On 10 June 2024, the Ministry of Finance announced Draft 2 – The Draft Circular is intended to replace Circular No. 200/2014/TT-BTC dated 22 December 2014 - guiding the accounting regime for Enterprises.

The Draft Circular drafting (version 2) to supersede Circular No. 200/2014/TT-BTC (Article 32. Effective Date) is expected to come into force on 1 January 2025 and apply to financial years commencing on or after the effective date. The Circular will replace the business accounting regimes established under Circular No.200/2014/TT-BTC, Circular No.75/2015/TT-BTC, and Circular No.53/2016/TT-BTC.

1. The necessity and significance of the replacement for Circular No.200/2014/TT-BTC

After several years of implementation, Circular No.200/2014/TT-BTC has identified certain limitations, especially concerning foreign direct investment (FDI) enterprises. The existing Vietnamese accounting standards do not fully align with international standards and create challenges for FDI enterprises in applying and complying with regulations.

The draft Circular replacing Circular 200 is designed to align with international accounting standards while offering enhanced flexibility for enterprises. This initiative aims to minimize challenges in the implementation of the accounting framework and foster a more favorable business environment, thereby encouraging foreign investment in the Vietnamese market.

In the long term, the Ministry of Finance will conduct research and implement International Financial Reporting Standards (IFRS) into the accounting system of Vietnam. This initiative aims to create a more cohesive and modern accounting framework that aligns with international best practices and global trends.

2. Overview of the content of the draft circular replacing Circular 200/2014/TT-BTC

2.1 Accounting documents and forms system

The Draft Circular stipulates that Enterprises are entitled to design their forms for accounting documents only if they fully meet the required outlines specified in Clause 1, Article 16 of the Accounting Law and are suitable for the Enterprise's specific operations and management purposes. In cases where enterprises do not design their forms, they should use the available forms and guidelines in Appendix 3 of the Circular.

For enterprises with financial and economic transactions governed by other legalistic documents, the enterprise should comply with the documentation provisions specified in those laws.

In addition, when there are changes or additions to accounting accounts, enterprises should notify the directly managing tax authorities in advance instead of waiting for approval from the Ministry of Finance as required under Circular 200.

Accounting documents must be prepared and signed by the following principles:

  • Every arising economic or financial transaction should be documented, only created 1 time per transaction.
  • The document must be clear, complete, timely, and accurate.
  • The documents must be signed by authorized individuals or their delegates. Signing documents before completing all content is prohibited.
  • The authority to sign documents is determined by the enterprise legal representative, thereby ensuring stringent control and protection of assets.
  • The chief accountant or an authorized individual is prohibited from signing on behalf of the enterprise head without explicit authorization. Furthermore, an authorized individual is not permitted to delegate this authority to another person.

2.2 Accounting account system

     2.2.1 Removal of Accounts:

Eliminating 6 level 1 accounts as Account 161 - Career Expenses, Account 356 - Science and Technology Development Fund, Account 417 - Enterprise Restructuring Support Fund, Account 441 - Basic Construction Investment Fund, Account 461 – Career Operating Source, Account 466 - Operating Source forming Fixed Assets; and 35 level 2 accounts including those categories from cash (Account 1111, 1112, 1113...), goods (Account 1531, 1551...), fixed assets (Account 2121, 2131...), and other detailed accounts.

     2.2.2 Renaming of Accounts to:

  • Account 155 - Products
  • Account 2413 - Periodic Maintenance and Repairs of Fixed Assets
  • Account 242 - Expenses awaiting allocation
  • Account 244 - Pledges, Deposits, or Escrows
  • Account 337 - Liabilities arising from Contracts
  • Account 4112 - Capital Surplus
  • Account 419 - Treasury Shares, Repurchased Shares
  • Account 5112 - Revenue from Product Sales
  • Account 5212 - Sales Discounts
  • Account 5213 - Returned Goods

     2.2.3 Addition of New Accounts:

3 level 1 accounts including:

  • Account 137 - Accounts Arising from Contracts
  • Account 332 - Dividends and Profits Payable
  • Account 456 - Science and Technology Development Fund

9 detailed accounts including:

  • Account 2282 – Capital Contribution to Non-jointly Controlled Business Cooperation Contracts
  • Account 2414 – Upgrading and Renovating Fixed Assets
  • Account 4561 – Science and Technology Development Fund
  • Account 4562 – Science and Technology Development Fund forming Fixed Assets
  • Account 6275 – Taxes, Fees, and Charges
  • Account 6416 – Taxes, Fees, and Charges
  • Account 34314 – Bond Issuance Costs
  • Account 34321 – Principal Debt of Convertible Bonds
  • Account 34322 – Convertible Bond Issuance Costs

Two off-balance-sheet accounts are:

  • Account 003 – Collateral Assets
  • Account 006 – Interest on deferred and installment payments from Sales of Assets

