In the context of deepening economic integration, the application of International Accounting Standards (IFRS) is becoming an inevitable trend for businesses globally. This is an important step, helping businesses standardize accounting and financial reporting processes, creating a common accounting language for effective communication and comparison in the international market. However, the transition to IFRS requires comprehensive preparation and reform, from knowledge, processes, to information systems and human resources. In this article, together Bizzi Learn about what businesses need to prepare to successfully adapt and transition to International Accounting Standards (IFRS).
What is IFRS?
IFRS, which stands for "International Financial Reporting Standards", is a collection of international financial reporting standards published by the International Accounting Standards Board (IASB). The goal of IFRS is to create a common global accounting language that makes it easy and consistent for businesses and financial institutions to understand and compare financial information.
Currently, IFRS standards have been accepted and applied in 166 countries and territories around the world. Of these, 144 countries have mandated the application of IFRS in the preparation of financial statements. The remaining countries are in the process of preparing and planning to apply IFRS in the future.
The fact that IFRS is widely recognized around the world demonstrates the international recognition and importance of this standard in improving the transparency and reliability of financial information in the global economic community. .
Why do businesses need to prepare for IFRS International Accounting Standards?
According to experts, the average business will need 3-5 years to train human resources with enough knowledge to be able to prepare financial statements in accordance with International Financial Reporting Standards (IFRS).
Preparing for IFRS is a necessary and important process for businesses for the following reasons:
- Global integration: IFRS is a globally recognized financial reporting standard. When businesses adopt IFRS, their financial information will become easy to compare and understand, helping them integrate with the international economic community, attract investment and new opportunities.
- Improved transparency and trustworthiness: IFRS sets strict requirements for financial reporting and controls. Compliance with IFRS helps businesses improve the transparency and reliability of financial information, increasing confidence among investors and other users of financial information.
- WOMENImprove the quality of management: IFRS standards require a thorough understanding of accounting and finance. Preparing for IFRS requires businesses to focus on training and improving the knowledge of human resources, thereby improving the quality of management and accounting processes.
- Competitive positioning: Applying IFRS allows businesses to compete more effectively in the international market. International investors and trading partners tend to trust the financial statements prepared in accordance with IFRS, helping businesses to build a stronger reputation and position in the business competition.
- Responding to legal requirements: In many countries, the application of IFRS has become mandatory for businesses, especially those listed on the stock exchange. Being prepared for IFRS helps businesses meet legal requirements and avoid the risk of violations.
In summary, preparing for IFRS is a time-consuming and labor-intensive process, but it brings many great benefits to businesses, helping them to progress and integrate strongly into the global economy.
Roadmap to convert VAS to IFRS
The roadmap to apply IFRS in Vietnam starts from 2022 and officially applies in 2025, posing many challenges for businesses.
On March 16, 2020, the Ministry of Finance approved the "Project on the application of international financial reporting standards IFRS in Vietnam", marking an important turning point in the field of Accounting - Finance. This project has set out a three-stage roadmap for VAS to IFRS conversion as follows:
3.1. Phase 1: Preparation time from 2020 to 2021
At this stage, the Ministry of Finance will focus on preparing documents, developing financial mechanisms and processes, guiding businesses and training human resources, facilitating the transition to phase 2. This period is a golden opportunity for businesses to prepare and get ready to transition to IFRS.
3.2. Phase 2: Voluntary application period from 2022 to 2025
Enterprises with the need and ability to apply IFRS standards will be able to voluntarily register and receive permission from the Ministry of Finance to apply IFRS to the preparation of financial statements. This target group includes: FDI companies with 100% foreign capital, large-scale parent companies, whether or not listed on the market, or being part of state economic groups or sponsored by organizations. international financial institution.
3.3. Phase 3: Compulsory application from 2025
Entities encouraged to voluntarily apply IFRS and commercial banks will be required to comply with international financial reporting standards when preparing financial statements. The remaining small and micro enterprises will use Vietnamese Financial Reporting Standards (VFRS) with guidance from IFRS, to ensure compliance with international regulations. Other enterprises will prepare financial statements according to the guidance of the Ministry of Finance.
Thanks to the implementation of this project, the Accounting - Finance industry in Vietnam will gradually integrate into the international economic community and meet the requirements of international financial reporting standards.
