|
THE
MINISTRY OF FINANCE
-------
|
SOCIALIST
REPUBLIC OF VIETNAM
Independence - Freedom – Happiness
---------------
|
|
No. 12568/BTC-CĐKT
Re: Clarification of Circular No.
200/2014/TT-BTC
|
Hanoi,
September 9, 2015
|
To:
- Deloitte Vietnam Co., Ltd
- Ernst & Young Vietnam Co., Ltd
- KPMG Vietnam Co., Ltd
- PwC Vietnam Co., Ltd
The Ministry of Finance hereby responds
to the official dispatch from Deloitte, E&Y, KPMG, and PwC dated June 26,
2015. The dispatch requested clarification regarding certain contents specified
in Circular No. 200/2014/TT-BTC dated December 22, 2014, which provides
guidelines for accounting policies for enterprises. In light of this, the
Ministry of Finance provides the following comments:
1. Enterprises that mainly conduct
sales and purchases in foreign currencies, and meet the requirements for using
foreign currency as the accounting currency, still have the option to choose
VND as the accounting currency, without the obligation of selecting a foreign
currency.
2. Enterprises are allowed to apply
the actual exchange rate on January 1, 2015 to convert undistributed after-tax
profits on January 1, 2015 in the notes to the financial statement because 2015
is the first year of implementation of Circular No. 200 and there is no
retroactive request on this matter.
The conversion of financial
statements prepared in foreign currencies into VND is done in the same method
as VAS 10 and Circular 161/2007/TT-BTC when converting financial statements of
overseas subsidiaries. Attributing conversion difficulties to the accounting
software's inability to meet requirements is not valid, as software is merely a
supporting tool. When accounting policies change, supporting tools must change
with them to ensure proper adherence to the updated policies. It is noted that
the above provisions of Circular No. 200 are completely consistent with IAS 21,
so enterprises need to convert financial statements according to international
practices.
3. Recognition of revenue and cost
of intra-company transactions in purchase, sale and transfer of goods and
services
In addition to Clause 2, Article 8
of Circular No. 200, this matter is also specified at Point e, Clause 3.2,
Article 20 as follows: “e) When selling goods or providing services for
affiliated units in the enterprise, according to operation and level in every
unit, the revenue may be recognized either at the time in which the goods or
services are transferred to dependent accounting units or at the time in which
the dependent accounting units sell goods or services.”
...
...
...
Please sign up or sign in to your
TVPL Pro Membership to see English documents.
4. Notes regarding fair value and
value decline
- Fair value of financial
investments
When determining the fair value of
trading securities for presentation in the notes to the financial statement, the
enterprise may use the market value of securities it holds, as outlined in
Point c, Clause 1, Article 15 and Point a, Clause 1.2, Article 45 of Circular
No. 200.
As for equity investments in
unlisted entities, their fair values are determined based on valuation
techniques. If the fair value of the investments contributed as capital to
another entity cannot be reliably determined, the enterprise shall provide an
explanation in Section 2c, Part VI, pertaining to additional information to the
financial investment item on the notes to the financial statement.
- Decline in the value of
investment real estate
Clause 1.6, Article 39 of Circular
No. 200 on investment property stipulates “1.6. Enterprises do not depreciate
investment property held for capital appreciation. In case it is evident that
the investment property falls against market fair value and the decrease is
determined reliably, the decline in cost of the investment property and the
loss shall be recorded to costs of goods sold (similarly to provision for
properties held for sale)”.
Thus, the assessment of value
decline must only be made when there are solid signs and evidence. If the
decline in value of the investment property cannot be reliably determined, the
enterprise will not record the loss due to such reason, but provide an
explanation in Section 2c, Part VI, pertaining to additional information to the
financial investment item on the notes to the financial statement.
5. Recording the environmental
restoration cost
Circular No. 200 only stipulates
the advance deduction of the environmental restoration cost and the use of
account 3524 for accounting. The amount of deduction, the time of starting and
ending the deduction... must comply with the mechanism and policy applicable to
each industry and each unit. For example, the advance deduction for oilfield
cleanup cost of PetroVietnam or the advance deduction for environmental
restoration cost of Vinacomin must comply with the specific provisions of the
law applicable to each individual industry.
...
...
...
Please sign up or sign in to your
TVPL Pro Membership to see English documents.
According to Circular No. 200, when
calculating EPS, adjustments must be made to the amount already or to be
deducted from the Commendation and Welfare Fund. The amount deducted from the
Commendation and Welfare Fund in the previous period is not used to determine
EPS in this period. The difference (if any) between the expected deduction of
the previous period and the actual deduction (possibly in the next period) is
adjusted to the EPS of the previous period (re-reported) and disclosed in the
financial statement.
