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Vietnam

7 Chapter Accounting

7.1 Accounting system

Accounting system

Accounting system is under the administration of the Ministry of Finance (MOF) and has been improving and increasing in the number of accounting firms recently under the Law on Accounting (2003). The MOF has issued and approved two accounting system regimes applied for all foreign enterprises which are ‘medium and small sized enterprises’ and ‘enterprises of other scale’. The Vietnamese accounting system regulates specific accounting codes, account names and provides a standard chart of accounts for internal accounting documentation and the bookkeeping records which must be mentioned by Vietnamese language and currency. In case an enterprise needs to amend, supplement the accounting system or even wants to use another one, they are required to submit their system to and obtain approval from the MOF.

There are 26 Vietnamese Accounting Standard issued by the MOF which are applying to all enterprises in Vietnam’s economic and must be followed strictly by all companies and corporations. In case there is any difference from Vietnamese Accounting Standards and Systems, the enterprise needs to register with the MOF to obtain prior written consent.

Languages used in accounting records by enterprises must be either Vietnamese or another widely used foreign language approved by the MOF. Only Arabic numerals and Metric system are allowed in accounting records.

Law and regulation of accounting

Item	Description
Law on Accounting 2003
Vietnamese accounting standard
Vietnamese accounting system
Securities Act
The provisions of the Stock Exchange

Accounting related laws and regulations

Basic law for Vietnamese accounting system is the Law on Accounting 2003. And the Vietnamese Accounting Standard is implemented by the MOF through the Accounting and Auditing Policy Department.
Accounting period (Article 13)

An accounting year as known as an accounting period is a company’s annual financial reporting period. An accounting period may be an annual, a quarterly or a monthly accounting period. An annual accounting period can be typically a period of 12 months calendar year (January 1 to December 31) or permitted to select 12 months period beginning the first day of each quarter (April 1 to March 31 of the following year; July 1 to June 30 of the following year; or October 1 to September 30 of the following year). A quarterly accounting period consists of 3 months which is counted from the beginning of the first day of the first month of a quarter to the end of the last day of the last month of the quarter. And a monthly accounting period is from the beginning of the first day to the end of the last day of the month.

The first accounting period runs from the date of issuing the investment license to the last day of the accounting year. Annual financial reports must be submitted to authorities within 90 days from the date that the annual accounting period ends. Where the first or the last annual accounting period is shorter than 90 days, it shall be allowed to be added to the following or the previous annual accounting period for counting as an annual accounting period. The first or the last annual accounting period must be shorter than 15 months.
Accounting record

Accounting records includes accounting vouchers, accounting books, financial statements, management accounting reports, audit reports, accounting inspection reports and other accounting-related records. The accounting units shall have to manage, use, preserve and archive accounting records, supply complete and truthful accounting information and records in a timely and transparent manner to organizations and individuals according to law provisions.

Accounting records for archival must be original ones for 12 months as from the last day of the annual accounting period or after the accounting work finishes. Accounting records must be archived at least 5 years, 10 years, or perpetual archival depending on kinds of accounting documents. A penalty shall be subjected from 1 million, 10 million or even 20 million Vietnamese Dong to a party that violates the law for not observe preservation regulations.
Accounting evidence

Accounting evidence is the original accounting documents that must be subjected to preservation included: accounting vouchers, accounting books, financial reports, and other related documents.

According to Decree No. 39/2011/ND-CP of May 26, 2011, a fine of between VND 200,000 and 2,000,000 shall be imposed for any of the acts of making accounting vouchers without sufficient principal details prescribed by the accounting law; erasing or tampering with accounting vouchers; signing accounting vouchers in contravention of regulations on signatures of post holders required for each type of accounting voucher. A fine of between VND 2,000,000 and 10,000,000 shall be imposed in case of making sale invoices but failing to hand them to customers according to regulations. Or a fine of between VND 10,000,000 and 30,000,000 shall be imposed for the act of forging or making false declarations on accounting vouchers…

