Vietnam’s IFRS non-application hinders foreign investor decision making

Vietnam’s non-application of the International Financial Reporting Standards (IFRS) makes it difficult for foreign investors to make investment decisions, said a KPMG executive.

Speaking at the recent Vietnam M&A Forum 2022, Lam Thi Ngoc Hao, deputy director of KPMG Vietnam, said foreign investment funds are always looking for companies with high profits for M&A.

Investors often make an M&A decision based on financial statements from previous years (five years or 10 years ago) to forecast companies’ future profit, she said.

“However, it is difficult for them to get transparency from corporate financial statements as Vietnam is one of the countries that have not applied the IFRS yet,” she noted, adding that at present, only two Vietnamese enterprises have registered to use the international standards.

“This has made Vietnam lag behind other countries in attracting investors and reduced its competitiveness," Hao stressed.

Echoing Hao, Dominic Scriven OBE, executive chairman of Dragon Capital Group, advised Vietnamese enterprises to use the IFRS in order to become more attractive to international investors.

Issued by the International Accounting Standards Board (IASB), the IFRS are a set of accounting rules for the financial statements of public companies that are intended to make them consistent, transparent, and easily comparable around the world.

In March 2020, the Ministry of Finance issued a decision approving the scheme on application of the IFRS in Vietnam. Accordingly, the voluntary application will be done from 2022 to 2025 and the mandatory application from 2025.

The IFRS adoption is expected to help businesses ensure more transparency, change and apply new governance models. It will also open up opportunities for companies to develop financial instruments and reporting regulations serving their operation and development in Vietnam.

A survey by Deloitte, also an audit, consulting, tax and advisory services provider, on the readiness of businesses in Vietnam for IFRS application showed that among 322 respondents, foreign-invested firms paid the highest attention, followed by listed and large-scale public companies, as well as state-owned economic corporations.

According to the businesses, the transition from "Vietnamese-style" financial statements to IFRS-adopted ones is not easy. Many of them said the complexity of the IFRS and the huge difference between the two sets of standards are the biggest challenges to the transition.

To apply the new standards, businesses will have to spend 3-12 months or even more preparing financial and human resources, as well as software systems and policies.

Hao further said that another obstacle to foreign businesses when investing in Vietnam is rapidly increasing costs. Therefore, in order to attract large enterprises moving from China and other markets, Vietnam must increase labor productivity and promote innovation.

Besides electricity, water, food and beverage and healthcare, some companies have also eyed construction and real estate even though these industries are facing difficulties in Vietnam, she added.

Companies, when participating in M&A deals, should pay heed to the transparency of information like business contracts, payments, and capital use and project development plans, Hao recommended.