Navigating IFRS Adoption in Vietnam: Insights for Financial Leaders

In 2017, the IFRS Foundation and the World Bank collaborated to support developing economies adopting IFRS Standards. This cooperation aims to enhance transparency, accountability, and efficiency in financial reporting, which can attract investment and boost economic development.

As great as it sounds, it highlights a potential limitation of VAS for Vietnamese businesses looking to attract foreign capital and compete on a global scale. 

It is only natural that the adoption of IFRS in Vietnam presents a solution that enhances financial transparency and comparability for Vietnamese companies. The country has not fully adopted the standard, but many large Vietnamese companies have voluntarily done so. Some of the top reasons are: 

• To showcase their financial performance on a global platform, making it easier for international investors to understand their financial health and potential.
• Boosting investor confidence through the application of internationally recognized accounting practices.
• To unlock access to international capital markets, opening doors to new funding sources for growth and expansion. 

This article will serve as a guide for Vietnamese businesses navigating the process of IFRS adoption, addressing challenges, offering practical solutions, and ultimately empowering them to thrive in the international marketplace.

What is IFRS, and What Is Its Current Implementation Roadmap in Vietnam?

The International Financial Reporting Standards (IFRS) represent a globally recognized set of accounting principles that dictate how companies prepare their financial statements. 

To make it easier, just imagine IFRS as a universal language for financial reporting, allowing investors and analysts worldwide to compare the financial health of companies across different countries with ease. 

Recognizing the significance of IFRS in today's interconnected world, the Vietnamese government has embarked on a journey to adopt these standards. This process is designed to occur in stages, which allows businesses to adapt and prepare for full compliance.

Breakdown of the Vietnam IFRS Roadmap

There are three IFRS implementation stages. 

01. Awareness and Readiness (2019 - 2021)

This initial phase focused on raising awareness about IFRS among businesses and stakeholders. The Ministry of Finance (MoF) played a crucial role by:

• Publishing Vietnamese translations of IFRS standards.
• Developing guidelines for implementation.
• Conducting training programs to equip accounting professionals with the necessary knowledge of IFRS.

02. Voluntary IFRS Pilot Implementation (2022 - 2025)

This current stage allows specific entities to gain practical experience with IFRS before mandatory adoption. These entities include:

• State-owned enterprises (SOEs) and some foreign-invested companies (FDIs)
• Listed companies on the Vietnamese stock exchanges
• Large-scale unlisted public companies pre-approved by the MoF

03. Compulsory Application (From 2025 onwards)

Following the pilot program, IFRS adoption will become mandatory for all entities meeting the criteria outlined by the MoF. Companies will need to prepare their consolidated financial statements under IFRS, ensuring complete transparency and global comparability.

For more information, decision 345/QD-BTC-2020, issued by the MoF in March 2020, provides a comprehensive framework for this roadmap. By understanding these stages and key milestones, you can effectively plan and prepare your business for a smooth transition to IFRS. 

VAS vs. IFRS: Key Differences

The transition from Vietnamese Accounting Standards (VAS) to International Financial Reporting Standards (IFRS) represents a significant shift for businesses operating in Vietnam. 

While both sets of standards aim to provide a framework for financial reporting,  key differences exist between them, impacting the accuracy and transparency of financial statements. Some crucial areas of divergence are the following:

Implications for Financial Reporting

The adoption of IFRS offers Vietnamese businesses a multitude of advantages, particularly in attracting foreign capital and fostering greater transparency. It can open doors to new sources of funding and fuel business growth in the international marketplace.  

By adhering to IFRS, financial statements will reflect a more accurate representation of a company's financial position and performance, utilizing internationally recognized accounting principles. 

This increased transparency allows for greater comparability with financial statements prepared by international companies using IFRS. 

As a result, investors gain a clearer picture of a company's financial health and potential, ultimately enhancing investor confidence by demonstrating a commitment to global accounting standards. 

Navigating the Road to IFRS: Addressing Common Challenges

To prevent future hurdles, understanding the adoption challenges for IFRS readiness preparation is crucial for a smooth and successful implementation . Let's delve into some of the most common concerns you might have:

01.  Implementation cost 

Shifting from VAS to IFRS requires investment in various areas such as:

• System upgrades:  Your existing accounting software  might need modifications or replacements to prepare financial statements according to IFRS standards.
• Training and capacity building:  Equipping your accounting team with the necessary knowledge and skills to apply IFRS is essential. 
• External support:  Seeking guidance from IFRS consultants or advisors can ensure a smooth transition and mitigate potential risks.

02. Lack of Expertise

IFRS adoption demands a deeper understanding of complex accounting principles.  Vietnam's accounting workforce might not yet have a widespread familiarity with IFRS.  This gap can be addressed by:

• Investing in training programs:  Providing comprehensive training for your accounting team on IFRS implementation and best practices.
• Collaboration with IFRS professionals:  Partnering with external advisors who possess in-depth expertise in IFRS standards.