VAT invoice can be used as an evidence document. Sale invoices must be made and handed over to customers by organizations and individuals when selling goods and services. However, for cases of goods retailing or service involving a sum of money lower than VND 200,000, sale invoices may not be made if not asked for by the goods buyers. In the other hand, sale invoices also need to be created by the goods sellers or service providers when organizations and individuals buy good or are provided with services.
Accounting currency

The official accounting currency unit is the Vietnamese dong. Where economic or financial operations arise in foreign currencies, they must be recorded in both original currencies and Vietnam dong at the actual exchange rates or converted at the exchange rates announced by Vietnam State Bank at the time they arise, unless otherwise provided for by law; for those foreign currencies for which the rates of exchange with Vietnam dong are not available, they must be converted via a foreign currency for which the rate of exchange with Vietnam dong is available.

The accounting units which have revenues and expenditures mostly in foreign currencies may choose a foreign currency prescribed by the Ministry of Finance as a monetary unit for accounting, but, when making financial statements for use in Vietnam, must covert it into Vietnam dong at the exchange rate announced by Vietnam State Bank at the time of closing books for making financial statements, unless otherwise provided for by law.
Accounting language

The script used in accounting is the Vietnamese script. Where a foreign script must be used in accounting vouchers, accounting books and financial statements in Vietnam, the Vietnamese script and the foreign script must be used simultaneously.
Chart of account

Vietnam’s Ministry of Finance issued a uniform chart of accounts for enterprises’ financial statements. In general, there are two main accounting systems which are for industrial enterprises and for credit institutions. The chart of accounts is applicable to all enterprises including Foreign Invested Enterprises, quite rigid and categorized in nine groups: current assets, non-current assets, liabilities, owner equity, revenues, expenses, other income, other expenses and income summary. Each category contains a number of account codes such as Cash On Hand is 111 with sub account codes Vietnamese Dong is 1111, Foreign Currency is 1112, and Monetary Gold is 1113… Enterprises may create sub account by themselves at level 1 and level 2 under the strictly defined accounts. However, modification is not allowed unless there is an approval from the MOF.
Chief Accountant

According to Accounting Law 2003, all enterprises must arrange persons to work as chief accountants who must has certificate of chief accountants’ training and actually performed accounting work for at least two years to have the task of organizing the accounting work in the company.

Chief accountants shall have the responsibility to implement the law provision on accounting and finance in the accounting units, organize and administer the accounting apparatuses, compile financial statements and have right to work independently in their professional accountancy activities, give written opinions on the recruitment, transfer, salary rise, commendation or disciplining of accountants…
Vietnam accounting software

There are some typical accounting software in Vietnam such as FAST and MISA. In principle, language used for bookkeeping must be Vietnamese. If the accounting book system is processed and recorded by the accounting software programs, it must ensure the principle of making entries in a selected accounting form, and at month end, the accounting books must be printed out for use and archival. Enterprises may use accounting software programs without having to register them but such programs must be compatible with a certain accounting forms prescribed in the Vietnamese enterprises’ accounting system.

Accounting method for fixed assets

According to Circular 45/2013/TT-BTC, an asset shall be named as a fixed asset if it satisfies all the followings:

Be able to get benefit in the future from using;
Be able to be used more than one year;
Has the value of VND 30,000,000 or more.

