International Accounting Standards/International Financial Reporting Standards versus Vietnamese Accounting Standards LAHTI UNIVERSITY OF APPLIED SCIENCES Degree programme in International Business Thesis Autumn 2014 Dinh, Thi Ngoc Thuy Lahti University of Applied Sciences Degree Programme in International Business DINH, THI NGOC THUY: International Accounting Standards/International Financial Reporting Standards versus Vietnamese Accounting Standards Bachelor’s Thesis of Degree Programme in International Business 97 pages, 48 pages of appendices Autumn 2014 ABSTRACT International Accounting Standards/International Financial Reporting Standards (IAS/IFRS) have increasingly achieved global acceptance in recent years. In the face of globalisation process, it is critical for Vietnam to direct its current accounting system in order to improve its competitiveness regarding financial services and capital markets on the globally coordinated market. This thesis aims at comparing IAS/IFRS and Vietnamese Accounting Standards (VAS) in terms of accounting standards and qualitative characteristics between five Finnish entities’ and five Vietnamese firms’ financial statements. As Vietnam has been reluctant to adopt IAS/IFRS, advantages, disadvantages and challenges of its adoption are explored based on previous studies and survey’s outcomes. Inductive, qualitative and quantitative research methods are combined and utilised to conduct the research. Across the thesis, primary data are obtained from the author’s observations, survey results and an in-depth interview. In addition, secondary data are collected from books, accounting journals, articles, government publications, reliable newspapers and companies’ websites. Comparison reveals the main differences between IAS/IFRS and VAS regarding seven accounting standards. Also, in terms of qualitative characteristics, Vietnamese financial statements do not fully meet the criteria of relevance, faithfulness, comparability, timeliness and understandability, which are five out of six IAS/IFRS’ characteristics. This finding alludes that such financial statements are not highly useful. Next, the author finds that there are various advantages in the adoption, especially higher accounting quality. Some disadvantages discovered are expected to be addressed in short term. Several challenges are inevitable, specifically staff training. However, based on the survey result, the majority of respondents think that the advantages might exceed the disadvantages; leading to their support for IAS/IFRS adoption within the next five years. This support could give Vietnamese government an optimistic picture regarding the forthcoming adoption; however, this progress should be slow but sure. Key words: IAS/IFRS, VAS, adoption, accounting standards, qualitative characteristics, advantages, disadvantages, challenges, Vietnamese perspectives CONTENTS 1 INTRODUCTION 1 1.1 Background information 1 1.2 Research objectives, research questions and limitations 3 1.3 Research methodology 4 1.4 Thesis structure 6 2 INTERNATIONAL ACCOUNTING STANDARDS/INTERNATIONAL FINANCIAL REPORTING STANDARDS 9 2.1 Overview of the origin and the development of IASB and IAS/IFRS 9 2.2 Accounting standards and interpretations 12 2.3 Qualitative characteristics 21 3 VIETNAMESE ACCOUNTING STANDARDS 23 3.1 Overview of Vietnamese accounting development 23 3.2 Accounting standards and interpretations 27 3.3 Qualitative characteristics 30 3.4 Advantages, disadvantages and challenges of IAS/IFRS adoption 31 3.4.1 Advantages 31 3.4.2 Disadvantages 32 3.4.3 Challenges 33 4 COMPARISON BETWEEN IAS/IFRS AND VAS AND THE SURVEY OF PROFESSIONALS' VIEWPOINTS TOWARDS IAS/IFRS ADOPTION IN VIETNAM 35 4.1 Comparison between IAS/IFRS and VAS in practice in terms of accounting standards and qualitative characteristics 35 4.1.1 Reseach design for comparison between IAS/IFRS and VAS 35 4.1.2 Differences between IAS/IFRS and VAS in terms of accounting standards and qualitative characteristics 38 4.1.2.1 Comparison between Kesko’s and Kinh Do’s financial statements 38 4.1.2.2 Comparison between Rautaruukki’s and Hoa Phat Joint Stock Corporation’s financial statements 43 4.1.2.3 Comparison between Nokia Solutions and Networks’ and FPT’s financial statements 50 4.1.2.4 Comparison between Raisio’s and Masan’s financial statements 56 4.1.2.5 Comparison between YIT Group’s and Hoang Anh Gia Lai (HAGL) Group’s financial statements 62 4.1.2.6 Comparison between IAS/IFRS and VAS regarding qualitative characteristics 70 4.2 Survey of professionals' perspectives in Vietnam towards IAS/IFRS adoption 74 4.2.1 Questionnaire design for Vietnameses’ viewpoints regarding IAS/IFRS adoption 74 4.2.2 Data analysis 77 4.2.2.1 Demographic data 77 4.2.2.2 Awareness of VAS, IAS/IFRS and the intention to adopt IAS/IFRS in the future 80 4.2.2.3 Advantages, disadvantages and challenges of IAS/IFRS adoption 83 4.3 Conclusions and recommendations 88 4.3.1 Conclusions 88 4.3.2 Recommendations for future research 94 5 SUMMARY 95 REFERENCES 98 APPENDICES 107 LIST OF FIGURES FIGURE 1. Research methodology ......................................................................... 