You are on page 1of 24

Asian Review of Accounting

Accounting in a developing transitional economy: the case of Vietnam


Doan Ngoc Phi Anh Duc#Tho Nguyen

Article information:

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

To cite this document:


Doan Ngoc Phi Anh Duc#Tho Nguyen, (2013),"Accounting in a developing transitional economy: the case of
Vietnam", Asian Review of Accounting, Vol. 21 Iss 1 pp. 74 - 95
Permanent link to this document:
http://dx.doi.org/10.1108/13217341311316959
Downloaded on: 11 September 2014, At: 20:38 (PT)
References: this document contains references to 47 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 465 times since 2013*

Users who downloaded this article also downloaded:


Z.Y. Sacho, J.G.I. Oberholster, (2008),"Factors impacting on the future of the IASB", Meditari Accountancy
Research, Vol. 16 Iss 1 pp. 117-137
Randy Moser, (2014),"IFRS and convergence in China and the USA", Journal of Technology Management
in China, Vol. 9 Iss 1 pp. 56-66 http://dx.doi.org/10.1108/JTMC-12-2013-0042
Janice Bell, Zahirul Hoque, Nguyen Cong Phuong, Tran Dinh Khoi Nguyen, (2012),"International
harmonization and national particularities of accounting: Recent accounting development in Vietnam",
Journal of Accounting & Organizational Change, Vol. 8 Iss 3 pp. 431-451

Access to this document was granted through an Emerald subscription provided by 501757 []

For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for
Authors service information about how to choose which publication to write for and submission guidelines
are available for all. Please visit www.emeraldinsight.com/authors for more information.

About Emerald www.emeraldinsight.com


Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as
providing an extensive range of online products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee
on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive
preservation.
*Related content and download information correct at time of download.

The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1321-7348.htm

ARA
21,1

Accounting in a developing
transitional economy: the case
of Vietnam

74

Doan Ngoc Phi Anh


Department of Accounting, Danang University of Economics,
Danang, Vietnam, and

Duc-Tho Nguyen
Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

Griffith Business School, Griffith University, Brisbane, Australia


Abstract
Purpose The purpose of this paper is to provide a comprehensive yet concise review of changes
which have occurred in Vietnamese accounting regulations and practices since the mid-1980s, and an
analysis of prospective developments.
Design/methodology/approach A combination of analytical review and synthesis of information
available from diverse sources, and analysis of information obtained from interviews with 20 middleto-senior practicing accountants.
Findings Over the past two decades, as Vietnam implemented economic liberalization and
developed closer links with Western economies, its accounting system has changed accordingly. The
current system is a mixture of conceptual and formal elements taken from Western accounting and
some basic features and practices retained from the old (Soviet-style and French-influenced) system.
Further convergence toward international practices is likely to be slow, especially in the SME sector
and in large enterprises that do not attract capital from foreign sources. Developments in management
accounting and the accounting profession are also reviewed.
Originality/value The paper contributes to the literature by providing structured and consistent
information about a country which is reported only infrequently in the international literature, and
considering both the pros and cons of harmonizing with IAS/IFRS in a developing-country context.
Keywords Accounting, Transitional economies, Developing economies,
International harmonization, Fair value, Chart of accounts, Vietnam
Paper type Research paper

Asian Review of Accounting


Vol. 21 No. 1, 2013
pp. 74-95
r Emerald Group Publishing Limited
1321-7348
DOI 10.1108/13217341311316959

1. Introduction
Vietnam is potentially of interest to the international reader for at least two reasons.
First, with a sizable population, a rapidly growing economy, and expanding
international trade and investment ties, it is emerging as an important market and
geopolitical player at the regional (Southeast Asia) level. Second, it is a developing
economy that has been on a transition path from central planning to the market
system, and its experiences may be of relevance to other developing and/or transitional
economies in their efforts to achieve faster and smoother development.
After two to three decades of economic liberalization and transition, there is by now
a substantial body of literature documenting and analyzing changes which have
occurred in the practice and profession of accounting in Central and Eastern
Europe (CEE) and in China. For just a small sample, see Bailey (1995), Richard (2003),
Sucher et al. (2005), Tyrrall et al. (2007), Huang and Ma (2001), Ezzamel et al. (2007),
Lawson et al. (2009), and the reference lists contained in these and associated
publications. Among the many insights which have emerged from these analyses
and reflections has been a recurrent theme, namely, that the ideal accounting system

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

in any given country must necessarily be framed within its economic, political, social,
and cultural context, and that, therefore, variations across national accounting systems
tend to persist.
A number of authors have also written about accounting in Vietnam. However, the
list of such writings which have appeared in English and are readily accessible in
the public domain is not a very long one. Notable contributions include studies by
Aleonard (1997), Narayan and Godden (2000), Yang and Nguyen (2003), Adams and
Do (2003); and Sarikas et al. (2009). Notwithstanding these, there remains a need for a
brief and accessible, yet comprehensive (in scope) and reasonably up-to-date, overview
of accounting development in this country.
Accordingly, this paper seeks to provide:
(1)

a review of the key changes which have occurred in Vietnamese accounting


since the country embarked on the current course of economic transition this
will involve the synthesis of information from a range of sources (including
some of those just cited above);

(2)

an analysis of prospective developments in the medium term this will


involve, among other things, drawing upon existing theories and lines of
thought in the international literature;

(3)

coverage of not only financial accounting but also management accounting


(MA) and the accounting profession; and

(4)

consideration of both the pros and cons of harmonizing with international


financial accounting standards and adopting western MA practices this will
involve, among other things, reporting results based on primary data obtained
via surveys and interviews.