     2.2.4 Modifying the Accounting Principles for Certain Accounts:

  • Account 128 - Held-to-Maturity Investments: According to the Draft, the gain/loss from selling bonds will be gradually allocated to financial revenue (financial activities) in line with the bonds' maturity period. Enterprises may either apply the straight-line or the effective interest method (based on estimated market prices).
  • Account 137 - Assets Arising from Contracts: The Draft indicates that Account 137 is utilized to record receivables arising from contracts irrespective of customer approval.
  • Accounts 152 and 156 - Materials, Goods, and Inventory: As outlined in the Draft, goods purchased for both sale and production, in case of unclearly distinguished usage purposes will be classified under Account 152 – Materials and Supplies.
  • Accounts 157 and 158 - Goods Sent for Sale and Inventories in Bonded Warehouse: According to the draft, imported materials stored in bonded warehouses for export goods production for the warehouse owner are recorded in Account 158. In contrast, these materials intended for other customers will be recorded in Account 151 – Goods in Transit.
  • Account 212 - Finance Lease Fixed Assets: According to the draft, finance lease fixed assets will be recorded at their initial cost.
  • Account 229 - Provision for Asset Losses: According to the draft, the title of specific entities like "subsidiaries, joint ventures, associates" will be simplified to "other entities."
  • Account 242 - Expenses awaiting allocation: According to the draft, the mass repair costs for fixed assets that arise once will not be limited to the amortization period.
  • Account 411 - Owner’s Equity: The Draft indicates that an investment license specifying capital in foreign currency must adhere to the current Investment Law. Furthermore, the clearer enhanced guidelines for stock issuance costs have been supplemented.
  • Account 511 - Revenue from Sales and Service Provision: The Draft clarifies a more specific way to determine revenue for real estate transactions.
  • Accounts 6275 and 6416 - Taxes, Fees, and Charges: According to the draft, Account 6275 includes taxes, fees, and charges directly regarding production, such as land rental fee, natural resource tax, and environmental protection tax; otherwise Account 6416 records taxes, fees, and charges related to sales activities.
  • Account 711 - Other Income: The Draft provides a clearer definition of the scope and nature of "other income".
  • Account 003 – Collateral Assets: According to the draft, when assets are pledged, the measurement and verification of the quantity and quality of goods must be done for detailed recognition.
  • Account 006 - Late Payment Interest on Installment Sales: The Draft indicates that enterprises should track the interest receivable and each installment sale contract in detail.

2.3 Adjustment of Classification on Short-term and Long-term Assets and Liabilities in the Financial Statements based on the Operating Cycle:

  • For enterprises with an operating cycle of 12 months or less: Assets that are expected to be recovered or liabilities to be settled within 12 months are classified as short-term, while those expected to be recovered or settled in more than 12 months are classified as long-term.
  • For enterprises with an operating cycle longer than 12 months: Assets expected to be recovered or liabilities to be settled within a normal operating cycle are classified as short-term, while those expected to take longer than a normal operating cycle are classified as long-term.

Enterprises must clearly explain the characteristics and duration of their operating cycle, along with supporting evidence related to the industry and area of activity.

2.4 Modifications on the Financial Statements

  • Statement of Financial Status
  • The balance sheet is renamed as the "Statement of Financial Status."
  • Several items are removed from the report, such as Short-term and long-term loans receivable, payables associated with progressing construction contracts, the enterprise restructuring support fund, the basic construction investment fund, and other funds.
  • New items are added to the report, such as Provisions for held-to-maturity investments, other short-term receivables, and payables arising from contracts.
  • The item "Science and Technology Development Fund" is presented within the Owner's Equity

     2.4.2 Income Statement

  • The item "Gross profit from properties investment" is added.
  • The report format is modified: the signature section and items numbering.

     2.4.3 Cash Flow Statement (Direct Method)

  • Several items are excluded from the report as Operating expenditures and revenue from the sales of investment property.
  • Adding item “advance received for contracts”.
  • Several items related to cash inflows and outflows from operating and investing activities are revised.

     2.4.4 Cash Flow Statement (Indirect Method)

  • Adjusting items about depreciation, adjustments, and cash inflows and outflows from operating and investing activities.

     2.4.5 Notes to the Financial Statements

  • New items are added, including Accounting principles for assets and payables arising from contracts; additional information about pledged assets, interest from installment payments, and costs related to failed issuance of bonds and stocks.

2.5 Other modifications

     2.5.1 Accounting for Foreign Currency Relevant Transactions

  • Application principle of Exchange Rate: The draft adds the application of a weighted average exchange rate (approximately). This rate should ensure to not exceed +/-1% difference with the average interbank buy/sell exchange rate.
  • Revaluation of Foreign Currency Accounts: Foreign currency accounts are to be re-valued according to the average buy or sell exchange rate of the commercial bank where the enterprise frequently transactions.

     2.5.2 Inventory Valuation Method

The Draft of replacing Circular 200 emphasizes the application of the retail price method while evaluating inventory. The method helps companies quickly calculate the output value of inventory without detailed tracking inventory values.

The new points of the 2nd Draft Circular replacing Circular No.200/20214/TT-BTC presented by KMC are for reference only. Should there be any updates or the issuance of an official Circular by the Ministry of Finance, KMC will timely update and notify to keep all customers informed of the latest news. Please do not hesitate to contact KMC for professional support and further assistance.