4 FIGURE 2. Thesis structure .................................................................................... 7 FIGURE 3. Three phases of IASB ........................................................................ 10 FIGURE 4. Accounting models ............................................................................. 11 FIGURE 5. Qualitative characteristics of the IAS/IFRS ....................................... 21 FIGURE 6. Qualitative characteristics of VAS ..................................................... 30 FIGURE 7. Research design .................................................................................. 37 FIGURE 8. Property, plant and equipment-Kesko ................................................ 39 FIGURE 9. Tangible fixed assets-Kinh Do ........................................................... 40 FIGURE 10. Intangible assets-Kesko .................................................................... 40 FIGURE 11. Intangible assets-Kinh Do ................................................................ 41 FIGURE 12. Goodwill-Kinh Do ........................................................................... 41 FIGURE 13. Debt-equity instruments-Kesko ....................................................... 43 FIGURE 14. Property, plant and equipment-Rautaruukki .................................... 45 FIGURE 15. Tangible fixed assets-Hoa Phat ........................................................ 45 FIGURE 16. Goodwill-Rautaruukki ...................................................................... 46 FIGURE 17. Non-current assets-Rautaruukki ....................................................... 46 FIGURE 18. Other intangible assets-Rautaruukki ................................................ 47 FIGURE 19. Intangible fixed assets-Hoa Phat ...................................................... 47 FIGURE 20. Goodwill-Hoa Phat ........................................................................... 48 FIGURE 21. Goodwill-Hoa Phat ........................................................................... 48 FIGURE 22. Finance lease liabilities-Rautaruukki ............................................... 49 FIGURE 23. Accrued expenses-Hoa Phat ............................................................. 49 FIGURE 24. Bonds-Rautaruukki........................................................................... 50 FIGURE 25. Property, plant and equipment-NSN ................................................ 52 FIGURE 26. Tangible fixed assets-FPT ................................................................ 52 FIGURE 27. Intangible assets-NSN ...................................................................... 53 FIGURE 28. Goodwill and intangible assets-FPT ................................................ 53 FIGURE 29. Expenses by nature-NSN ................................................................. 54 FIGURE 30. Other income-NSN ........................................................................... 54 FIGURE 31. Finance lease assets-FPT .................................................................. 55 FIGURE 32. Bond issuance-NSN ......................................................................... 55 FIGURE 33. Property, plant and equipment-Raisio .............................................. 57 FIGURE 34. Tangible fixed assets-Masan ............................................................ 58 FIGURE 35. Intangible assets-Raisio .................................................................... 59 FIGURE 36. Intangible fixed assets-Masan .......................................................... 59 FIGURE 37. Goodwill-Masan ............................................................................... 60 FIGURE 38. Financial leasing liabilities-Raisio ................................................... 60 FIGURE 39. Finance lease tangible fixed assets-Masan ....................................... 61 FIGURE 40. Impairment tests of goodwill ........................................................... 62 FIGURE 41. Tangible assets-YIT ......................................................................... 63 FIGURE 42. Tangible fixed assets-HAGL ............................................................ 64 FIGURE 43. Intangible fixed assets-YIT .............................................................. 65 FIGURE 44. Intangible fixed assets-HAGL .......................................................... 65 FIGURE 45. Goodwill-HAGL .............................................................................. 66 FIGURE 46. Finance lease liabilities-YIT ............................................................ 66 FIGURE 47. Finance expenses-YIT ...................................................................... 67 FIGURE 48. Finance lease assets-HAGL ............................................................. 67 FIGURE 49. Finance lease liabilities-HAGL ........................................................ 67 FIGURE 50. Bonds-YIT ........................................................................................ 68 FIGURE 51. Subsidiaries-YIT .............................................................................. 68 FIGURE 52. Questionnaire design process ........................................................... 