What is IFRS ? This is a rule established to create a common accounting language and is widely applied globally. In the following article, let's learn about what IFRS is and explore the full roadmap for applying international accounting standards (IFRS) with 1C Vietnam!

1. What is IFRS?

What does IFRS stand for? IFRS stands for International Financial Reporting Standards, a set of rules issued and developed by the International Accounting Standards Board (IASB) on March 16, 2022.

The main objective of IFRS is to ensure consistency, transparency and make financial statements of enterprises easily comparable worldwide. At the same time, IFRS also helps enterprises make better financial analysis and decisions.

It can be seen that the conversion of international accounting standards plays an important role in the current period of integration and development. So, what is the specific role of IFRS ?

• IFRS contributes to promoting transparency and trust in global financial markets and the companies listed on them. Thanks to IFRS standards, more businesses can trust the financial reports presented by their partners, improving transaction efficiency and promoting strong economic development.
• IFRS plays a role in supporting investors in making comparisons between businesses and easily analyzing business performance over time.

2. List of International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) include many regulations on how to prepare financial statements of a business, helping to improve the reliability of the business and its stakeholders. Below is a table describing the specific standards prescribed in IFRS:

3. Roadmap for IFRS adoption in Vietnam

The process of applying International Financial Reporting Standards (IFRS) was issued with the aim of ensuring transparency and the ability to meet the requirements of global economic integration. Based on Decision No. 345/QD-BTC, the roadmap for applying IFRS is divided into three main stages as follows:

3.1 Preparation phase (2020 - 2021)

• Before March 2020: Issue the Project to apply international financial reporting standards IFRS in Vietnam.
• Before December 2020: Create a Translation and Review Board, complete the translation of IFRS into Vietnamese.
• Before March 2021: The Ministry of Finance (MOF) shall develop and promulgate or submit to competent authorities for promulgation appropriate legal documents, and at the same time publish the translation of IFRS into Vietnamese.
• Before November 15, 2021: The Ministry of Finance shall develop, issue or submit to competent authorities for issuance of legal documents on rules for applying IFRS; at the same time, supplement, amend and issue a number of new financial mechanisms related to the application of IFRS.
• Training human resources and roadmap for implementing IFRS for businesses.

3.2 Voluntary implementation phase (2022 - 2025)

During the voluntary application phase, enterprises that have the need and meet the conditions can apply IFRS standards on a voluntary basis. Accordingly, enterprises need to submit to the Ministry of Finance before implementation to decide whether to prepare consolidated financial statements or separate reports.

• Enterprises prepare consolidated financial statements:

- Parent company belongs to a large-scale state-owned economic group or has loans funded by international financial institutions.

- The parent company is a listed company.

- The parent company is not listed on the list of public companies…

• Enterprises preparing separate financial statements: In case enterprises with 100% foreign investment capital are subsidiaries of parent companies headquartered abroad and possess sufficient human resources.

3.3 Mandatory phase (after 2025)

After 2025, businesses must be required to use Accounting Standards (IFRS) according to the following roadmap:

• Consolidated financial statements: Applicable to all enterprises in phase 1 (preparatory phase), except for enterprises with micro-accounting regimes. In case parent companies have the need and are qualified to voluntarily apply IFRS, they are not subject to mandatory application.
• Separate financial statements: The Ministry of Finance will prescribe the time for mandatory or voluntary application of International Accounting Standards (IFRS) based on the application situation in phase 1.

4. The significance of applying International Financial Reporting Standards

Once you understand what IFRS is , businesses will clearly see the importance that Financial Reporting Standards (IFRS) bring. Specifically as follows:

4.1 IFRS is a common standard

Currently, accounting is considered the business language of countries around the world. Therefore, applying IFRS will help businesses, investors and state management agencies (especially foreign countries) have tools to evaluate and compare financial information in the same language and common standards. From there, businesses can make economic decisions correctly and appropriately.

4.2 Develop legal regulations according to international standards

Applying IFRS will help businesses qualify to list on international markets and receive preferential loans from World Banks, International Monetary Funds, etc. In addition, applying IFRS also contributes to creating a legal framework for accounting for financial instruments, assets and liabilities at appropriate values.

Through the development of regulations on financial instruments or derivative transactions also greatly affects the primary and secondary markets.

• For the primary market: Banks and financial institutions rely on clear legal frameworks to account for financial instruments such as: Futures contracts, swaps, forward contracts and options contracts.
• For the secondary market: Issuing full range of financial instruments in accordance with Financial Reporting Standards will promote investment in derivative financial instruments and consider them as securities on the exchange. In addition, applying IFRS also contributes to upgrading the stock market in Vietnam.

4.3 Ensuring transparency

Understanding what IFRS is and how to apply IFRS will contribute to ensuring the transparency and honesty of financial reports and protecting the interests of businesses and investors.

Items in financial statements must be recorded and presented according to their substance rather than their form, thereby reducing the impact of transactions on the accounting method and supporting the comparability between the financial statements of Vietnamese enterprises and foreign enterprises.

In particular, IFRS requires businesses to provide details on business risks, policy risks, credit risks, etc. to help investors and creditors easily make investment decisions in the business. In addition, IFRS also requires businesses to apply financial models to determine the value of assets and liabilities at fair value.

Thanks to the financial information regulations in IFRS, Vietnamese enterprises will easily assess the financial situation at the time of reporting. At the same time, this helps the management collect important information to better serve the forecast of future operating results and cash flows.

