Tuan further said that the step-by-step application of IFRS is needed to create a transparent business environment with a view to further luring capital inflows as the private sector is seen as the driving force behind the national economy.
In the light of extensive global integration, Vietnam is a country with high level of economic openness as the trade agreements the country signed and is being negotiated implies an atmosphere and room for expanding free trade, attracting investment flows, especially from the private sector, the vice minister said. Thus, he noted that it is essential for the IFRS adoption by Vietnamese businesses.
However, the application of IFRS in Vietnam poses a string of difficulties and challenges. The capital market emerges as the biggest barrier since Vietnam has yet to develop a strong enough financial market.
Some financial instruments such as convertible bonds, derivatives and preferred stocks have not been widely traded. Hence, most local businesses have no or little experience in conducting such transactions and accounts of relevant business activities.
These lead to the fact that it finds difficult to seek businesses’ reliable information related to financial values.
Meanwhile, the IFRS requires a number of complex tactics and some subjective assessments which include estimating appropriate values regardless of no quoted prices and determining the current value of future cash flows. Therefore, without careful preparations, Vietnamese enterprises could find it hard to apply the IFRS.
Language is also another barrier as the IFRS is issued in English. When disputes occur between businesses, auditors, and inspectors, the language barrier would account for highly controversial causes.
According to the International Accounting Standards Committee, 131 out of the 143 countries and territories have asserted the application of IFRS in different forms. Of which, 119 require all or most of their public entities to adopt the IFRS.