Vietnamese Accounting Reform and International Convergence of Vietnamese Accounting Standards

Due to the economic globalization, the international convergence of accounting standards is inevitable. But the level of economic globalization in among of countries are not the same. There are some differences in accounting environment in the countries. This paper studies international convergence of Vietnamese accounting standards. Firstly, the paper summarizes of the process of Vietnam's accounting reform, second analysis differences between Vietnamese accounting standards and International accounting standards. Finally, proposed strategy convergence of Vietnamese accounting standards and International accounting standards.


Introduction
According to globalization of capital markets has a major impact on the international convergence of accounting standards.Recently, there have been considerable efforts to achieve international convergence of accounting by reducing cross-country differences in accounting practice.Among the efforts of international convergence of accounting standards, the International Accounting Standards Board (IASB) (Note 1) has played an important role, with aims of the development of a single set of high quality global accounting standards that's International Financial Reporting Standards (IFRS).From 2005 many world countries adopted IFRS, firstly is European Union (EU), followed is Australia and NewZealand, etc. Up to date, approximately 117 countries around the world require or permit IFRS reporting for domestic, listed companies (Note 2).However, a few countries are slower convergence with IFRS; these countries are still debating the overall benefits of full IFRS adoption.Since 2001 Vietnam has established Vietnamese accounting standards system based on International Accounting standards system.In general, there is still difference between Vietnamese accounting standards with International accounting standards.However, the process of accounting reform in Vietnam entered into a new phase that is slowly converging Vietnamese accounting standards to International accounting standards and International financial reporting standards (IAS/IFRS).

Overview of Vietnamese Accounting Reform
In 1986, the sixth Congress of the Communist Party of Vietnam.Vietnam declared the construction of socialist orientation of market economy and initiated a comprehensive reform, Vietnamese accounting field has also undergone a series of profound changes.Throughout the developing process of Vietnamese accounting based on economic reform and opening-up policy implementation as the basic background conditions.The Vietnamese accounting reform can be divided into three major periods: 2.1 Period 1 (1981)(1982)(1983)(1984)(1985)(1986)(1987)(1988)(1989)(1990) At the beginning of the 1980s, accounting reform bring the private sector has officially granted a position in the economy.Vietnam Ministry of Finance issued an accounting regulation, even though still simple for private enterprises, known as the Decision 278/QD/CDKT (10/3/1981) "Accounting Policy for Industrial and commercial Business Private Enterprises".Then due to rapid growth of the private sector, the Ministry of Finance had to introduce (issue) more complete accounting policies to regulate the accounting activities of that sector, that is, Decision 229/QD/CDKT (12/1988) "Accounting Policy for Individual household business and Private Business" and Decision 598/QD/CDKT (12/1990) "Accounting Policy for non-State owned enterprise".An important event in this period was the introduction of the "Ordinance on Accounting and Statistics" in 1988.This is the highest legal document on accounting.
Following the economic reform, on March 18th 1989, the Government published Decree no 25/HDBT "Regulation on Organising of State Accounting" and Decree no 26/HDBT "Regulation on Chief Accountant of State-Owned Enterprise".A new chart of accounts and new accounting reports were introduced through Decision 212/QD/CDKT (15/12/1989) and Decision 224/QD/CDKT (18/4/1990) respectively.In general the accounting reforms in this period were not radical so that the accounting system primary to serve planning economy.2 (1991-1995) Innovation policy in this period towards the restructuring of state-owned enterprise began decree no 338/HDBT (11/20/1991), to reduce the number of state-owned enterprises, and improve the quality of its activities.Besides, the other economic sectors also strong development during this period contributed to a market economy more fully than the previous period.This creates a pressure to reform the Vietnamese accounting system to meet the stage of development of market economy in Vietnam.

Period
Under the direct supervision of Prime minister, the Ministry of Finance directed to complete thoroughly accounting reform, covering all elements of accounting and auditing.The Ministry of Finance had mobilised a vast number of accounting experts including academics, accounting policy makers, professional accountants from public accounting and auditing firms, accountants from big state-owned enterprise, and former accounting experts from the South to take part in the accounting reform.In 1995, the Ministry of Finance published a unified chart of accounts (Decision 1141-TC/QD/CDKT, adopted on January 1st, 1995, and effective on January 1st, 1996).In 1994, establishment of the Vietnam Accounting Association (VAA) (Decision 12/TTg 10/01/1994) marked a new important element in the accounting mechanism.
In summary, the accounting regulation issued in this period illustrated the high initiative and effort of the government to radically reform the Vietnamese accounting system.Regarded as an important tool for management, accounting has been renovated to satisfy the information need of an emerging market economy with socialist orientation.

