Accounting

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 105

THE PROSPECTS OF APPLING THE INTERNATIONAL FINANCIAL REPORTING STANDARDS IN VIETNAM –

AN EMPIRICAL STUDY OF ACCOUNTING PROFESSIONALS

Wen-Hsiang Lin Department of Accounting

I-Shou University, Taiwan, ROC [email protected]

Shu-Hui Su＊

Department of Accounting I-Shou University, Taiwan, ROC

＊Corresponding author: [email protected]

Thi Thanh Phan College of Management

I-Shou University, Taiwan, ROC [email protected]

Abstract

The purpose of this study is to investigate the implications of applying International Financial Reporting Standards (IFRSs) in Vietnam. A survey was conducted to identify issues of apply- ing IFRSs in Vietnam. The results indicate that: (1) the information of IFRSs in Vietnam is not really adequate and not diversified enough, (2) a large percent of respondents tend to agree with the benefits of applying IFRSs, such as better comparability with other businesses, lower cost of capital, and less reporting transform cost, (3) the lack of knowledge and the complexity of IFRSs and the training of accounting staffs are important challenges in apply- ing IFRSs, and (4) a large majority of respondents believe that convergence to IFRSs is con- sistent with the conditions of Vietnam and the best time to introduce convergence to IFRSs is the period 2015 to 2016.

Key Words: International Financial Reporting Standards (IFRSs), Vietnamese

Accounting Standards (VASs), Convergence to IFRSs

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Introduction

Accounting, as a tool of economic management, has also been experi- enceing major changes in recent years. Abell, et al. (2008) asserted that the issuance and adoption of International Financial Reporting Standards (IFRSs) around the world is now a special con- cern of most national and professional organizations. Vietnam plan to com- plete the integration in the field of ac- counting and auditing before 2020. Vi- etnamese Accounting Standards (VASs) is generally based on IFRSs updated in 2003 while “a formal date for the full adoption of IFRSs has not yet been accounted”. The purpose of this study is to identify the most suita- ble timing and the best way to apply IFRSs in Vietnam. The findings pre- sent that a majority of respondents be- lieved that convergence IFRSs is con- sistent with the conditions of Vietnam. Convergence means Vietnam should update, amend, supplement, and refine VASs to fit with IFRSs. This research enhances the accounting practical for assessment and reflects the general perception about IFRSs, which identify the possible way available to Vietnam for using IFRSs smoothly.

Literature Review

For the strong development of capital markets and multinational en- terprises, the financial transactions are great and growing in complexity worldwide. Jauffret (2010) claimed that the biggest advantage of using IFRSs is a common reporting language all over the world. Additionally, the application of IFRSs will bring many benefits to stakeholders such as enter- prises, investors, nations and also ac- countants and auditors.

According to Jermakowicz and

Gornik-Tomaszewski (2006), Tweedie

(2006) and Fajardo (2007), adopting IFRSs would remove barriers to cross- border transactions in the securities market, increase trade and investment and help enterprises integrate easily into the capital markets, and also result in a lowered cost of capital. The appli- cation of an accounting language worldwide will increase comparability of financial information (Tweedie, 2006) which allows investors to see different companies from different countries in the same way, thereby in- creasing abroad investment opportuni- ties. Secondly, as a single set of high quality accounting standards, IFRSs increases financial disclosure “to en- sure the transparency of financial re- porting” (Nobes, 2001), reduce misun- derstanding and risks in making in- vestment decisions. Additionally, the adoption of IFRSs would reduce de- velopment and maintenance costs for national accounting standards. Inves- tors will be more confident in the transparency and reliability of financial information so contribute to the devel- opment of national stock market. Im- plementing IFRSs would help to attract more foreign investments (Sikidar and Das, 2008) and also to easier access to loans and capital from international organizations to develop national eco- nomic (Gyasi, 2010). Applying IFRSs worldwide will take advantage as the global network of accountant and audi- tor. When accounting standards and audit procedures are consistent from country to country, it would be easier for training and shifting accountants and auditors around the world (Tweed- ie, 2006).