Vietnam Chart of Account

Account Code		Account Name
Sub 1	Sub 2	Account Name
Assets
111		Cash on hand
	1111	Vietnamese Dong
	1112	Foreign currencies
	1113	Monetary Gold
112		Cash in bank
	1121	Vietnamese Dong
	1122	Foreign currencies
	1123	Monetary Gold
113		Cash in transit
	1131	Vietnamese Dong
	1132	Foreign currencies
121		Trading securities
	1211	Shares
	1212	Bonds
	1218	Securities and other financial instruments
128		Investment held to maturity
	1281	Term deposits
	1282	Bonds
	1283	Loans
	1288	Other investment held to maturity
131		Trade receivables
133		Deductible VAT
	1331	Deductible VAT of goods and services
	1332	Deductible VAT of fixed assets
136		Internal receivables
	1361	Working capital provided to sub-units
	1362	Internal receivables on foreign exchange differences
	1363	Internal receivables on borrowing costs eligible for capitalization
	1368	Other internal receivables
138		Other receivables
	1381	Shortage of assets awaiting resolution
	1385	Receivables from privatization
	1388	Other receivables
141		Advances
151		Goods in transit
152		Raw materials
153		Tools and supplies
	1531	Tools and supplies
	1532	Packaging rotation
	1533	Instruments for rent
	1534	Equipment and spare parts
154		Work in progress
155		Finished goods
	1551	Finished goods
	1557	Real estate finished goods
156		Merchandise goods
	1561	Purchase costs
	1562	Incidental expenses
	1567	Property inventories
157		Outward goods on consignment
158		Goods in bonded warehouse
161		Government sourced expenditure
	1611	Expenditure of previous year
	1612	Expenditure of current year
171		Government bonds purchased for resale
211		Tangible fixed assets
	2111	Buildings and structures
	2112	Machinery and equipment
	2113	Transportation and transmission vehicles
	2114	Office equipment
	2115	Perennial trees, working and producing animals
	2118	Other tangible fixed assets
212		Finance lease assets
	2121	Finance lease tangible fixed assets
	2122	Finance lease intangible fixed assets
213		Intangible fixed assets
	2131	Land use rights
	2132	Copyrights
	2133	Patents
	2134	Trademarks and brand name
	2135	Computer software
	2136	Licenses and franchises
	2138	Other intangible fixed assets
214		Depreciation of fixed assets
	2141	Depreciation of tangible fixed assets
	2142	Depreciation of finance lease assets
	2143	Amortization of intangible assets
	2147	Depreciation of investment properties
217		Investment properties
221		Investment in subsidiaries
222		Investment in joint ventures and associates
228		Other investments
	2281	Equity investments in other entities
	2288	Other investment
229		Allowance for impairment of assets
	2291	Allowances for decline in value of trading securities
	2292	Allowances for investment loss in other entities
	2293	Allowances for doubtful debts
	2294	Allowances for inventories
241		Construction in progress
	2411	Acquisition of fixed assets
	2412	Construction in progress
	2413	Extra-ordinary repair of fixed assets
242		Prepaid expenses
243		Deferred tax assets
244		Mortgage, collaterals and deposits
Liabilities
331		Trade payables
333		Taxes and other payables to State Budget
	3331	Value Added Tax (VAT)
	33311	Output VAT
	33312	VAT on imported goods
	3332	Special consumption tax
	3333	Import and export tax
	3334	Corporate income tax
	3335	Personal income tax
	3336	Tax on use of natural resources
	3337	Land and housing tax, and rental charges
	3338	Environment protection tax and other taxes
	33381	Environment protection tax
	33382	Other taxes
	3339	Fees, charges and other payables
334		Payables to employees
	3341	Payables to staff
	3348	Payables to others
335		Accrued expenses
336		Internal payables
	3361	Internal payables for working capital received
	3362	Internal payable on foreign exchange differences
	3363	Internal payables on borrowing costs eligible for capitalization
	3368	Other inter-company payables
337		Progress billings for construction contracts
338		Other payables
	3381	Surplus of assets awaiting resolution
	3382	Trade union fees
	3383	Social insurance
	3384	Health insurance
	3385	Payables on privatization
	3386	Unemployment insurance
	3387	Unearned revenue
	3388	Others
341		Borrowings and finance lease liabilities
	3411	Borrowings
	3412	Finance lease liabilities
343		Issued Bonds
	3431	Ordinary bonds
	34311	Par value of bonds
	34312	Bond discounts
	3432	Convertible bonds
344		Deposits received
347		Deferred tax liabilities
352		Provisions payable
	3521	Product warranty provisions
	3522	Construction warranty provisions
	3523	Enterprise restructuring provisions
	3524	Other provisions
353		Bonus and welfare fund
	3531	Bonus fund
	3532	Welfare fund
	3533	Welfare fund used for fixed asset acquisitions
	3534	Management bonus fund
356		Science and technology development fund
	3561	Science and technology development fund
	3562	Science and technology development fund used for fixed asset acquisition
357		Price stabilization fund
Owner’s Equity
411		Owner’s equity
	4111	Contributed capital
	41111	Ordinary shares with voting rights
	41112	Preference shares
	4112	Capital surplus
	4113	Conversion options on convertible bonds
	4118	Other capital
412		Revaluation differences on asset
413		Foreign exchange differences
	4131	Exchange rate differences on revaluation of monetary items denominated in foreign currency
	4132	Exchange rate differences in pre-operating period
414		Investment and development fund
417		Enterprise reorganization assistance fund
418		Other equity funds
419		Treasury stocks
421		Undistributed profit after tax
	4121	Undistributed profit after tax of previous year
	4212	Undistributed profit after tax of current year
441		Capital expenditure funds
461		Government sourced funds
	4611	Government sourced funds of previous year
	4612	Government sourced funds of current year
466		Non-business funds used for fixed asset acquisitions
Revenue
511		Revenues
	5111	Revenue from sales of merchandises
	5112	Revenue from sales of finished goods
	5113	Revenue from services rendered
	5114	Revenue from government grants
	5117	Revenue from investment properties
	5118	Other revenue
515		Financial income
521		Revenue deductions
	5211	Sales discounts
	5212	Sales returns
	5213	Sales allowances
Cost Of Production And Business
611		Purchase
	6111	Purchases of raw materials
	6112	Purchases of goods
621		Direct raw material costs
622		Direct labour costs
623		Costs of construction machinery
	6231	Labour costs
	6232	Material costs
	6233	Tools and instruments
	6234	Depreciation expense
	6237	Outside services
	6238	Other expenses
627		Production overheads
	6271	Factory staff costs
	6272	Material costs
	6273	Tools and instruments
	6274	Fixed asset depreciation
	6277	Outside services
	6278	Other expenses
631		Production costs
632		Costs of goods sold
635		Financial expenses
641		Selling expenses
	6411	Staff expenses
	6412	Materials and packing materials
	6413	Tools and instruments
	6414	Fixed asset deprecation
	6415	Warranty expenses
	6417	Outside services
	6418	Other expenses
642		General administration expenses
	6421	Staff expenses
	6422	Office supply expenses
	6423	Office equipment expenses
	6424	Fixed asset depreciation
	6425	Taxes, fees and charges
	6426	Provision expenses
	6427	Outside services
	6428	Other expenses
Other Income
711		Other income
		Other Expenses
811		Other Expenses
821		Income tax expense
	8211	Current tax expense
	8212	Deferred tax expense
Income Summary
911		Income Summary