5. Some challenges when applying IFRS

Adopting IFRS brings many important benefits, helping businesses qualify for listing on international markets and easily evaluate investment activities. However, when preparing financial statements according to IFRS, businesses also need to prepare to face the following challenges:

• Financial and capital markets have not developed commensurate with their potential.

IFRS records financial transactions in developed economies with many complex financial instruments. However, the capital and financial markets in Vietnam have not yet developed to their potential and do not have enough financial instruments, thus causing great difficulties in the process of applying IFRS.

• Businesses do not want to disclose financial situation

The application of IFRS will help financial information become more accurate and reliable. This makes businesses operate inefficiently and makes it difficult to achieve positive financial reports. At that time, businesses that perform poorly will be afraid of affecting the value of securities and maintaining the conditions for listing on the international stock market.

• Lack of resources

In Vietnam, the human resource with in-depth training in financial reporting standards is still limited, leading to a large shortage of human resources with professional accounting skills and IFRS application.

• Language barrier

IFRS is published and drafted entirely in English, while auditors, investors and businesses in Vietnam still have limited English skills. This causes many difficulties in the process of updating news and applying IFRS in Vietnam.

• Duplication of legal documents

Currently, Vietnam has 3 legal documents affecting the financial activities of enterprises: Tax policy, financial reporting standards and financial mechanism. This affects the consistency and creates overlap in the process of applying IFRS, causing difficulties for enterprises.

6. Distinguishing IFRS and IAS

IFRS AND IAS are both issued standards and play an important role in the preparation of financial statements of enterprises. However, these two concepts have different regulations and presentation methods. Below is a specific comparison table of IAS and IFRS that enterprises need to know:

7. Why convert from IAS to IFRS?

The transition from IAS to IFRS is essential to improve the quality of financial reporting, increase transparency and meet global business conditions. Let's find out the main reasons for the transition with 1C Vietnam right below:

7.1 IAS is no longer relevant

In the context of economic integration as today, the principle of calculating the original cost of IAS is no longer suitable. The reason is that financial instruments, especially information technology, are increasingly emerging, along with the difference between the original cost and the actual value of debts and assets.

Although the fair value principles are still integrated, it is still not enough to synchronize the reporting. Therefore, the birth of IFRS is inevitable to ensure that assets and liabilities are carried out at fair value.

7.2 Improve the shortcomings

In reality, each country has its own accounting standards that need to be followed. Therefore, applying IAS to businesses in many countries and countries listed on the market other than their own has caused many obstacles.

For example: Company A is established in Vietnam and prepares financial statements according to VAS standards. When Company A is listed on the US stock market, they must convert their financial statements according to US accounting standards. This causes Company A to spend a lot of time and money during the conversion process.

Therefore, the issuance of IFRS has helped businesses prepare reports in accordance with a common standard, helping to reduce time, save human resources and ensure information transparency.

7.3 Facilitating international cooperation

In addition to the above reasons, the conversion from IAS to IFRS has brought accounting standards of each country closer together, removed barriers between individual standards, increased transparency and ensured reliability of financial statements of enterprises. At the same time, it has created opportunities for cooperation between accounting standards of each country, especially in the current integration period.

8. Notes when applying IFRS to businesses in Vietnam

Having clearly understood the importance of applying IFRS to financial reporting, many businesses still have concerns about how to apply IFRS effectively? Below are important factors that businesses need to pay attention to:

• Objectives and strategies: IFRS adoption is appropriate if the enterprise has plans to raise capital, expand markets, cooperate internationally, or is in need of improving reputation and transparency.
• Scale and operations: If a business has a large scale, complex operations and involves special transactions, applying IFRS is the solution to help financial statements comprehensively reflect the business operations of the business.
• Conversion costs and time: IFRS applies to businesses that have sufficient resources and are ready to adjust accounting policies, accounting information systems, accounting databases, and combine training and capacity building for accounting and auditing staff.
• Legal and tax regulations: If the enterprise complies with legal and tax regulations or can adapt to changes in these regulations in the future, then applying IFRS will not cause much risk to the enterprise.

In addition, to increase operational efficiency and ensure transparency, businesses can consider using 1C Vietnam's 1C:ERP solution. This is a comprehensive and optimized solution based on customer experience, bringing outstanding efficiency in business management.

So why should businesses choose 1C:ERP?

• 1C:ERP software is ready to support Vietnamese accounting standards (VAS) and international accounting standards (IFRS), helping businesses comply with tax laws, thereby minimizing risks in the management and operation process.
• Ready to prepare consolidated reports and develop consolidated reports for business models such as: Corporation, Group and multi-enterprise model.
• The open logic of the software helps businesses master technology and software solutions, limiting dependence on suppliers.
• Easily customize to specific requirements and integrate with industry-specific solutions within the 1C and third-party solution ecosystem.
• Compatible with all platforms and most database management software.
• Provide enough components to apply to commercial and production operating models.

Above is a detailed article about what IFRS is and the roadmap for applying IFRS in Vietnam. Hopefully, your business has a better understanding of IFRS and the importance of this type of standard in the process of operating and integrating into the world economy. It can be seen that applying IFRS to a business is a complex decision, requiring businesses to consider carefully before implementing. The 1C:ERP solution supporting the international accounting standard IFRS will help businesses optimize the time and process of applying IFRS. For more detailed advice on the 1C:ERP solution, please contact the hotline (+84)247 108 8887.