One of research questions in this

study is: What are the implications for Vietnam if it applies the International Financial Reporting Standards? When business activities become increasingly complex, the rapid application of IFRSs becomes more urgent than ever.

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Applying IFRSs means a new account- ing environment to be formed, and it requires providing full information about IFRSs. To provide prospects of the application of IFRSs in Vietnam, this study would like to evaluate the sources of IFRSs in Vietnam. There- fore, the first hypothesis was proposed as following:

H1: The information of IFRSs in Vi-

etnam is adequate and diversified.

When joining the WTO, the Vietnam’s goal is to complete the inte- gration in the field of international ac- counting and auditing before 2020. In which, the period 2010 - 2020, dynam- ic phase of integration: Vietnam’s comprehensive integration and equality with other countries in the field of ac- counting and auditing, we can both import and export accounting and au- diting services. Thus, the rapid update and refine VASs to fit with IFRSs is as inevitability. Therefore, the second hy- pothesis would be:

H2: The update and refine VASs to fit

with IFRSs is indispensable.

Next, the current globalization of the world economy has made business activities more standardized (Epstein, 2009). Along with the strong develop- ment of capital markets and multina- tional enterprises, the financial transac- tions are great and growing complexity worldwide. According to Nobes (2001), Carroll (2003), Jermakowicz et al. (2006), Epstein (2009), Gyasi (2010), and Jauffret (2010), the appli- cation of IFRSs to record and report on the economic activities of enterprises will bring many benefits. This content was presented as advantages of IFRSs in literature review. To revaluate of the benefits from applying IFRSs to Vi- etnam, the third hypothesis would be:

H3: The benefits of applying IFRSs in

Vietnam are clear.

Finally, besides the benefits of IFRSs, the application of IFRSs takes many challenges for many countries including Vietnam. According to Kan- nan (2009), most enterprises faced a lack of practical experiences about IFRSs. In the present period of transi- tion to IFRSs in Vietnam, it will be difficult not only because there are the differences between IFRSs and VASs, but also IFRSs is considered to be very complex, even for developed econo- mies. So the fourth hypothesis is as follow:

H4: The challenges of applying IFRSs

in Vietnam are clear.

Methodology

This study uses an email survey through questionnaire to solicit re- sponses from the population as Viet- namese accountants and accounting lecturers. The first section of the ques- tionnaire requires the respondents to circle or highlight the appropriate an- swer, either “yes” or “no” or choose the best answer for multiple-choice questions in the column provided, based on their understanding of IFRSs. The next section is to identify the time and best way to apply IFRSs in the fu- ture. The third section covers a list of expected benefits of the adoption of IFRSs to enterprises, investors, State/ nation, accountants and auditors in Vi- etnam.

Respondents were asked to indi-

cate their opinions based on a five- point Likert scale for measurement of the answers which range from “1” (strongly disagree) to “5” (strongly agree). The fourth section includes five items of expected challenges of apply- ing IFRSs in Vietnam. Here respond-

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ents are asked to indicate how agree on each challenge by using a five-point Likert scale from “1” (strongly disa- gree) to “5” (strongly agree). The final section was designed to acquire demo- graphic data of respondent such as gender, age, level of academic qualifi- cation, job, and years of experience in teaching and working as an accounting professional.

To test the above four hypothesis,

the data were subjected to one samples t-tests. Also, to investigate the relation- ship between the demographic varia- bles and the evaluation of IFRSs re- source, the ways and the reasons to contacting the IFRSs information, the suitable time and way in applying IFRSs, the benefits and challenges, a cross tabulation analysis with Chi- Square test, an independent sample t- tests and one way ANOVA were ap- plied. The demographic variables were the independent variables, and the oth- ers items were dependent variables. In addition, a logistic regression statistics was applied to measure the direction of the association between the way for applying IFRSs and the expected bene- fits of using IFRSs. The logistic re- gression equation is:

WAY = f (α, benefit for enterpris-

es factors; benefit for investors factors; benefit for nation factors; benefit for accountants and auditors factors)

In which the assumption that the

approach to apply IFRSs (WAY) is assigned 1 means convergence, 0 means full adoption. The results ob- tained from the analysis are reported in the next section.