Period 3 (from 1996 until Present)
This period marked a more critical change in the Vietnamese accounting system.The Government, faced with increasing pressures from foreign investors and international financial institutions, such as the World Bank (WB), the Asian Development Bank (ADB) and the International Monetary Fund (IMF), and preparing for the opening of the Vietnamese stock market, committed itself to undertake more vital reform in accounting.
A European Union assistance project, named the European Commission's Technical Assistance Program for Transition to Market Economy in Vietnam (EURO-TapViet), began from September 1995 and finish August 1998.This project has helped Vietnam's leaders understand the international accounting practices and equip certain of knowledge on accounting and auditing of market economy.
With the help of the European Union (EU), in 1996, Vietnam Accounting Association (VAA) successfully organized international conference on accounting with the participation of 160 representatives from professional associations, such as the International Federation of Accountants (IFAC), the European Accounting Association (EAA), the Confederation of Asian and Pacific Accountants (CAPA), the ASEAN Federation of Accountants (AFA) and professional associations in many countries around the world.Also this year the Vietnam Accounting Association (VAA) has been accepted as a member of International Federation of Accountants (IFAC).In 1998 was a member of ASEAN Federation of Accountants (AFA).This event marks an important step in the integration process of the international accounting.
The development of Vietnamese accounting standards was considered to be the best way to make the accounting system achieve greater conformity with international accounting practice.The construction of Vietnamese accounting standards (VAS) on the basis of International Accounting Standards (IAS) and compatibility with the development of Vietnam's economy market and Vietnamese accountancy experience, proficiency and practice.The effort of formulation and promulgation of VAS, on December 31st, 2001, the Ministry of Finance published the first four accounting standards, then issued six others in 2002.To date, the Vietnamese Ministry of Finance has already issued 26 accounting standards, are issued in five phases (see Table 1).
In 2003, the Vietnamese government replaced the ordinance on Accounting and Statistics with the Accounting law.The Accounting Law has marked a critical point in accounting change because it has recognised the importance of accounting in the Vietnamese transition economy by improving its legal status.The Accounting Law was built on a number of bases including a reference to accounting laws of other countries, experience learned in the period of applying the ordinance on Accounting and Statistics, in correspondence with other laws and regulations and the reality of accounting practice in Vietnam.It aims "to uniformly regulate accounting to ensure that accounting is an effective and strict tool in managing economic and financial activities, and to provide complete, true, transparent and in-time information that satisfy the information needs of government authorities, enterprises and individuals in administration and management".This period with the promulgation and application of Vietnamese accounting standards system has significantly contributed in the improvement of legal framework on accounting and enhance the transparency of financial information and create business environment in accordance with regional and international, to maintain confidence for foreign investors in Vietnam.

The Differences of Vietnamese Accounting Standards and IAS/IFRS
The Vietnamese accounting standards is based on IAS with adjustments for economic, finance and accounting Vietnam's conditions.However, there are still differences between Vietnamese Accounting Standards (VAS) and International Accounting Standards and International Financial Reporting Standards (IAS/IFRS).The summarized on these differences is as follows: First of all, Vietnam's accounting standards and accounting system in parallel implementation, this approach differs of most countries and not conducive to the development of Vietnam's accounting standards and international convergence of accounting standards.Secondly, Vietnamese accounting standards structure consists of the basic standard and specific standards (Note 3).VAS01 "Framework" is a standard, not separated as IASB framework so that VAS01"Framework" doesn't plays role equivalent to an IASB Framework, although the purposes set out similar to the IASB framework.The principle of "Substance for from", an important feature principle-based international standards.Thirdly, Vietnamese accounting standards less flexible than IAS, regulations not enough detailte, some new problems have not yet involved, such as financial instrument, impairment of assets, ect.Furthermore, in the specific accounting treatment and disclosure requirements, Vietnamese accounting standards with international accounting standards also there are many differences (see Table 2).-VAS 21 requires an analysis of changes in equity in the notes to the financial statements rather than as a primary statement.
-Information to be presented on the face of the balance sheet and income statements are based on the standard VAS financial statement format.
In addition to the above differences, companies reporting under VAS are also required to apply -Property, plant and equipment should be carried at cost less depreciation.Revaluation of Property, Plant and Equipment is not allowed unless specific approval is obtained from the Government.VAS 03 does not include within its scope the measurement and recognition of asset dismantlement, removal and restoration costs.In determining the cost of an item of Property, Plant and Equipment VAS 03 only includes the costs incurred as a consequence of installing the item.
-IAS 16 requires an entity to measure an item of Property, Plant and Equipment acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets, at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable.IAS 16 requires companies to first look at the fair value of the asset received in measuring the value of the transaction.Under VAS 03, an entity measures such an acquired asset at fair value of either the asset received or given up, adjusted by any cash received or paid.Where the exchanged assets were similar and had similar fair values, the carrying amount of the asset given up is used as the cost of the new asset, even if the fair value of these assets can be reliably determined.The definition of related party under IAS 24 has been expanded to; -parties with joint control over the entity -joint ventures in which the entity is venture; and -post-employment benefit plans for the benefit of employees of an entity, or of any entity that is a related party to that entity.IAS 24 adds a definition of "close members of the family of an individual" and clarifies that non-executive directors are key management personal.-Under VAS, a parent is exempted from preparing consolidated financial statements if the parent is a wholly-owned subsidiary, or is virtually wholly-owned, provided in the case of one that is virtually wholly-owned, the parent obtains the approval of the owners of the minority interest.More conditions must be met under IAS 27 before this exemption is permitted.
-VAS 27 allows a subsidiary to be excluded from consolidation when it operates under severe long-term restrictions which significantly impair its ability to transfer funds to the parent.IAS 27 does not contain such exemption.-a sensitivity analysis that shows how profit or loss and equity would have been affected had changes in the relevant risk variable that were reasonably possible at the balance sheet date occurred; the methods and assumptions used in preparing the sensitivity analysis; and any changes from the previous period in the methods and assumptions used; -qualitative information about sensitivity, and information about those terms and conditions of insurance contracts that have a material effect on the amount, timing and uncertainty of the insurer's future cash flows.