74 FIGURE 53. Age distribution ................................................................................ 78 FIGURE 54. Education level ................................................................................. 78 FIGURE 55. Working industry and job roles ........................................................ 79 FIGURE 56. Advantages outweigh disadvantages ................................................ 86 FIGURE 57. Adoption related issues .................................................................... 87 LIST OF TABLES TABLE 1. Seven features of financial statements ................................................. 13 TABLE 2. Structure of financial statements-IFRS ................................................ 14 TABLE 3. Structure of financial statements-VAS ................................................ 28 TABLE 4. Five Finnish entities and five Vietnamese entities .............................. 35 TABLE 5. Main differences between IAS/IFRS and VAS ................................... 69 TABLE 6. Cross tabulation of VAS and job roles ................................................ 80 TABLE 7. Cross tabulation of IAS/IFRS and job roles ........................................ 81 TABLE 8. Chi-square Test of IAS/IFRS and job roles ......................................... 81 TABLE 9. Awareness of Vietnam's intention to adopt IAS/IFRS ........................ 82 TABLE 10. Multiple linear regression .................................................................. 82 TABLE 11. Advantages of IAS/IFRS adoption .................................................... 83 TABLE 12. Disadvantages of IAS/IFRS adoption ................................................ 84 TABLE 13. Challenges of IAS/IFRS adoption ..................................................... 85 ABBREVIATIONS AFA ASEAN Federation of Accountants Big Four PwC, KPMG, Deloitte and Ernst & Young CAWI Computer-Assisted Web Interview DRV Democratic Republic of Vietnam EC European Commission EU European Union FASB Financial Accounting Standards Board FDI Foreign Direct Investment HAGL Hoang Anh Gia Lai HoSTC Ho Chi Minh City Securities Trading Center HOSE Ho Chi Minh City Stock Exchange IAS International Accounting Standards IASB International Accounting Standards Board IASC International Accounting Standards Committee IASPlus International Accounting Standards Plus ICAEW Institute of Chartered Accountants in England and Wales IFAC International Federation of Accountants IFRS International Financial Reporting Standards IOSCO International Organisation of Securities Commissions PhD Doctor of Philosophy PP&E Property, Plant and Equipment P-value Probability value PwC PricewaterhouseCoopers RVN Republic of Vietnam SPSS Statistical Package for Social Sciences US GAAP American’s generally accepted accounting principles VAA Vietnamese Accounting Association VAS Vietnamese Accounting Standards WTO World Trade Organisation 1 INTRODUCTION 1.1 Background information Globalisation has been increasingly expanded over recent years, regarding not only economies but also societies, cultures and politics. Accounting, one of the most important parts of economies, has not been out of this path. Specifically, the globalisation process has led to the invention of IAS/IFRS with the purpose of supplying essential guidelines on preparation for companies’ financial statements. As a matter of fact, IAS/IFRS has been adopted in a large number of countries in the world. Particularly, the year 2005 witnessed IAS/IFRS convergence in the 27 EU member countries, Australia, New Zealand and South Africa, which marked the beginning era of the harmonisation of accounting standards throughout the world. This was followed by the convergence of the accounting systems in Argentina, Brazil, Korea, Canada, Russia, Mexico and China. It is significant that some other major economies such as Japan and the USA have also considered adopting this set of accounting standards in the near future. (Mackenzie et al. 2013, 17.) Currently, there are about 120 countries requiring and permitting IAS/IFRS (IFRS 2014), which is a remarkable figure, reflecting the development and the influence of IAS/IFRS in the worldwide capital market. Nonetheless, there are still a significant number of countries being reluctant to completely adopt IAS/IFRS, especially Vietnam. In the late 1990s, Vietnam endeavoured to revolutionise its accounting system through a special assistance of the EU. At that time, the EU encouraged Vietnam to adopt IAS/IFRS in order to achieve a highly professional level of accounting with effort. These attempts led to an establishment of VAS based on IAS/IFRS in 2001; however, Vietnam has still not fully converged with IAS/IFRS as the EU’s expectation because of some specific modifications. Instead, VAS has been considered as the country-specific version of IAS/IFRS (Sarikas, Vu & Djatej 2009, 181-190). For the last ten years, Vietnam has been evaluated as one of the best emerging markets for investors (Bland 2011) who require highly qualified financial reports in order to exactly assess returns on their potential investments. This has led to a high demand for IAS/IFRS convergence. Particularly, Vietnamese Ministry of