Result and Discussion

148 people including 80 lecturers, 62 accountants and 6 auditors is the sample of the study. More than a half

of respondents have invested in the stock market. The sample seems to be represented not only the accounting lecturers and the accountants but also the investors in Vietnam. The key find- ings and discussion are explicated in the followings based on Table 1-4.

The first hypothesis that “the in-

formation of IFRSs in Vietnam is ade- quate and diversified” is rejected. Ac- cording to responses, lecturers show a greater satisfaction with IFRSs re- source than accountants. The reason is that the lecturers have high levels of scientific research and usually study in theoretical accounting, as well as help- ing to apply this knowledge practical- ly. They also have many more oppor- tunities to attend conferences, to read books, newspapers and magazines. Generally, almost all of the young re- spondents (less than 45 years old) re- ported that they know IFRSs from the internet. People, who have master's or doctor's degree and have invested in the stock market, have higher opportu- nities to know IFRSs from confer- ences, newspapers and magazines. Moreover, the findings show that even now twenty six respondents have no knowledge of IFRSs. Then, to increase the accuracy of analytical results, peo- ple who have never known about IFRSs will be excluded from continued analyses.

Regarding the frequency of con-

tacting IFRSs resources, the most common frequency response is several times a month with the average time if 2.94 hour. The primary reason for con- tacting the IFRSs information was the necessary for the respondent’s job. Im- proving accounting ability and re- spondent’s interest were cited in turn as the second and the third most im- portant reason. Furthermore, some of the respondents reported one of their reasons for contacting the IFRSs in-

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formation was their attendance at a conference, congress, or other forms of education. Finally, there are some re- spondents who have business reasons for contacting the IFRSs information. The above results suggest that a large part of accountants in Vietnam has not yet had urgent needs for using IFRSs so they pay little attention to these standards. These results may be inter- preted as showing that some of re- spondents have no real motivation or lack the conditions necessary for learn- ing about IFRSs.

As a consequence, if the demand

for IFRSs is not large enough then the supply of IFRSs’ resources may not be abundant or diverse is understandable. Therefore, the second hypothesis “the update and refine VASs to fit with IFRSs is indispensable” is accepted. Moreover, the findings suggest that lecturers have a tendency to conver- gence IFRSs higher than accountants and they believe that the best time to apply (by the way of convergence) IFRSs in Vietnam is period 2015 to 2016. Explaining the reason for choos- ing convergence IFRSs, Prof. Dang Van Thanh, the chairman of VAA and accounting faculty of Hanoi University of Business and Technology says that: “Vietnam’s economy is in conversion so the characteristics and development level are different with other coun- tries”. Therefore, we need to select the appropriate steps to Vietnam during the application of IFRSs. Furthermore, others who choose convergence IFRSs also gave some reasons that include: IFRSs is relatively complex because it covers all transactions in the developed economies. While Vietnam is a devel- oping country where there may not be many complex transactions. Besides, the ability for accountants to take a shortcut to apply IFRSs in Vietnam may not be enough. Hence, Vietnam should be careful in choosing the way

to apply IFRSs, and also should amend the standards (if necessary) to suit the conditions.