Economic Environment
Economic environment is a major element influencing the international convergence of Vietnamese accounting standards.Socialist market economy in Vietnam is still in the primary stage of development, market economic system is not perfect, business legal system are not perfect, the law did not keep up with the business transactions.Vietnam's capital market scale is relatively small (Note 4) and only in the domestic area and not connected with the world's capital market.In addition the State-owned enterprise property right regime is not perfect, internal structure is weak, the lack of effective supervision mechanism of State-owned enterprises.

Legal Environment
In Vietnam, the government intervenes considerably in accounting standards setting.The Accounting Standards Board (ASB) was established by Minister of Finance.Vietnam Accounting Standards Board is responsibility of establishing the Vietnamese Accounting Standards.The Board consist 13 members are not government officers but not completely independent from the government.The Vietnamese Accounting Association (VAA) does not play an active role setting accounting standards.The Accounting Policy Department of the Ministry of Finance is responsible for these tasks.
Vietnam is a country according the code law system, however most western countries belong to the common law system.The code law countries, in general shareholder protection and transparency requirements of the information are lower than in common law countries (Y.Ding et al. 2007).International accounting standards are setting in accordance with the legal system and the requirements of the common law countries.Vietnamese accounting standards are constructed in accordance with the legal system and the requirements of the according code law country.The Vietnamese accounting system is strictly regulated by law, from laws on accounting (the highest hierarchical level) to circulars (the lowest hierarchical level).

Cultural Environment
Since 1980s, many studies confirm that the cultural factors influence the development of accounting.The cultural characteristics differences between countries have created much different accounting system.For example, the cultures Anglo-Saxon countries, tend to flexibility and accounting judgments.Conversely eastern countries tend to more stringent regulations.According Hofstede's four cultural factors measure the similarities and differences in culture between countries on the world: Power distance (PDI), Individualism (IDV), Uncertainty avoidance (UAI), Long-term Orientation (LTO).These factors influence the development of accounting and the changes of accounting system.
The below Table 3 clearly shows the cultural differences between Vietnam and Anglo-Saxon countries (Note 5).Vietnam is a large power distance and collectivist country.Hence, Vietnam's accounting system tends to strict rules and a unified, is often limited to the disclosure of accounting information, accounting statements.More conservative Collectivist cultural characteristics do not benefit sufficiently reliable information disclosure.

Staff Quality
Vietnam has recognized the importance of the professional organizations, contribute to run accounting and auditing of activities, promote professional specialization.With the policy of development of system provider service of accounting and auditing, to date, in Vietnam there are total of more than 7,000 accountants professional.However, Vietnamese accountants' professional quality is not high, and lack in necessary professional judgment ability.Moreover, in the recent years international accounting system has constant changes, they have no enough time to absorb and grasp these new knowledge.Therefore, this is a large challenge for Vietnam in the process of convergence with international accounting standards system.

