Roadmap for the Adoption of IFRS in Vietnam and Key Considerations

1. Roadmap for the Adoption of IFRS in Vietnam

(Source: Decision No. 345/QĐ-BTC)

2. Issues Enterprises Need to Consider When Planning to Apply International Financial Reporting Standards (IFRS)

2.1. Consider the Benefits, Costs, and Changes When Applying IFRS

Benefits of Applying International Financial Reporting Standards (IFRS):

• The quality of the enterprise’s financial statements (FS) will be significantly improved, as the information presented on the FS will be more complete and relevant compared to current standards. This will help businesses build credibility in the market as well as improve governance and operational efficiency.
• Enterprises will encounter fewer barriers in international transactions, as foreign partners can more easily understand the information presented in the enterprise’s FS.
• Foreign Direct Investment (FDI) enterprises in Vietnam will reduce the costs of converting financial statements prepared under VAS to IFRS, enabling alignment with the parent company abroad.

However, Before Deciding to Apply International Financial Reporting Standards (IFRS), Enterprises Must Consider:

a. Cost and Benefit Issues: To convert and operate the accounting system and prepare FS under IFRS, enterprises must make significant investments (costs, time, effort) to upgrade/adjust related components such as: staff expertise, accounting information systems, accounting policies, data infrastructure, data conversion processes, business contracts with partners. These costs will depend on the current capacity of the enterprise; the further away from the minimum required level, the higher the cost. Enterprises need to estimate these costs and compare them with the benefits gained before making a decision.

b. And the Following Key Changes:

• The tax base will differ from that used by tax authorities. When applying IFRS, some transactions are recorded and presented in FS under methods different from those used by the tax authorities (which typically use historical cost). This leads to discrepancies between the accounting data under IFRS and the tax base used by tax authorities. This creates one of the biggest challenges in maintaining parallel accounting records under IFRS and separate ledgers to comply with tax bases, especially for deferred tax items arising from these differences.
• Terms in economic contracts may need to be adjusted to align with IFRS. According to this, the accounting and legal teams will need to review contract clauses to determine whether ownership, legal rights, and related IFRS regulations are correctly and sufficiently reflected, ensuring the appropriate basis for accounting treatment.
• Enterprises must be prepared to comply with requirements for providing complete and detailed information according to IFRS standards. The amount of information required by IFRS is significantly greater than that under Vietnam Accounting Standards (VAS). Therefore, the accounting department must coordinate closely with other departments within the enterprise to collect sufficient information as required. For example:
  • IFRS 15 – Revenue from Contracts with Customers: Requires the application of a comprehensive revenue recognition model, requiring the accounting department to deeply understand the terms related to the provision of goods and services in revenue contracts, coordinate with related departments (sales, delivery, customer service, etc.) to collect complete information for accounting, as well as identify and process any necessary contract modifications.
  • IAS 19 – Employee Benefits: Requires recognition and disclosure of all obligations arising from employee benefits, demanding that the accounting department understand the company’s applied employee benefit policies, and thus coordinate with the HR department to collect complete information for accounting.

2.2. Identify the First Reporting Period under IFRS to Develop a Corresponding Disclosure Roadmap

Once the decision has been made to apply IFRS, the next step for the enterprise is to determine the first year of IFRS adoption, as this will affect disclosure requirements in previous years (see also IFRS 1).

Example: If 2026 is identified as the first reporting year under IFRS, then the disclosure roadmap would be as follows:

• 2023: Disclose in the financial statements (FS) the anticipated impacts of the transition process to IFRS.
• 2024: Disclose in the FS the projected and assessed impact levels of the transition process to IFRS.
• 2025:
  • Present the opening balance sheet data as of the transition date (01/01/2025).
  • Present comparative data for the entire financial year (2025).
  • Disclose the “Notes to the Financial Statements” for the Transition Year, in Compliance with IFRS 1 – First-time Adoption of IFRS
• 2026: First Reporting Period under International Financial Reporting Standards (IFRS)

2.3. If Deciding to Apply IFRS, Enterprises Should Gradually Prepare the Following Key Areas:

First, the enterprise should conduct a review and identify the gaps between Vietnamese Accounting Standards (VAS) and International Financial Reporting Standards (IFRS) in the context of its own operations. This will enable the development of preparation plans that are both appropriate and effective. (Refer to the comparison between Vietnamese Accounting Standards and International Financial Reporting Standards (IFRS)).

Depending on the scale of operations, industry sector, and stage of development, these gaps will differ among enterprises. Accordingly, the level of investment (in terms of cost, time, human resources, and physical resources) required for the application of IFRS should be aligned to ensure efficiency, rather than spreading investments thinly.

However, in general, the key preparation areas will typically include the following:

• Develop a Data Conversion Process from Vietnamese Accounting Standards (VAS) to International Financial Reporting Standards (IFRS), in Compliance with IFRS 1 – First-time Adoption of IFRS. This standard is issued for entities preparing financial statements under IFRS for the first time. Accordingly, Vietnamese enterprises will apply the guidance in this standard to convert their financial statements for the first time to IFRS, following the Ministry of Finance’s roadmap. The data conversion requires a step-by-step implementation process and a sufficiently long preparation period to address all related matters. Enterprises are advised to engage IFRS experts or consultants to provide guidance and ensure the conversion is carried out accurately and effectively right from the start.

See the full standard here

See the step-by-step guidance on converting financial statements from VAS to IFRS here

• Enhance IFRS and Financial Knowledge for Relevant Personnel: It is essential to conduct training for all relevant personnel, not just accounting department staff, but also including the Board of Directors and key management personnel. This ensures that they can effectively coordinate with the accounting team when required to provide or explain related information and data. Enterprises should require their employees to participate in training programs focused on International Financial Reporting Standards (IFRS) and their practical application to ensure proper understanding and effective implementation across the organization.

For a Comprehensive and Systematic Understanding of International Financial Reporting Standards (IFRS), Please Refer here.

• Reorganize and Upgrade the Accounting Information System: Preparing financial statements under IFRS differs significantly in many aspects (including recognition, measurement, presentation, and disclosure). Therefore, enterprises must review and make necessary changes to the following components of their accounting information system to ensure alignment and stability when officially applying IFRS:
  • Develop a new chart of accounts and financial statement preparation processes that align with IFRS requirements.
  • Restructure the processes for data handling and consolidation from all related departments, and clearly define the responsibilities of each department in coordinating with the accounting team.
  • Reorganize the finance and accounting human resource structure to ensure that job roles align with the new requirements.
  • Upgrade accounting software and enterprise resource planning (ERP) systems to meet the higher standards and requirements of IFRS.
  • Enhance the supporting databases used for the measurement and determination of the value of financial statement items, in accordance with IFRS guidelines.

However, these changes should be implemented in a prioritized and sufficiently targeted manner, rather than consuming more resources than necessary. Therefore, enterprises are recommended to engage IFRS experts to support and advise on these matters to ensure efficiency.

• Adjust Economic Contract Terms with Partners:International Financial Reporting Standards (IFRS) impose stringent requirements for determining the obligations to transfer goods or complete services. As such, enterprises need to review their economic contracts with suppliers and customers and cross-check them against IFRS standards related to contracts to make appropriate adjustments. This process should involve the advice of IFRS experts and legal counsel to ensure accuracy and alignment from the outset
• Anticipate Potential Negative Impacts (If Any) on Financial Ratios When Financial Statements Are Converted to IFRS, and Prepare Appropriate Response Plans Early. For example: Assets being impaired due to fair value remeasurement, Liquidity ratios falling below thresholds, Revenue declining when recognized under the new accounting policies, etc.