The findings from this study con-

firm that a large percent of respondents believe that the change in accounting and reporting under IFRSs as the bene- fits for enterprises, including (1) easier access to capital (2) greater reporting transparency, and (3) improved quality and timeliness of management infor- mation. The expected benefits of the change, such as (1) better comparabil- ity with other businesses, (2) lower cost of capital and (3) reduce reporting transform cost are questioned by most respondents. Likewise, the change as increase cross-border listings and in- vestment opportunities for investors is also questioned by many. Fortunately, there is general consensus that the oth- er expected benefits for investors, na- tion, accountants and auditors in Vi- etnam are clear. Then taken together, these findings suggest that the third hypothesis – namely, “the benefits of applying IFRSs in Vietnam are clear” is accepted. On the other hand, the re- sults of logistic regression analysis show that respondents who agreed more strongly with the changes under IFRSs including: (1) lower cost of cap- ital, (2) increase cross-border listings and investment opportunities for inves- tors, (3) create the confidence for in- vestors, contributing to the develop- ment of stock market, (4) create the global network of accountants and au- ditors, who more tend to convergence IFRSs. While of those who agreed more that using IFRSs will make (1) greater reporting transparency, (2) re- duce reporting transform cost, (3) easi- er compare the financial results of companies operating in the different jurisdictions, (4) reduce the cost of ac- counting standards development and maintenance, (5) easier provide ac- counting and auditing services in dif-

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ferent countries, those more tend to adoption IFRSs.

There is general consensus that

IFRSs are so complex to apply IFRSs, the training of accounting and man- agement staff is the most important challenge. Besides, almost respondents have limited knowledge of IFRSs and the barrier of language (in English). The findings then suggest that the fourth hypothesis – namely, “the chal- lenges of applying IFRSs in Vietnam are clear” is accepted. Finally, the find- ings here suggest that to be successful in applying IFRSs, Vietnam’s MOF should make a clear step-by-step plan that includes increasing accountant’s awareness of IFRSs, issuing the stand- ards lacking compared to IFRSs, and quickly bringing IFRSs into education.

Conclusion

The results have important implica-

tions, especially for the best way and the timing to apply IFRSs in Vietnam. Specifically, this study indicates that the convergence IFRSs is consistent with the conditions of Vietnam and the best time to convergence to IFRSs is period 2015 to 2016. The findings of this study provided the suggestion that Vietnam’s MOF must build an integra- tion roadmap with each step in detail. This roadmap requires effort on the MOF, enterprises, professional asso-

ciations, education and the accountants and auditors.

Besides completing the legal

framework, strengthening the activities of professional associations have also played an important role in the success of applying IFRSs. VAA will carry a heavy responsibility in disseminating new knowledge. To accomplish its mission, VAA should continue to im- prove its role in the transmission and dissemination of knowledge from theo- ry to practice. Accounting schools need quickly to renew the program, content, and training methods of ac- counting and auditing at all levels. Training program requires not only conform to the existing standards, but also need to gradually prepared pre- conditions for convergence with inter- national accounting. Furthermore, the schools should become a bridge be- tween enterprises and the application of new standards with the role as a guide.

For the urgent need to improve the

transparency of accounting infor- mation, Vietnam accounting profes- sionals are not only having great op- portunities but also facing so many challenges. In order to achieve the suc- cess in converging to IFRSs, they need to develop a specific roadmap for rais- ing awareness, training and improving the legal framework.

Reference

Abell, C., Corley, J. & Fiore, M. (2008). IFRS conversion: 10 reasons why tax should be in- volved. International Tax Re- view. London. Available at: http://proquest.umi.com/pqdwe b?did=1590529891&sid=1&Fm t=3&clientId=48072&RQT=30 9&VName=PQD.

Carroll, N. (2003). Thought required before the IFRS plunge. Aus- tralian CPA. Vol. 73, Iss.10, pg. 76.

Epstein, J. B. (2009). The Economic Effects of IFRS Adoption. The CPA Journal. New York, Vol.79, Iss.3; 26-31, 6 pgs.

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 111

Fajardo, C. L. (2007). The Move Towards Convergence of Ac- counting Standards World Wide. Journal of American Academy of Business, Cam- bridge. Vol. 12, Iss. 1; 57-62, 6 pgs.

Gyasi, A. K. (2010). Adoption of In- ternational Financial Reporting Standards in Developing Coun- tries - The Case of Ghana. Business Economics and Tour- ism, University of Applied Sci- ences. Variable: http://publi- cations.theseus.fi/handle /10024/15526.

