Finance & Banking

Last updated: Thursday, April 18, 2019


Working to Strengthen Financial Systems

Posted: Friday, January 05, 2018

Vietnam needs to develop a sound financial reporting institutional framework by improving understanding of the importance of a high-quality system for corporate financial reporting and auditing.

This is the World Bank's recommendation in the “Report on the Observance of Standards and Codes (ROSC): Accounting and Auditing” module. This is also part of a global initiative to improve compliance with internationally recognised standards and codes, focuses on accounting and auditing standards and practices for public interest entities, as well as the institutional framework that underpins the corporate financial reporting system.

Despite the Vietnam government’s effort in introducing international practices and issuing Vietnamese accounting standards (VAS) over the past 20 years, the quality of corporate financial reporting by public interest entities in Vietnam is not consistent with international good practice.

While there are examples of very good practice, the overall standard is adversely impacted by the Vietnam Accounting Standards (VAS) which have not been kept up to date with developments in International Financial Reporting Standards (IFRS). Prudential and other regulatory financial reporting requirements for financial sector entities and SOEs take precedence over accounting standards.

Besides, monitoring and enforcement of compliance with the accounting standards is lacking, as the regulator is more focused on issuing policies rather than monitoring and enforcement. The result is that the financial statements are not prepared on a basis comparable with those in other jurisdictions. Many public interest entities in Vietnam are audited by local firms with capacity and resources much more limited than international firms. Smaller local audit firms often face difficulties in establishing appropriate internal quality assurance arrangements and do not have the benefit of international network quality assurance and technical support. These aspects are both important in ensuring that firms are able to fully comply with International Standards on Auditing (ISA) and the requirements of the International Standard on Quality Control, particularly for audits of more complex public interest entities. The criteria for an audit firm’s acceptability to audit the public interest entities, are still focused on the quantitative measures rather than measures of audit quality. The demand for corporate financial reporting is low, as the benefits are not fully appreciated.

In line with other reforms in the financial sector, the report recommends that Vietnam should minimise the instances in which instructions and regulations override VAS in the short to medium term. The new Accounting Law will need to be further amended to clarify that VAS takes precedence over specialised laws and other decisions and instructions for the preparation of the general-purpose financial statements. Vietnam needs to develop a strong and independent valuation profession to support the implementation of VFRS (particularly to support the implementation of the “fair value” concept as authorised under the Accounting Law 2015).

The report also advises that Vietnam fully adopts international financial reporting standards and related guidance from the International Financial Reporting Interpretations Committee for public interest entities.

The report recommends specific policy measures relating to statutory frameworks, accounting standards, public oversight and monitoring, accounting education, and public accountancy organisations, in order to promote transparency and investor confidence, mitigate risks stemming from financial volatility, and foster market efficiency as well as private sector led economic growth.

Ms Vu Thi Mai, Vice Minister of Finance, said, Vietnam agrees with the report’s point of view that the benefits of IFRS adoption is undeniable. Once IFRS is adopted, the quality of corporate financial reporting will improve significantly through enhanced accountability, transparency and comparability, providing users with useful information for management, governance and investment decision making. In addition, the IFRS adoption also promotes the international recognition of Vietnam as a full market economy, and eventually the FDI flow. Therefore, the Ministry of Finance is promptly working on the development of a proposal on updating Vietnam Corporate Standards for submission to the Government’s approval for IFRS adoption.”

Quynh Anh

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