In the context of global economic integration and the rapid development of financial markets, establishing and applying accounting standards is becoming increasingly important for all businesses. The two main accounting systems today are IFRS (International Financial Reporting Standards) and Vietnamese Accounting Standards (VAS). Each system has its own advantages, yet there are significant differences worth noting.
This article will help readers understand the similarities and differences between IFRS and VAS, thus realizing the benefits and challenges of applying these standards in financial reporting management. As a result, businesses and investors will have more solid grounds to choose and transition appropriately, aiming to enhance financial reporting quality and achieve international integration.
Overview of IFRS and Vietnamese Accounting Standards (VAS)
IFRS (International Financial Reporting Standards)
IFRS is a set of international accounting standards issued by the International Accounting Standards Board (IASB). This system is developed based on principles, allowing businesses flexibility in evaluating and handling economic transactions. IFRS aims to create transparent, comparable financial reports that accurately reflect the financial status of companies globally. Listed companies and those with international operations typically adopt IFRS to facilitate comparison and consolidation of financial statements.
Vietnamese Accounting Standards (VAS)
VAS is a set of accounting standards issued by the Ministry of Finance of Vietnam, based on the economic and legal conditions and the specific environment of domestic business. Initially, VAS was developed using a rule-based approach to ensure consistency in recording and reporting economic transactions. However, over time, as part of international integration, VAS has undergone improvements, gradually shifting towards a principle-based approach to increase flexibility and transparency. Nevertheless, VAS still retains some specific rules to match Vietnam's economic context.
Similarities Between IFRS and VAS
Despite their clear differences, IFRS and VAS share several important similarities:
Financial Reporting Objective: Both systems aim to provide accurate, complete, and useful financial information to users, including investors, creditors, and regulators. This common goal helps build trust and transparency in corporate financial management.
Financial Statement Structure: Both IFRS and VAS require businesses to prepare core financial statements, such as the balance sheet, income statement, cash flow statement, and explanatory notes on accounting policies. This allows users to easily track and compare a company's financial position.
Basic Principles: Principles such as fairness, consistency, prudence, and comparability are applied in both systems. These principles form the foundation for ensuring that financial reports accurately reflect the substance of economic transactions and provide relevant information to stakeholders.
Detailed Analysis of Differences Between IFRS and VAS
Although IFRS and VAS have many similarities, the differences between the two accounting frameworks play a significant role in shaping the quality and flexibility of financial reporting. Below is a detailed analysis of the differences:
Approach
IFRS – Principles-based Approach: IFRS is developed based on fundamental principles, offering businesses flexibility in evaluating and processing economic transactions. This allows companies to reflect the true nature of transactions according to actual business practices, even in diverse operational environments.
VAS – Rule-based Approach: Initially, VAS was built on specific regulations to ensure consistency in accounting practices. While it has gradually shifted toward a more principles-based approach, VAS still contains numerous detailed guidelines to align with Vietnam's economic and legal conditions.
Thanks to the flexibility of IFRS, businesses can apply evaluation criteria suited to their specific business situations, whereas VAS prioritizes consistency and easier control, particularly for small and medium-sized enterprises.
Asset and Liability Measurement and Evaluation Methods
IFRS – Emphasizing Fair Value: IFRS emphasizes the use of fair value in many areas, especially for financial assets, investment properties, and financial instruments. The use of fair value helps financial reports accurately reflect market conditions and economic fluctuations in real-time.
VAS – Based on Historical Cost: Traditionally, VAS primarily applies historical cost in recording and evaluating assets and liabilities. While there is a gradual shift towards greater transparency, this change requires standardization and internal synchronization, making it less widely applied compared to IFRS.
The preference for fair value under IFRS offers an advantage in accurately reflecting market conditions but can present challenges in measuring volatile factors. In contrast, the historical cost method in VAS helps maintain stability but may not fully reflect market fluctuations.
Disclosure Requirements
IFRS – Detailed and Transparent Disclosure: A major advantage of IFRS is the requirement for businesses to disclose all accounting policies, valuation assumptions, and risks related to transactions. This provides financial report users with a comprehensive view of the factors affecting business performance.
VAS – Limited Disclosure: Although VAS also requires businesses to explain their accounting policies and related information, the level of detail and transparency is often not as extensive as in IFRS. Due to the domestic legal and business environment, Vietnamese companies tend to adopt a more conservative approach to disclosure.
The detailed disclosure required by IFRS helps users gain a clearer understanding of the risks and factors affecting financial reports, fostering trust among stakeholders. On the other hand, the limited disclosure under VAS may sometimes hinder evaluating a company's financial situation from the perspective of international investors.
Handling Specific Issues
Research and Development Costs:
IFRS: Clear regulations on classifying, recognizing, and disclosing research and development costs. Companies need to assess the potential for future economic benefits and only recognize costs that are recoverable.
VAS: Generally adopts a more conservative approach, with specific limitations in recognizing research and development costs. As a result, businesses may not recognize all these investments in their financial statements.
Financial Instruments and Derivatives:
IFRS: Provides principles for measuring and disclosing detailed information on financial instruments and derivatives, helping financial report users identify risks and market fluctuations.
VAS: The handling of financial instruments is often less flexible and has not kept pace with the rapid changes in international financial markets. This can lead to discrepancies in reflecting risks and profitability in complex financial transactions.
Handling these specific issues according to IFRS enhances transparency and comparability of financial statements, while applying VAS ensures stability and consistency but may not fully capture modern business dynamics.
International Integration and Updates
IFRS – Continuously Updated: IFRS is constantly updated and adjusted according to global economic trends, with participation from various countries and international organizations. This helps the international accounting standards keep up with financial market changes, facilitating the consolidation of financial statements for multinational corporations.
VAS – Slower Transition Process: Although VAS is moving toward integration with IFRS, the transition is influenced by legal, infrastructure, and domestic economic factors. As a result, the update speed of VAS is often slower than IFRS, leading to some limitations in comparing financial reports with international companies.
Scope of Application
IFRS – Primarily for Large and Listed Companies: Companies with international operations or listed on stock exchanges typically apply IFRS to increase transparency and facilitate the comparison of financial statements with global competitors.
VAS – Commonly Used for Domestic Companies: Although many large domestic companies have switched to IFRS to improve financial reporting, most small and medium-sized enterprises still primarily apply VAS due to its suitability for Vietnam's operating environment.
Conclusion
An analysis of the similarities and differences between IFRS and Vietnamese Accounting Standards reveals that while both systems aim to provide transparent and accurate financial information, they have distinct advantages and disadvantages:
IFRS offers flexibility in transaction handling, prioritizes real values through fair value measurement, and requires detailed disclosure. It is the top choice for companies targeting international markets.
VAS provides stability and consistency in Vietnam's specific legal and economic context but still faces limitations in reflecting rapid market changes and ensuring transparency.
These insights not only give businesses a deeper understanding of each system but also help make informed decisions about transitioning. A clear grasp of the strengths and limitations of each system will support businesses in establishing effective financial management processes, meeting international integration requirements, and improving financial reporting quality.
We hope this article has provided comprehensive information on the similarities and differences between IFRS and VAS. Applying the right accounting system will lay a solid foundation for sustainable development and enhance the reputation of companies both domestically and internationally.
If your business is still uncertain about which accounting standards to adopt for optimal results, feel free to contact RSM Vietnam for detailed expert advice. We are committed to providing effective and transparent solutions, partnering with your business for a strong and successful future!
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