per cent from C-level management.
The survey results are quite positive, as more than half of enterprises said that they have or are preparing to convert to IFRS while 55 per cent of firms that are preparing or have not yet applied IFRS said that they would adopt it before 2025 – the last year of the voluntary adoption phase.
The rate of voluntary adoption is expected to increase in the following years. This short-term response also shows a positive reception of Decision 345.
The industries partially converted to IFRS or in preparation phases are banking and financial services due to listing and special reporting requirements, Vietnam’s focused industries like energy, and strategic sectors such as insurance, investment management, technology, and telecommunications.
There are surprisingly positive moves in education and training to prepare for IFRS as many universities and professional bodies have added IFRS content to their undergraduate and graduate programmes.
Foreign-invested enterprises are the largest group of participants, followed by listed companies, large-scale public enterprises, and state-owned economic groups. These four groups account for more than 70 per cent of survey participants.
These groups obviously have a certain level of interest in the changes in accounting policies as new policies directly affect their financial indicators and operating results.
Generally, the adoption of new accounting policies helps their financial statements appear more credible and transparent for foreign investors. For domestic enterprises, the application of a new accounting policy opens up opportunities to create external disclosures, increase the level of prestige and position of the firms in the international market, and create appeal when it comes to certain competition.
The obstacles to application
The successful application of IFRS in Vietnam requires not only the coordination of the MoF, the State Securities Commission, and related enterprises but also support and consultancy from software companies and auditing firms. However, businesses themselves also need to adjust their own perception and resources.
The first difficulty is support from business leaders. The biggest challenge in IFRS adoption involves getting resources and support from C-suite levels. This issue stems from the IFRS conversion being seen as an accounting/auditing concern, rather than of a management matter. IFRS conversion will be a major business challenge, especially when it is seen as a compulsory term rather than a managerial strategy, not to mention the cost involved in the conversion.
For public enterprises, IFRS conversion is more like a framework transformation than for private ones, which are often viewed negatively. A typical lack of senior management support is met when the financial statement preparers have to interact with different functions of the firm.
The second one is about the accounting team’s adaptation ability to IFRS. Currently, in Vietnam, local enterprises have a shortage of human resources, skills, experience, and time to adapt to IFRS which leads to limited options. The majority of enterprises publishing their financial statements face problems in implementation due to little experience.
Challenging as it could be, training sessions and knowledge dissemination need to be done before the conversion. Compared to Vietnamese accounting standards, IFRS evaluation tends to be more subjective rather than rules-based and each IFRS has a different explanation that the government can choose to allow or not.
The last obstacle is the growing cost of accounting and system transformation, as well as maintaining cost for dual reporting. Due to the lack of appropriate manpower, businesses have to outsource to consulting and auditing firms, increasing conversion costs. The incurred costs to adjust the internal control system to meet the IFRS requirements are also a concern.
Businesses can be overwhelmed by the costs and unable to realise the benefits that IFRS brings, which may cause undue competition over adoption. The transformation should be seen as a necessary change in investment strategy for future business operations.