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4 key considerations for a successful transition to IFRS

When transitioning to IFRS, businesses need to pay attention to four key issues to ensure success. According to statistics from the State Securities Commission, the market capitalization of the stock market in September 2021 exceeded 8.3 quadrillion Vietnamese dong, accounting for 133.83% of the GDP and increasing by 24.48% compared to the same period the previous year. With the strong development of the stock market, including the participation of foreign investors and the increasing number of Vietnamese companies planning to list on international stock exchanges, there is a growing demand to narrow the gap between VAS (Vietnamese Accounting Standards) and IFRS (International Financial Reporting Standards).

Table of contents:

  1. Benefits of Transitioning IFRS for Businesses

  2. Challenges in Transitioning to IFRS

  3. 4 Key Considerations for a Successful Transition to IFRS

  4. Reasons for choosing IFRS Conversion Services at RSM Vietnam

IFRS Transitioning

1. Benefits of transitioning IFRS for businesses

The transition to IFRS in Vietnam holds significant importance in helping businesses integrate further into the international financial market and attract foreign direct investment (FDI). Additionally, adopting IFRS provides business owners with a better understanding of their company's value, especially in transactions such as mergers, acquisitions, and attracting new shareholders. Companies need to have comprehensive, transparent, accurate, and reliable financial statements following IFRS.

Transitioning to IFRS not only enhances the ability to attract FDI but also significantly reduces the costs of issuing stocks and bonds for capital mobilization, as the credit rating threshold has been raised. Foreign investors will no longer have suspicions about "window dressing" financial reports, reducing risks for investors. With financial statements prepared according to IFRS, information becomes transparent, and the accountability of companies becomes clearer.

A survey by the IASB has shown that IFRS has helped enhance the efficiency of capital markets and promote global investments. Additionally, the European Union (EU) community has assessed that after 10 years of applying IFRS, a common accounting language has been established for the capital markets.

2. Challenges in transitioning to IFFRS

The transition to IFRS brings about positive impacts for businesses but also comes with significant challenges. Converting to IFRS is not just an accounting task but affects all aspects of an organization's operations.

Real-world experiences in many countries around the world have shown that failure to accurately identify the complexity of the conversion process has led many businesses to encounter difficulties, and in some cases, even fail in their transition to IFRS. To successfully transition to IFRS, numerous changes within the organization are required, as well as understanding and collaboration among various departments. The main challenges to consider when converting to IFRS include:

Human Resource

In Vietnam, the availability of qualified and prepared human resources for IFRS implementation is still very limited. The shortage of qualified personnel is not limited to the accounting department but also extends to the company's leadership, as they are responsible for approving financial reports.

To implement IFRS, businesses will need to establish separate teams composed of employees who have received in-depth training in IFRS. Additionally, these personnel should have a reasonably high level of English proficiency to independently research IFRS regulations and interpretations in cases where comprehensive guidance in Vietnamese has not yet been issued.

Furthermore, according to Decision No. 345/QD-BTC, companies applying IFRS are required to prepare consolidated financial statements in accordance with IFRS. This means that subsidiary companies and affiliated companies will also need to prepare financial statements for the consolidation purposes of the parent company under IFRS. Therefore, not only the parent company but also subsidiary and affiliated companies will need to recruit and train accounting professionals capable of preparing financial information for consolidation purposes in compliance with IFRS.

It is evident that meeting the human resource requirements for IFRS conversion is a challenging task for many businesses today. In reality, the majority of professionals with in-depth training in IFRS work in auditing firms because they have many clients who apply IFRS, and some firms are members of international audit networks. This is why businesses should collaborate with reputable audit organizations to provide their management teams and employees with comprehensive knowledge and access professional IFRS financial reporting services. This approach will help businesses save time and recruitment costs while ensuring access to the appropriate human resources.

Impact on financial statements when adopting IFRS for the first time

When preparing financial statements for the first year under IFRS, a company needs to be prepared to face negative impacts on financial statements due to significant differences between VAS and IFRS.

When companies prepare separate financial statements under VAS and consolidated financial statements under IFRS, there can be differences in profit or loss. According to the separate VAS financial statements, a company may show a profit, but under IFRS, it might incur a loss. Consequently, the company may not be able to distribute profits to shareholders because, according to Vietnamese regulations, the profit after tax used for dividend distribution is calculated based on the smaller of the profits reported in separate and consolidated financial statements.

First Transition of IFRS

Information technology system

To prepare financial statements in accordance with IFRS, companies need to establish and maintain an accounting software system and records in compliance with IFRS. In Vietnam, during the initial transition to IFRS, companies continue to prepare separate financial statements under VAS and only produce consolidated financial statements under IFRS. Companies have two options: manually create conversion entries from VAS to IFRS to temporarily serve the purpose of preparing financial statements under IFRS based on VAS or implement an accounting software system capable of accounting for both IFRS and VAS concurrently. However, implementing such software incurs significant costs and requires human resources. This is why many companies opt for solutions involving IFRS conversion services from international audit and consulting firms.

3. 4 key considerations for a Successful Transition to IFRS

Starting early: Companies need to have an early IFRS conversion roadmap to plan for changes in business processes, human resources recruitment, and financial resources. They should not wait until the mandatory application period after 2025 to begin preparations. According to the experience of IFRS experts at RSM Vietnam, the initial implementation of IFRS will take at least 2-3 years for training and the preparation of financial reporting data in accordance with IFRS.

Dedicated conversion project team: IFRS conversion is a complex process that requires coordination among multiple departments and leadership. Therefore, companies need to establish a dedicated project team that includes members of the leadership team as well as the participation of departments such as accounting, business, legal, information technology, and more.

Training an accounting team with IFRS knowledge: Companies need to recruit and train an accounting team with knowledge of IFRS in both the parent company and its subsidiaries within the group. This helps ensure that the preparation of consolidated financial statements in accordance with IFRS is carried out efficiently and accurately.

Utilizing IFRS conversion consulting services from professional firms: To save costs related to software setup or training specialized IFRS personnel, businesses should consider using IFRS support services from reputable firms in the market. When working with experienced audit and consulting firms, companies will receive timely assistance with critical technical issues when preparing financial statements in accordance with IFRS.

4. Reasons for choosing IFRS conversion service at RSM Vietnam

At RSM Vietnam, we have a team of IFRS experts who are directly involved in drafting, researching, implementing, and reviewing IFRS projects in Vietnam under the supervision of the Ministry of Finance in accordance with Decision 345/QD-BTC. Additionally, we have experts in IAS/IFRS who have been converting financial statements to IAS/IFRS for major state-owned corporations since 1999.

Our team of IFRS experts at RSM Vietnam is here to assist and guide your business in addressing the complex underlying issues of IFRS. Our IFRS services include:

  • Conversion of financial statements from VAS to IFRS

  • IFRS financial statement audits

  • Complex accounting advisory

  • Training and IFRS updates

>>> Read more IFRS conversion services


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