03. Differences in Business Practices

IFRS standards might necessitate adjustments to existing business practices to align with their reporting requirements. For example, IFRS emphasizes fair value measurement, which could differ from historical cost-based approaches commonly used under VAS.

04. Integration with Existing Systems

Your current accounting systems may need to be integrated with new tools or processes to accommodate IFRS reporting needs. This can involve data migration, system configuration, and potential customizations.

05. Legal and Regulatory Framework

The legal framework in Vietnam is still evolving to embrace IFRS fully. This means there might be some temporary discrepancies or uncertainties that need to be monitored and addressed as regulations adapt.

06. Fair Value Measurement

The capital market and financial market in Vietnam are not yet sufficiently developed to support the fair value measurement required by IFRS. This can lead to difficulties in determining fair values and impairment of assets.

07. Additional challenges

Beyond the core challenges, here are some things worth considering:

• Potential for dual reporting:  The tax audit method in Vietnam is still based on VAS reports. Therefore, during the initial stages, businesses might need to prepare statements under both VAS and IFRS, adding to the workload.
• Impact on smaller businesses: The cost and complexity of IFRS adoption might pose a greater challenge for smaller enterprises with limited resources.

Remember, these challenges are not insurmountable. With careful planning, proactive measures, and the right guidance, your business can navigate the transition to IFRS successfully. The next section will offer practical advice on navigating these challenges and maximizing the benefits of IFRS adoption.

Preparing for IFRS: Readiness Strategies

The road to successful IFRS adoption requires a proactive approach. As promised, we will equip you with essential strategies to prepare your organization for the transition and maximize its benefits.

01. Assess Your Organizational Readiness

Before embarking on the IFRS adoption journey, it's crucial to understand your company's current state of preparedness. We have just the framework for conducting a thorough assessment:

• Gap analysis: Compare your existing accounting practices with the requirements of IFRS standards. Identify areas where significant adjustments or system modifications might be needed.
• Data quality evaluation: Ensure the accuracy and completeness of your financial data. Clean and reliable data will be essential for seamless IFRS reporting.
• Human resources assessment: Evaluate the skills and knowledge of your accounting team. Identify training needs to ensure they possess the necessary expertise for IFRS implementation.
• IT infrastructure review: Assess the compatibility of your current accounting software with IFRS reporting requirements. Consider any upgrades or integrations that might be necessary.

02. Prioritize Training and Capacity Building

Equipping your accounting team with the knowledge and skills required for IFRS adoption is paramount. Some strategies you can consider for your accounting department are as follows:

• Develop a comprehensive training program: This program should cover the fundamentals of IFRS, focusing on specific areas relevant to your business operations.
• Invest in professional development opportunities: Encourage your team to participate in IFRS workshops, seminars, or certification programs offered by reputable institutions.
• Seek guidance from IFRS experts: Collaborate with consultants or advisors specializing in IFRS implementation to provide ongoing support and address any technical complexities.

03. Collaboration with Auditors and Regulators

Maintaining open communication with your external auditors and relevant regulatory bodies is crucial throughout the IFRS adoption process.

• Engage your auditors early on: Discuss your IFRS implementation plans with your auditors. Their insights can help you identify potential challenges and ensure compliance with reporting requirements.
• Stay updated on regulatory developments: The Ministry of Finance (MoF) is actively developing the legal framework for IFRS in Vietnam. Monitor regulatory updates and seek clarification if needed. 

Additional Strategies

• Develop a clear implementation roadmap: Define key milestones, timelines, and responsibilities for each stage of the transition process.
• Establish strong internal communication: Keep all stakeholders informed about the progress of IFRS adoption and address any concerns they might have.
• Leverage technology: Explore and implement technology solutions like Odoo ERP that can streamline IFRS reporting and data management processes.

Embracing IFRS for a Brighter Financial Future in Vietnam: A Summary

We've established that VAS, while serving Vietnam well domestically, may limit a company's ability to compete and attract foreign investment in today's globalized economy. 

VAS transition to IFRS presents a strategic opportunity for Vietnamese businesses to:

• Enhance transparency and comparability: Financial statements prepared under IFRS adhere to a common set of accounting principles, allowing investors worldwide to readily compare a company's financial health to its international counterparts. This transparency fosters trust and confidence in the Vietnamese market.
• Unlock access to international capital markets: By adopting IFRS, Vietnamese companies demonstrate a commitment to global accounting standards. This can significantly improve their attractiveness to foreign investors, opening doors to new sources of funding and fueling business growth on a global scale.
• Future-proof your business: The world is increasingly interconnected, and IFRS adoption positions Vietnamese businesses for success in this dynamic environment. By aligning with international accounting practices, companies can navigate the global marketplace with greater ease and confidence.

With careful planning, proactive measures, and the right guidance, Vietnamese companies can turn IFRS adoption into a springboard for international expansion and long-term financial success.

Are you ready to embark on your IFRS journey through technology intervention? Contact our team of experts to connect with our team experienced in IFRS-proofing Odoo in Vietnam and worldwide.