Jauffret, P. (2010). Asia needs better voice on IFRS. International Financial Law Review. London.

Jermakowicz, E. K. & Gornik- Tomaszewski, S. (2006). Im- plementing IFRS from the per- spective of EU publicly traded companies. Journal of Interna- tional Accounting, Auditing and Taxation. Volume 15, Issue 2, 2006, 170-196, 27pgs.

Kannan, R. (2009). Reporting of the committee on IFRS compliance in India Insurance industry. In- surance regulatory and devel- opment authority. 203pgs.

Nobes, C., ed. (2001). GAAP 2001: A survey of National Account- ing Rules Benchmarked against International Accounting Standards by Andersen, BOD. Deloitte Touche Tohmatsu. Ernst & Young, Grant Thornton, KPMG, Pricewater- houseCoopers. New York, NY: J Wiley & Sons.

Sikidar, S. & Das, A., (2008). Con- vergence of Accounting Stand- ards with IFRS: A Comparative Analysis. Management Ac- countant. Vol. 43, Iss. 12; pg. 905.

Tweedie, D. (2006). Prepared stand- ards of Sir David Tweedie, Chairman of The International Accounting Standards Board before the Economic and Mone- tary affairs Committee of Euro- pean Parliament. Available at: http://www.iasplus.com/resourc e/0601tweedieeuspeech.pdf.

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Table 1. Job vs. Vietnam's IFRSs Resource is Adequate

Vietnam's IFRSs resource is adequate

Mean F Sig.

Mean dif. Sig. Strongly

disagree Disagree

Partly Agree

Agree Strongly agree

Accountant 22 29 11 0 0 1.82 13.221 -0.627

Lecturer 5 38 34 2 1 2.45 .000*** .000***

Auditor 1 3 1 1 0 2.33

Total 28 70 46 3 1

Table 2. Job vs. The Way in Applying IFRSs

The way in applying IFRSs X2 F Mean Dif.

Others Adoption Convergence (p) (p) (p)

Accountant 0 26 21 32.901 8.043 -.585 Lecturer 6 7 60 .000*** .001*** .001*** Auditor 0 0 2 Total 6 33 83

Table 3. The Way in Applying IFRSs vs. The Best Time to Apply IFRSs

The best time to apply IFRSs in Vietnam

M e a n

t - v a l u e

201 2 -

201 4

15 –

16

17 - 18

19 –

20

A ft er 2 0 2 0

p ( 2 - t a il e d )

Adop tion

1 3 12 14 3

3 . 4 5

6 . 3 0 9

Con- ver- gence

23 34 18 5 3

2 . 1 7

. 0 0 0 *

*

*

Total 24( 19. 7%)

37( 33. 6%)

30( 26. 2%)

19( 15. 6%)

6( 4. 9 % )

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Table 4. Tests of Independence and Association between the Ways to Apply IFRSs and the Expected Benefits for Accountants and Auditors

WAY = α + b1 * aCACALATW + b2 * aANABMC + b3 * aATABATQ + b4 * aESTSIDC +b5 * aCTGNOAAA

Benefit factors B S.E. df Sig.

aCACALAT W

-.254 .401 1 .526

aANABMC .498 .499 1 .319

aATABATQ -

1.130 .493 1

.022

**

aESTSIDC -

1.237 .450 1

.006

***

aCTGNOAA A

.737 .358 1

.039 **

Constant 7.154 2.446

1

.003 ***

Chi-square 23.791 ***

Overall Percentage 78.4 %

Note 1: ** , *** indicate significance at the 0.05, and 0.01 levels, respectively.

Note 2: WAY equal 1 means convergence, 0 means adoption.

Note 3: Benefit factors included benefits for accountants and auditors which aCACALATW means

create a common accounting language around the world, aANABMC means accountants and audi-

tors become more competitive, aATABATQ means standardize training and better assure the quali-

ty of their work on a global basis, aESTSIDC means easier sell their services in different countries,

and aCTGNOAAA means create the global network of accountants and auditors

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