7. Exchange rate issues
a) Regulations on application of
exchange rates to foreign currency transactions: According to Article 69 of
Circular No. 200, enterprises must use different exchange rates related to
foreign currency transactions. If a single exchange rate is applied to multiple
types of transactions, it may not align with the specific financial nature and
content of each transaction, leading to following potential issues for
enterprises:
- Accounting software must meet the
standard set forth in Circular No. 103/2005/TT-BTC by allowing for upgrades,
modifications, and supplements that comply with changes in accounting
regulations and financial policies, without disrupting existing databases. In
fact, implementing regulations on exchange rates in Circular No. 200 does not
pose a problem for most enterprises, including 100% foreign-invested ones.
However, a few enterprises are facing challenges due to their accounting
software not meeting the prescribed standards.
- The proposal to apply a single
exchange rate to all types of intraday transactions will face the following
problems:
+ The use of a single exchange rate
from a commercial bank or reliable issuing organization for accounting purposes
may not always provide an accurate depiction of the actual transaction. It is
inappropriate for an enterprise to transact with one bank, yet use the exchange
rate of another bank where the transaction did not take place.
+ When following the interbank
average exchange rate as per Decision No. 15/2006/QD-BTC, only the exchange
rate of Vietnamese dong and the US dollar is used. However, determining
exchange rates of other currencies can be challenging due to cross-exchange,
which may affect data’s reasonableness.
+ If only the buying rate or
selling rate of a commercial bank is applied to various transactions, it would
create inconsistency with reality. For example, for a purchase on credit for
goods or services, an enterprise must record a liability corresponding to
related items. When repaying the debt to a supplier, the enterprise must
purchase foreign currency from the bank at the selling rate, so the transaction
will be recorded at the bank's of foreign currency selling rate. When an
enterprise receives foreign currency from sales, it must record the
corresponding sales revenue. Regulations on foreign exchange management require
the enterprise to sell the foreign currency to a bank and receive Vietnamese
Dong at the buying rate.
+ In the current complicated
exchange rate situation, a single buying or selling rate, or even the average
of both, may not provide an accurate reflection of the financial state and
exchange rate discrepancies faced by enterprises, especially those whose
transactions involve large foreign currencies.
...
...
...
Please sign up or sign in to your
TVPL Pro Membership to see English documents.
- When foreign currency monetary
items are revaluated to recognize exchange rate differences at the time of
preparation of the financial statement, the profit or loss resulting from
exchange rate differences due to revaluation will be carried forward and
reflected in the financial statements at the time of preparation, rather than
solely at the end of the financial year due to typos in Circular No. 200.
- The subsidiary company's use of
the exchange rate set by the parent company to re-evaluate foreign currency
monetary items only applies to the subsidiary having a parent company in
Vietnam. As for subsidiaries with overseas parent companies, this provision
applies only to consolidated financial statements, not to financial statements
published in Vietnam.
8. Convertible bond issues
Circular No. 200 guides 02 methods
of recording and allocating bond issuance costs:
+ In case bond issuance costs are
allocated using the straight-line method, the determination of the present
value of future cash flows must exclude bond issuance costs (should be a
minus).
+ In case bond issuance costs are
allocated using the actual interest method, the determination of the present
value of future cash flows includes bond issuance costs (should be a plus).
However, due to negligence,
Circular No. 200 has not clearly stated the difference between these two
situations. The audit firms are recommended to guide enterprises to clearly
distinguish between the two cases.
- Because issued bonds are always
determined into 2 components: principal and options. The principal is always
the present value of the future payment (in which the cash flow is discounted),
so there is no longer any concept of discount or premium. Discount or premium
solely applies to ordinary bonds.
- Bonds, as financial instruments
traded on the market and typically involving multilateral transactions, are
generally relevant only to public interest entities Therefore, the accounting
for bond issuance costs should immediately comply with international accounting
standards.
...
...
...
Please sign up or sign in to your
TVPL Pro Membership to see English documents.
9. Issues of liabilities and
provisions
- According to International Accounting
Standard No. 37 which Circular No. 200 has approached, the provision is a
liability that:
+ Buyer has not received the
service provided (work has not been performed);
+ The liability amount can be
reliably measured but is not completely certain;
+ The time for payment of the
liability is uncertain.
Therefore, in light of IAS 37,
Circular No. 200 stipulates that the advance for major repair of fixed assets
according to the technical requirements of fixed assets as a current obligation
to ensure that the assets can operate normally as design standards is the
provision. Because it meets all 3 requirements of IAS. It also does not
contradict VAS 18 because VAS 18 has not mentioned this issue.
- The deduction from the Science
and Technology Development Fund is made (although enterprises can choose) in
accordance with the law (i.e., has legal obligations) and has been done since
2009 in accordance with the Law on Science and Technology. The recent Circular
No. 200 simply inherits and upholds this regulation, rather than introducing
anything new. Thus, the Circular does not go against VAS.