Purpose Convergence with International Accounting
Due to the development of Vietnam's stock market and the enterprises operating in several fields such as banking, insurance, etc requires Vietnam needs to a set of high quality accounting standards based on IFRS and ensure compliance to protection the interests investors and other stakeholders.Beside, the current conditions of Vietnam is not compatible with full IFRS adoption.Therefore, a gradual convergence with IFRS may be more suitable for Vietnam.The immediate goal is just convergence for listed companies, the enterprises operating in several fields such as bank, insurance and consolidated financial statements.For the remaining enterprises, will continue to apply Vietnamese accounting standards but is adjusted the gap towards narrowing with IFRS.Maintains chart of accounts uniform, but increased flexibility to help the enterprises have an advantage when apply IFRS.

Roadmap for Convergence of Vietnamese Accounting Standards with IAS/IFRS
Roadmap can stretches for many years with many different stages, each stage can be proposed as follows: Stage I: Improve the business legal system; update and amend the accounting standards issued.

Stage II: Continue to promulgate the new accounting standards based on IAS/IFRS
Stage III: Implementation convergence with IFRS for listed companies, the enterprises operating in several fields such as banking, insurance and others enterprises have consolidated financial statements.

Continue to Improve of Vietnamese Accounting Standards
Continue to review and improve the content of the accounting standards issued, amend and additional the points are not consistent with IFRS.Due to Vietnamese accounting standards is based IAS issued up through 2003, to date the Vietnamese accounting standards not changed to reflect amendments to IFRS.Continue to promulgate Vietnamese accounting standards needed for the development and integration of the economy including standards such as Standard No. 32-Financial instrument; Standard No. 36-Impairment of assets; Standard No. 41-Agriculture; Standard No. 39-Recognition and measurement financial information, etc,...these standards are difficult standards and not popular in Vietnam.Therefore, the drafting process should proceed step by step, in a certain period of sufficient to understand the content of IAS and determine how to apply in Vietnam.

The Improving of Capacity for Team Accountants
International accounting standards IAS/IFRS is considered to be very complex, even at countries with developed economics.Vietnamese Accountants will encounter new accounting concepts and new accounting treatment methods not in the Vietnamese accounting system.Moreover, accounting treatment method of transactions according to international accounting standards IAS/IFRS based on the nature of the transaction, hence requires accountants is sufficient to make judgment and estimates.Therefore, Vietnam needs to develop a team of professional accountants of professional level and professional ethics, in order to achieve recognition of the region and international.Combined training of professional accountants in the country and abroad, not only universities but also through professional organizations.In addition, we should learn from international experiences in accounting training, promote the international harmonization of further accounting training.

Improve and Construction of Mechanism Promulgation Vietnamese Accounting Standards
Need construction Vietnam Accounting Standards Board (VASB) in charge of drafted accounting standards for submission to the Finance Ministry issued.Based on international experience (such as United Kingdom and United States) and the specific situation of Vietnam, VASB should be established four additional institutions as follows: 1) Accounting Standards Advisory Committee have the responsibility to establish a strategy, plans and solution improving the accounting and auditing system.
2) Accounting standards drafting Committee have the responsibility organize researching and drafting accounting standards for submission to Accounting Standard Board.
3) Accounting Standards Guidelines Committee have responsible for issuing guidelines for accounting standards.
4) Audit committee have the responsibility to participate in the assessment and processing of disputes on accounting and auditing.

Conclusion
When formulation of Vietnamese accounting standards (VAS), the perspective is compliance with International financial reporting standards (IFRS), however, Vietnamese accounting standards system still different from international accounting, because only use the contents in accordance with actual conditions in Vietnam; in accordance with the level of economic development, the political regime, legal system, cultural, social; accordance with the level of Vietnamese accountants.These differences are only temporary and increasingly narrow the Vietnamese economic of development to higher level and Vietnamese accountants' professional quality better.Vietnamese accounting standards (VAS) will continue to improve height level, more consistent with IFRS.

Table 1 .
The Vietnamese Accounting Standards After 26 accounting standards were issued and the accounting law were published, the Ministry of Finance to amend the enterprise accounting system to be in line with accounting standards.On March 20th 2006, the Ministry of Finance published the new enterprise accounting system (Decision 15/2006/QD-BTC/CDKT) replaced (Decision 1141-TC/QD/CDKT).

Table 2 .
Main differences between Vietnamese Accounting Standards (VAS) and International Financial Reporting Standards (IAS/IFRS) -Impairment write down of Property, Plant and Equipment is not allowed under VAS 03 unless specific approval is obtained from the Government.

Table 3 .
Comparison of some cultural values between Vietnam and Anglo-Saxon countries