What should businesses pay attention to when preparing to apply International Accounting Standards IFRS
According to Mr. Trinh Duc Vinh - Deputy Director of the Department of Management and Supervision of Accounting and Auditing, Ministry of Finance, the training of an enterprise's staff to be proficient in International Accounting Standards (IFRS) takes a long time. about 3-5 years. For potential foreign enterprises, this time may be only 3 years, but for Vietnamese enterprises, it is necessary to consider more about the time required.
4.1. Benefits of adopting IFRS
The application of International Accounting Standards (IFRS) brings many significant benefits to businesses as follows:
- Improve the quality of financial statements: When applying IFRS, the company's financial statements will be improved with a higher level of complete and relevant information than current accounting standards. This helps to increase the transparency and reliability of financial information, thereby building credibility and trustworthiness in the market.
- Advantages in international transactions: Applying IFRS helps businesses to have more advantages in international transactions. It is easy for foreign partners to read and understand information on financial statements of enterprises, helping to create trust and attract cooperation and investment opportunities from international investors.
- Reducing costs for FDI enterprises: FDI enterprises in Vietnam will reduce costs for converting financial statements from VAS to IFRS to merge with overseas parent companies. As IFRS is a globally recognized accounting standard, using the same standard saves time and money in reviewing and processing financial information.
- Improve management and business efficiency: Using IFRS helps businesses improve administrative and business efficiency. This standard provides clear and detailed guidance on financial reporting and asset valuation, helping businesses make accurate and data-driven financial and strategic decisions. reliable.
4.2. Things businesses need to consider before deciding to apply IFRS
Before deciding to apply International Accounting Standards (IFRS), businesses need to consider the following issues:
4.2.1. The issue of costs and benefits
The conversion and operation of an accounting and financial reporting system under IFRS requires a significant investment in cost, time and effort. Therefore, businesses need to estimate these costs and compare them with benefits before deciding to apply IFRS.
4.2.2 Material change
Applying IFRS will lead to some material changes in the accounting and financial activities of the enterprise. This includes differences between tax and accounting bases, variations in the terms of economic contracts, and the need to provide complete and detailed information as required by IFRS.
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Difference between tax base and accounting
When using IFRS, some transactions are accounted for and reflected in the financial statements using different methods than the historical cost method. This leads to the difference between the accounting data and the tax authority's tax base (at cost). This discrepancy can make it difficult to maintain parallel IFRS accounting records and subsidiary accounting books to track the tax base as well as to track deferred taxes incurred as a result of the difference. between tax and accounting.
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Changing the terms of an economic contract
Applying IFRS may require changing the terms of economic contracts to conform to the requirements of this standard. This requires the accounting department and the legal department to work together to understand the legal rights and obligations of the contract and related regulations in IFRS. From there, correctly and fully determine arising financial rights and obligations to serve as a basis for accounting.
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Request for complete and detailed information
IFRS requires businesses to provide more complete and detailed information than Vietnamese Accounting Standards. Therefore, the accounting department needs to work closely with other departments in the business to collect all the information required by IFRS. For example, IFRS Standard 15 on Revenue from Contracts with Customers requires that the accounting department be familiar with the terms of the supply of goods and services in the revenue contract. This requires coordination with relevant departments to collect sufficient information for accounting purposes and make necessary amendments to the contract if necessary.
Before deciding to adopt IFRS, an enterprise should perform an overall study and assessment of the changes, estimate the costs and benefits, and be prepared to comply with the requirements and changes. in the application of International Accounting Standards.
4.3. Contents businesses need to gradually prepare
The amount of time and investment required to apply International Accounting Standards (IFRS) varies depending on the size of the business, the economic sector and the stage of development of the business. Ensuring efficiency instead of spreading investment requires considering and ensuring the level of investment (cost, time, human, material) in accordance with the needs and capabilities of each business.
4.3.1. Data conversion from Vietnamese Accounting Standards to International Accounting Standards (IFRS) under IFRS 1 – First IFRS application
To convert data from Vietnamese Accounting Standards to International Accounting Standards (IFRS) in accordance with IFRS 1 – The first time applying IFRS, enterprises need to develop a process to comply with the guidelines of this standard. . This is the process that applies to entities preparing financial statements in accordance with International Accounting Standards (IFRS) for the first time. Vietnamese enterprises will use the guidelines in this standard to convert their financial statements for the first time to IFRS according to the plan of the Ministry of Finance.
The data transformation needs to follow a step-by-step process and requires a long enough time to prepare the relevant content. Therefore, businesses should take advantage of experts on International Accounting Standards (IFRS) for advice and support to implement this content in the most accurate and effective way. Hiring an expert helps ensure your business gets it right and productive from the very first step in the transition.
