As an FDI enterprise operating in Vietnam, are you struggling with the parent company’s requirement to prepare financial reports under the International Financial Reporting Standards (IFRS) while your accounting system is currently based on Vietnamese Accounting Standards (VAS)? The differences are not merely theoretical — they can fundamentally change the figures presented in financial statements, from factory lease contracts to sales revenue recognition. By 2025, this pressure is expected to become even more significant. In this article, KMC will provide business leaders and chief accountants of FDI enterprises with a comparison between VAS and IFRS, the implementation roadmap, and clear action plans to prepare for the transition.
Distinguishing Key Terms
- IFRS (International Financial Reporting Standards): A comprehensive and modern set of accounting standards currently issued and continuously updated by the International Accounting Standards Board (IASB).
- IAS (International Accounting Standards): Earlier accounting standards issued by the predecessor organization of the IASB. Many IAS standards remain effective and continue to form part of the overall IFRS framework.
- VAS (Vietnamese Accounting Standards): The current accounting standards applied in Vietnam. While VAS has been significantly influenced by international standards, there remain fundamental differences in principles and objectives.
What Is IFRS (International Financial Reporting Standards)?
The International Accounting Standards Board (IASB) — an independent, non-profit organization with global recognition and credibility — develops and issues the International Financial Reporting Standards (IFRS) framework. IFRS provides investors, banks, and stakeholders with a common “measurement framework,” enabling them to make more accurate and informed economic decisions based on consistent financial information.
Comparison Between IFRS and VAS
Understanding the differences between IFRS and VAS (Vietnamese Accounting Standards) is the first and most critical step in developing an effective transition strategy.
Principle | IFRS (International Standards) | VAS (Vietnamese Standards) | Impact and Commentary |
Foundation | Principle-based approach,flexible, emphasizing professional judgment to reflect the economic substance of transactions. | Rule-based approach, more specific and prescriptive, prioritizing consistency and compliance. | IFRS requires accounting professionals to exercise a higher level of professional judgment when applying standards to specific situations. |
Objective | Focused on capital markets and investors, aiming to provide useful information for economic decision-making. | Primarily serves government authorities (Tax, Statistics) with a strong focus on legal compliance. | IFRS financial statements provide a clearer representation of a company’s actual value and risks from the perspective of global investors. |
Recognition Principle | Gives priority to Fair Value measurement for many items (fixed assets, investment properties, financial instruments, etc.). | Primarily based on Historical Cost, with limited opportunities for revaluation except in specific circumstances. | IFRS enables financial statements to better reflect market value, but may also result in greater fluctuations in reported figures. |
Why Do FDI Enterprises Need International Financial Reporting Standards (IFRS)?
For FDI enterprises, understanding IFRS is not merely an advanced accounting concept but also a practical requirement that supports sustainable business growth in a cross-border operating environment. Below are several key reasons.
Alignment with Parent Companies and Global Consolidation
For subsidiaries of multinational corporations, preparing financial reports under IFRS helps eliminate accounting barriers. Parent companies can consolidate financial statements more quickly and accurately while significantly reducing the time and costs associated with adjusting differences between VAS and IFRS.
Expanding Access to International Funding Opportunities
Financial statements audited in accordance with International Financial Reporting Standards (IFRS) enable FDI enterprises to more easily access institutional investors, foreign investment funds, and international banks. As a result, enterprises may reduce financing costs and expand available resources for business expansion projects in Vietnam and across the region.
Proactive Preparation for Vietnam’s Mandatory IFRS Roadmap
According to the roadmap issued by the Ministry of Finance, Vietnam is gradually moving toward IFRS implementation. The voluntary adoption phase (through 2025) represents a valuable opportunity for enterprises to proactively prepare. Early understanding and implementation can help businesses avoid operational disruptions, unexpected costs, and significant challenges once mandatory implementation officially takes effect.
Challenges in the IFRS Adoption Roadmap in Vietnam
Capabilities and Language
Official and updated IFRS materials are all available in English. Moreover, IFRS requires accounting teams to be proficient in both VAS and possess in-depth, up-to-date knowledge of IFRS. Therefore, FDI enterprises face a dual challenge: finding or training personnel who are proficient in VAS, IFRS, and English (or Japanese in the case of Japanese FDI enterprises).
Shortage of Consulting and Auditing Experts
The number of consulting experts and auditors with a strong understanding of IFRS in Vietnam remains limited and is mainly concentrated within the “Big 4” audit firms. When the mandatory adoption roadmap becomes more widely implemented after 2025, these resources will become even more difficult to access, leading to increased outsourcing costs and challenges in selecting suitable partners.
Challenges Related to Information Technology (IT) Systems
IFRS changes the methods of recognition, measurement, and reporting; therefore, enterprises need to upgrade their information technology systems. However, existing ERP software systems (such as SAP, Oracle, and MISA) are mainly configured for VAS. To handle complex IFRS requirements (such as present value calculations for lease arrangements, automatic revenue allocation based on performance obligations, and asset impairment assessments), enterprises need to invest in system upgrades, customization, or even deploy entirely new systems. These requirements lead to substantial costs for software, consulting, and operations.