10. Guidelines for preparation of
cash flow statements
According to regulations, Account
242 includes a lump sum payment of land rent that cannot be recognized as an intangible
fixed asset. In essence, the cash flow of lump sum payment of land rent or the
cash flow arising from the purchase of land use rights for a definite term are
categorized as cash flows from investment activities. However, if the payment
is made in installments, it is classified as operating cash flow. Therefore,
the item "increase and decrease in prepaid expenses" does not include
the difference between the closing balance and the opening balance of the
lump-sum payment of land rent which is not eligible for recognition as
intangible fixed assets (Circular No. 200 has a misspelling of the word “khong”
(no)).
...
...
...
Please sign up or sign in to your
TVPL Pro Membership to see English documents.
- Circular No. 200 has a spelling
error that is the redundant word "BDSDT” (investment property). Only the
difference between revenue and expenditure on liquidation and sale of fixed
assets is presented as the above net amount in “other income” item, while
revenue from investment property is presented in the “revenue” item, not in the
“other income” item.
12. Prepaid expenses
Prepaid expenses are classified as
short-term or long-term based on their original term, not their remaining term.
It is important to note that long-term prepaid expenses should not be
reclassified as short-term..
13. Notes to
the financial statements
The notes to the financial
statements can also apply the concept of materiality. The Ministry of Finance
cannot respond to an unclear question. It should be noted that when applying
the concept of materiality, it must be disclosed in the “Other information”
section of Section IX.7 of the Notes to Financial Statements.
14. Revenue recognition
In light of the principle, revenue
must be recognized in proportion to the incurred liability. Therefore, the
enterprise cannot recognize revenue from gifts and promotions until they have
been delivered as it does not meet the requirement for revenue recognition.
Accordingly, the enterprise may not record a deduction from cost of goods sold
for gifts and promotions.
15. Deduction in advance for sales
deductions
- According to the principle of
prudence, only expenses can be deducted in advance, not the sales deductions
because if the number of sales to be deducted has been determined, the sales
must be recognized at the net amount immediately.
...
...
...
Please sign up or sign in to your
TVPL Pro Membership to see English documents.
16. Account 413
- As for purchases of assets or
expenses paid immediately in a foreign currency (not through the accounts
payable), the bank’s buying rate shall apply (Because the enterprise does not
have to spend VND to purchase foreign currency, as it can utilize the foreign
currency fund or the foreign currency deposited for payments). This provision
is intended to ensure that assets are not recognized above their recoverable
value.
- As for asset purchase or incurred
expenses whose payment has not yet been made, the enterprise shall record the
liability at the bank's selling rate to ensure the principle that liabilities
are not recognized lower than payable obligations.
17. Investment property
Circular No. 200 does not require
retroactive application, so the accumulated depreciation of investment property
held for capital appreciation is still presented in the entry “Accumulated
depreciation” and disclosed in a separate line in the notes to financial
statement (it is consistent with paragraph 25 of VAS No. 5 and Clause 1.8
Article 39 that the conversion of the use purpose of the investment property
does not change the cost of the investment property in determining the value or
preparing the financial statement).
18. Circular No. 200 stipulates
that enterprises must record losses due to decline in value of investment
property in line with international practices and when the investment property
increases again, the enterprise is entitled to a maximum refund of the amount
recorded in the previous decrease.
19. Compliance with the Vietnamese
Accounting System
Circular No. 200 states that
enterprises are not obliged to include a column of corresponding accounts in
their accounting books. This is because the Circular grants flexibility to
enterprises to choose the format of their accounting books, as long as they
give a true and fair view of their financial position.
20. Comparison in financial
statements
...
...
...
Please sign up or sign in to your
TVPL Pro Membership to see English documents.
- The accounting for convertible
bonds in accordance with Circular No. 200 shall be carried out from 2015
onwards. Convertible bonds issued in previous years are not required to apply
retroactive regulations to recalculate the balance.
21. Capitalization of interest cost
- Pursuant to point g, Clause 1,
Article 54 of Circular No. 200, "The determination of capitalized interest
cost must comply with the VAS "Borrowing costs". The capitalization
of loan interest in some specific cases is as follows: As for a loan
dedicated to the construction of fixed assets and investment property, the loan
interest is capitalized even if the construction period is less than 12
months”.
International practice does not
specify that the time for the construction of unfinished assets is over or
under 12 months, so to ensure that it reflects the true nature and is
consistent with international practices, fixed assets and investment property
are usually not must be mass-produced assets such as inventories. Therefore,
Circular No. 200 stipulates capitalization even if the construction period of
the property is less than 12 months.
Accounting standards and corporate
accounting regulations are both promulgated by the Ministry of Finance, so
according to the Law on Promulgation of Legislative Documents, if there is any
discrepancy between documents issued by the same agency regulating the same
issue, the subsequent document will supersede the earlier document.
ON
BEHALF OF MINISTER
DIRECTOR OF DEPARTMENT OF AUDIT AND ACCOUNTING REGULATION
Dang Thai Hung
...
...
...
Please sign up or sign in to your
TVPL Pro Membership to see English documents.