4.3.2. Improve understanding of International Accounting Standards (IFRS) and finance for relevant personnel
In order to improve the understanding of International Accounting Standards (IFRS) and finance for relevant personnel, it is necessary to conduct training not only for the accounting department staff but also for the Board of Directors and the Board of Directors. key management staff. This ensures they have good coordination with the accounting department when required to provide or explain information and data related to IFRS. Businesses need to motivate employees to take courses on International Accounting Standards (IFRS) and how to apply it in practice.
This helps provide them with the knowledge and skills they need to effectively apply IFRS in their day-to-day work. The training ensures that all relevant personnel have the same understanding of IFRS, thereby facilitating the application of this standard and ensuring consistency and accuracy in handling financial information. . From attending the training, employees can master the IFRS principles and regulations, as well as learn how to apply them to real business situations. This will help improve working efficiency, ensure consensus and reliability in financial information, and increase the value of the business in the international market.
4.3.3. Need to reorganize and upgrade the accounting information system
To convert and prepare Financial Statements (Financial Statements) according to International Accounting Standards (IFRS), enterprises need to reorganize and upgrade their accounting information systems. The preparation of financial statements under IFRS has many differences in recognition, measurement, presentation and disclosure compared with current standards. Therefore, enterprises need to review and make changes (if necessary) to the following contents of the accounting information system to ensure the suitability and stability when officially applying IFRS:
- Building a new account system and financial statement preparation process in accordance with International Accounting Standards (IFRS).
- Streamline the process of processing and gathering data from all relevant departments, and clearly define their respective responsibilities for coordinating with the accounting department.
- Reorganize the accounting-finance personnel to ensure that the positions are suitable for the new requirements.
- Upgrade accounting and business administration (ERP) software to meet higher requirements of International Accounting Standards (IFRS).
- Upgrading the database for the measurement and valuation of items on the financial statements according to the guidance of the International Accounting Standards (IFRS).
However, to implement the above changes, businesses need to prioritize and optimize resources, not spending more than necessary. Therefore, businesses should have support and advice from experts on International Accounting Standards (IFRS) to ensure the effectiveness and success of the transformation process.
4.3.4. Adjusting terms in economic contracts with partners
To adapt to International Accounting Standards (IFRS), businesses need to adjust the terms in economic contracts with partners. IFRS has strict requirements for determining liability for delivery of goods or completion of services. Therefore, enterprises need to review contracts with suppliers and customers and compare them with the contract-related requirements of IFRS to make appropriate adjustments. This should be consulted by IFRS experts and attorneys to ensure accuracy and relevance from the outset.
4.3.5. Anticipate negative effects (if any) on financial ratios
Before converting financial statements to International Accounting Standards (IFRS), enterprises need to anticipate the negative effects (if any) on financial ratios and plan appropriate responses to cope with the situation. this situation. Eg:
- Assets that are impaired due to revaluation at fair value: Because IFRS has stricter requirements on asset revaluation, businesses need to anticipate the possibility of asset devaluation. To respond appropriately, businesses can consider adjusting investment strategies, managing assets more effectively, and ensuring they have enough reserves to restore asset value if necessary.
- Non-guaranteed payout metrics: When converting to IFRS, some cash flows in the financial statements may change, affecting the solvency of the business. Therefore, businesses need to build a careful financial plan, ensure there is enough working capital and cash flow to meet future payment needs.
- Declining revenue when recognized under the new accounting policy: The revenue recognition guidelines in IFRS may differ from previous ones. Businesses need to come up with a plan to increase sales, look for new opportunities to increase revenue, and adjust business strategy to respond flexibly to this change.
In summary, planning and forecasting an appropriate response to negative effects during the transition of financial statements to IFRS is very important to ensure stability and success in adapting to the Accounting Standards. International. Enterprises need to consider and implement appropriate measures to minimize risks and optimize business performance.
Above is information about what businesses need to prepare to switch to the IFRS accounting system. The transition from Vietnamese Accounting Standards to International Accounting Standards (IFRS) is not simply a formal process, but requires considerable effort and investment from businesses. However, if implemented correctly and with appropriate planning, the application of IFRS will bring outstanding benefits, improve the quality of financial statements, enhance reputation and enhance competitiveness in the market. international School. To succeed in this transformation, businesses need a strategic vision, close coordination of related departments and consulting support from experts on International Accounting Standards (IFRS). .
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