Particularly during the transition period (which may last for several years), enterprises are required to maintain two parallel accounting systems: one for financial reporting under VAS (for tax and domestic reporting purposes), and one for IFRS (for parent company reporting and consolidated financial statements). This not only increases costs but also creates double the workload for accounting departments and increases the risk of errors.
Adjustment of Cross-Functional Processes
Applying IFRS is not solely the responsibility of the Accounting Department. It requires close coordination with:
- Sales/Contract Department: Adjust contract terms (leasing, sales, services) to align with IFRS requirements for revenue recognition and obligations.
- Human Resources Department: In relation to pension plans and long-term employee benefits.
- Board of Directors and Board of Management: Understand and approve new accounting policies, as well as their impact on financial statements.
Challenges Related to Culture and Cross-Border Coordination
FDI enterprises, such as Japanese FDI companies, often have working styles, approval processes, and expectations regarding accuracy and deadlines that differ from those of teams in Vietnam. Therefore, enterprises may encounter difficulties in integrating and aligning these differences.
IFRS Adoption Roadmap in Vietnam for FDI Enterprises
According to the roadmap issued by the Ministry of Finance of Vietnam, the IFRS implementation plan is divided into clear phases with specific timelines. Understanding this roadmap not only helps FDI enterprises comply with regulations but also enables them to identify the optimal timing to build sustainable competitive advantages.
Overall Roadmap
Below is a summary table of the roadmap and detailed analysis:
| Phase | Timeline | Applicable Entities and Characteristics | Position and Actions for FDI/Japanese Enterprises |
|---|---|---|---|
| Phase 1: Preparation | 2019–2021 (Completed) | The Ministry of Finance prepared the foundational conditions, including IFRS translation, development of implementation guidance, and workforce training. | This was the awareness stage. Enterprises needed to begin understanding IFRS and the differences between IFRS and VAS. |
| Phase 2: Voluntary Adoption (Current Phase) | 2022–2025 (current through the end of 2025) | Voluntary adoption is encouraged for parent companies of state-owned groups, listed companies, and large public companies. FDI enterprises are also permitted to voluntarily adopt IFRS for separate financial statements, provided transparency with tax authorities is maintained. | This is a valuable opportunity to take a proactive approach. It is particularly suitable for FDI enterprises requiring standardized reporting with overseas parent companies. Enterprises should begin with impact assessments (GAP Analysis), staff training, and parallel reporting implementation. |
| Phase 3: Mandatory Adoption (Future Phase) | After 2025 (expected) | Mandatory application of IFRS consolidated financial statements will apply to all parent companies of state-owned economic groups, all listed companies, and large public companies. Other enterprises (including many FDI enterprises) may continue adopting IFRS voluntarily. | This is the stage requiring full readiness. If an FDI enterprise belongs to a large group or has a listed parent company, preparations should be completed during Phase 2. Even for enterprises not subject to mandatory adoption, early implementation still offers advantages in attracting investment and international integration. |
Specific Action Plan for FDI Enterprises Starting Now
Based on the overall roadmap, FDI enterprises should establish their own internal implementation roadmap. Below are five steps to begin implementation immediately:
Step 1: Conduct a Current-State Assessment (GAP Analysis)
Review the entire system to accurately identify differences between VAS and IFRS for key areas such as Leases, Revenue, and Financial Instruments.
Step 2: Develop a Master Plan and Present It to the Parent Company
Develop a detailed implementation roadmap, estimate budgets, and allocate resources. The purpose of this step is to obtain the necessary approval and support from the Headquarters.
Step 3: Train and Develop a “Qualified” Team
Invest in advanced IFRS training for accounting and finance personnel and encourage employees to obtain international certifications (such as CertIFR). Particular attention should be given to improving foreign language capabilities to ensure the ability to understand original source materials.
Step 4: Upgrade Information Technology Systems (ERP/Accounting Software)
Review and develop plans to upgrade existing IT systems to support complex IFRS requirements and facilitate parallel accounting and reporting processes.
Step 5: Conduct Pilot Testing and Parallel Reporting
Prepare IFRS financial statements in parallel with VAS financial statements for at least one to two accounting periods. This is the most important stage for validating the implementation plan, assessing actual impacts, and making timely adjustments.
International Financial Reporting Standards (IFRS) are becoming a mandatory requirement for many FDI enterprises; therefore, businesses should establish a structured action plan starting now. As a consulting firm specializing in supporting Japanese and FDI enterprises in Vietnam, KMC understands the dual challenges related to language and accounting standards faced by businesses. We provide comprehensive IFRS conversion advisory services, from current-state assessments and personnel training to implementation support. Contact our experts today for personalized roadmap consultation and receive a complimentary preliminary GAP Analysis assessment.