7.2 Accounting standard

The main features of Vietnam Accounting Standard

According to Vietnam Accounting Law 2003, all enterprises must comply with Vietnam accounting standard. There are 26 standards in Vietnam accounting standard in the table below.

Vietnam Accounting Standard

Number	Accounting Name
Standard No.1	General standard
Standard No.2	Inventories
Standard No.3	Tangible fixed assets
Standard No.4	Intangible fixed assets
Standard No.5	Investment property
Standard No.6	Leases
Standard No.7	Accounting for investment in associates
Standard No.8	Financial reporting of interest in joint ventures
Standard No.10	Effects of changes in foreign exchange rates
Standard No.11	Business combination
Standard No.14	Turnover and other incomes
Standard No.15	Construction contracts
Standard No.16	Borrowing costs
Standard No.17	Income taxes
Standard No.18	Provisions, contingent assets and liabilities
Standard No.19	Insurance contract
Standard No.21	Presentation of financial statements
Standard No.22	Disclosures in financial statements of banks and similar financial institutions
Standard No.23	Event after the balance sheet date
Standard No.24	Cash flow statements
Standard No.25	Consolidated financial statements and accounting for investments in subsidiaries
Standard No.26	Relates party disclosures
Standard No.27	Interim financial reporting
Standard No.28	Segment reporting
Standard No.29	Changes in accounting policies, accounting estimates and errors
Standard No.30	Earning per share

The difference between Vietnam Accounting Standard and International Financial Reporting Standards

International Financial Reporting Standards (IFRS) are global accounting standards issued and regulated by the International Accounting Standard Board (IASB) to guide the preparation and presentation of financial reports. Vietnam uses IFRS as a basis for its own system, the Vietnamese Accounting Standards (VAS). Vietnam’s government has issued 26 VAS based on IFRS. The Ministry of Finance recently issued Circulars No. 200/2014/TT-BTC and No. 202/2014/TT-BTC to provide guidance for local and foreign enterprises in Vietnam on these standards which make the two systems less different. The key differences between International Accounting Standards (IAS) and Vietnamese Accounting Standards (VAS) are listed below:

Presentation of Financial Statements

While IAS’s Financial Statements include Balance Sheet, Income Statement, Cash Flow Statement, Statement of Changes in Equity, and Notes; VAS doesn’t have Statement of Changes in Equity. According to standard 21 of VAS, the Statement of Changes in Equity is enclosed in the Notes, rather than as a primary component of the financial statement. Plus, VAS does not require disclosure of management’s key judgments, assumptions about the future and sources of estimation uncertainty.

Cash Flow Statements

Cash Flow Statements from IAS 7 are based on the balance sheets from the first and final period accounting reports. Receivable accounts and trade payables in IAS can be separated from receivable accounts and trade payables on the sale of fixed assets or long term assets.

For VAS 24, Cash Flow Statements are taken from the cashbook and ledger bank deposits corresponding to the side account. VAS 24 gives guidance on setting up cash flow statement using the indirect method starting from pre-tax profits plus or minus the adjustment including differences of payables excluding payables related to financial investment activities.
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Inventories 
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To account the inventory valuation, “Last in – First out” (LIFO) method is not allowed in IAS but it is used in VAS. 
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Tangible fixed assets
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While VAS 03 only allows recording tangible fixed assets with the original cost method, IAS 16 uses two methods which are cost and revaluation method. Further more, IAS 38 stipulates that land and the right to use land are considered as tangible assets, while VAS 04 views them as intangible fixed assets.
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Real Estate Investment

Enterprises can use the fair value model to measure the value of real estate investment in accordance with IAS 40, but for VAS 05, fair value measurement is not allowed. Investment properties must be measured at cost less accumulated depreciation.

7.3 Disclosure system
- Disclosure
  
  An enterprise should disclose, either on the face of the balance sheet or in the notes to the balance sheet, further sub-classifications of the line items presented, classified in a manner appropriate to the enterprise’s operations. Each item should be sub-classified, when appropriate, by its nature and, amounts payable to and receivable from the parent enterprise, fellow subsidiaries and associates and other related parties should be disclosed separately. The disclosures will vary for each item, for example: tangible fixed assets, receivables, inventories, provisions, equity capital and reserves from profits.
  
  Income Statement
  
  According to VAS 21, as a minimum, the face of the income statement should include line items which present the following amounts:
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1. Revenue from sales of goods and rendering of services;
 2. Deductible items;
 3. Net revenue from sales of goods and rendering of services;
 4. Cost of goods sold;
 5. Gross profit from sale of goods and rendering of services;
 6. Income from financial activities;
 7. Expenses from financial activities;
 8. Selling expenses;
 9. General and administration expenses;
 10. Other income;
 11. Other expenses;
 12. Share of profits and losses of associates and joint ventures accounted for using the equity method (in the case of consolidated income statement);
 13. Operating profit;
 14. Enterprise income tax;
 15. Profit after tax;
 16. Minority interest in profit after tax (in the case of consolidated income statements);
 17. Net profit / loss for the period.
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- Disclosure schedule
  
  Annual financial statements must be submitted to the authorities within 90 days after the last day of the annual accounting period as prescribed by law. Time limit for enterprises to publicize their financial statements is within 120 days as from the last day of the annual accounting period.
- Penalty of disclosure violations
  
  Based on Decree No. 105/2013/ND-CP in 2013, the fine from VND 500 thousand to 50 million will be applied for any violation in accounting. A fine of between VND 20 and 30 million will be imposed for forging or falsifying accounting documents; making originals of accounting documents with different contents; destroying or intentionally damaging accounting documents. A fine of between VND 40 and 50 million will be subjected to organizations providing audit services without certificates of eligibility for provision of audit services, or hiring, borrowing or using auditor certificates from other persons who do not work for the enterprises.
  
  Violators will also be required to destroy forged, counterfeit or falsified dossiers, documents, degrees and certificates, restoring accounting books and correcting erroneous information; refunding illicit profits earned through administrative violations forged, counterfeit or falsified dossiers, documents, degrees and certificates.

7.4 Audit system

Compulsory audit

According to Decree No. 105/2004/ND-CP, annual financial statements of foreign invested enterprises, organizations engaged in credit or banking activities, Development Assistance Fund, financial institutions and insurance business enterprises, state own enterprises, and some specific investment projects... must be audited by auditing enterprises.

The State encourages all enterprises and organizations to hire auditing enterprises to audit their annual financial statements but in reality, it seems a burdensome cost to afford the auditing price for any company.
Audit period

Like accounting period, where the first or the last annual audit period is shorter than 90 days, it shall be allowed to be added to the following or the previous annual audit period for counting as an annual audit period. The first or the last annual audit period must be shorter than 15 months.

Audit report

As a general rule, an enterprise must create an audit report once a year. The audit report is required to be Vietnamese language. Audit reports in other languages can be accepted in addition with the Vietnamese report.

Unqualified opinion

An unqualified opinion (clean opinion) is an audit report from auditors claiming that there is no any misrepresentation in the business’s financial records which means that the financial records have been maintained in accordance with the GAAP. This is the best type of report that a business can receive.

Qualified opinion

A qualified opinion will be issued when a company’s financial records have not been maintained in accordance with GAAP but no misrepresentations are identified. A qualified opinion may include the reason why the audit report is not unqualified.

Disclaimer of opinion

An enterprise may receive disclaimer of opinion when the auditor cannot complete an accurate audit report due to an absence of appropriate financial records.

Adverse opinion

This is the worst type of report to a business claiming that the enterprise’s financial records do not conform to GAAP. Since investors, lenders and other relating parties will not accept this, a company must correct its financial statement when this type of report is issued.

Vietnamese Audit Standards

No. of Standard	Name of Standard
VSA 200	Objective and general principles governing an audit of financial statements
VSA 210	Audit contract
VSA 220	Documentation
VSA 240	Fraud and error
VSA 250	Consideration of laws and regulations in an audit of financial statements
VSA 260	The Auditor's Communication with Those Charged with Governance
VSA 300	Planning
VSA 310	Knowledge of the business
VSA 320	Audit materiality
VSA 330	The Auditor's Procedures in Response to Assessed Risks
VSA 400	Risk assessments and internal control
VSA 401	Auditing in computer information systems
VSA 402	Audit considerations relating to entities using service organizations
VSA 500	Audit evidence
VSA 501	Audit evidence - additional consideration for specific items
VSA 505	External Confirmations
VSA 510	Initial engagements - opening balances
VSA 520	Analytical review procedures
VSA 530	Audit sampling and other selective testing
VSA 540	Audit of accounting estimates
VSA 545	Auditing Fair Value Measurements and Disclosures
VSA 560	Events after balance sheet date
VSA 570	Going concern
VSA 580	Management presentation
VSA 600	Using the work of another auditor
VSA 620	Using the work of an expert
VSA 700	The auditor's report on financial statements Representation
VSA 710	Comparatives
VSA 720	Other information in documents containing audited financial statements
VSA 800	The auditor's report on special purpose audits
VSA 910	Engagements to review financial statements
VSA 920	Examination of financial information using agreed-upon procedures
VSA 930	Engagements to compile financial statements
VSA 1000	Audit the finalized report of construction contract

Vietnam

7 Chapter Accounting

1 Chapter Basic knowledge

2 Chapter Investment Environment

3 Chapter Economic Policy

4 Chapter Incorporation

5 Chapter M&A

6 Chapter Corporate Laws

7 Chapter Accounting

8 Chapter Tax Laws

9 Chapter International Human Resources Management

Real Estate Investment