It is hoped that the paper will make a contribution by, among other things, providing
structured and consistent information about a country which is reported only
infrequently in the international literature.
The plan of the remainder of the paper is as follows. Section 2 provides some
brief background information which may facilitate understanding of the later sections,
especially where they touch upon local conditions and circumstances. Section 3
reviews the evolution of financial accounting in Vietnam during the past three decades.
Section 4 then focusses on the current financial accounting system, with issues
relating to international harmonization being analyzed in Section 5. MA is discussed
in Section 6, while Section 7 reviews developments in the accounting profession.
Finally, Section 8 presents a summary of some of the main points raised in the paper.
2. Background
Vietnam is located in Southeast Asia. Its nearest neighbors are China to the north, and
Laos and Cambodia to the west; to the east and the south lies the South China Sea. As
of 2010, its population was approximately 88 million (ranked 13th in the world). The
countrys land area is approximately 330,000 square kilometers about the same size
as that of Malaysia, but slightly smaller than Germanys.
Over the course of its history, which dates back to before the Christian era, Vietnam
has had to deal with numerous invasions by foreign armies. Its culture has been deeply
influenced by the Chinese culture for over 2,000 years despite the fact that it has
managed to remain independent for much of that time. During the latter part of the
nineteenth century, Vietnam fell under French domination, with the southern provinces

Developing
transitional
economy
75

ARA
21,1

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

76

becoming a French colony, while the northern and central provinces were administered
as French protectorates, and the Vietnamese king was allowed to maintain some
administrative authority in Central Vietnam only.
By the time Second World War broke out, the entire countrys administrative, legal,
and economic systems had been thoroughly modified by the French influence. After
the world war ended, the country had to endure another 30 years of warfare (including
the Vietnam War) and separation before being re-unified (under the Communist
system) in 1975. Despite recent economic liberalizations it is one of the few countries
where the Communist Party has continued to maintain political control.
Vietnam is a developing economy, with a gross domestic product (GDP) per-capita
level (in purchasing power parity terms and 2010 prices) of around US$3,100 in 2010
(CIA, 2011). It began to experiment with limited economic liberalizations from the
late-1970s; by the mid-1980s, these had deepened, thus placing the economy firmly on
a transitional path from the socialist planning model to the market system.
As part of this process, domestic private investors and foreign investors have been
allowed to own resources and participate in the economy. The number of state-owned
enterprises (SOEs) has been sharply reduced, although the authorities have made it
clear that the state would continue to play a major role in economic activities. Some
SOEs have been equitized; i.e. they have become joint-stock companies whose
shares may be owned by private investors and companies. Further, a large number of
private companies have been established, although most of them tend to be rather
small. Foreign investors and companies are allowed to own all or parts of enterprises,
subject to some restrictions.
Table I displays historical movements in the shares of GDP accounted for by the
three sectors of enterprise ownership. As can be seen clearly from the table, while
the foreign-invested sector more than doubled its share of total output (from 7.4 to
17.0 percent) between 1996 and 2006, much of this occurred at the expense of the
domestic private sector, whose share declined from 52.7 to 45.7 percent), while
the share of the state sector fell only slightly, from 39.9 to 38.3 percent.
The Vietnamese economy has made a number of noteworthy achievements during
the past two decades or so. Growth in real GDP was around 7.5 percent per year
during the period 1990-2008. As a result, real GDP per capita and living standards rose
substantially. The proportion of people living under the poverty line declined rapidly,
from around 37 percent in 1998 to around 15 percent in 2007 (CIA, 2011). Inflation
was brought down sharply, from triple-digit annual rates during the late-1980s to
a single-digit rate in 1993; it then remained quite well under control until 2007. The
value of international trade (in US dollars) grew by more than 20 percent per year
during the period 1992-2008. Foreign direct investment (FDI) inflows were
approximately US$11.5 billion and $10 billion in 2008 and 2009, respectively.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Table I.
GDP shares by
ownership, 1996-2006

Public sector
39.9 40.5 40.0 38.7 38.5 38.4 38.4 39.1 39.2 38.4 37.3
Private domestic sector
52.7 50.4 50.0 49.0 48.2 47.8 47.8 46.5 45.6 45.6 45.7
Foreign-invested sector
7.4 9.1 10.0 12.3 13.3 13.8 13.8 14.4 15.2 16.0 17.0
GDP share (at current prices) 100 100 100 100 100 100 100 100 100 100 100
Source: IMF (2007)

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

Despite these achievements, Vietnam remains a developing economy. Its per-capita


GDP level is one of the lowest in the region: according to World Bank estimates for
2008 and in nominal (US$) terms, the figure for Vietnam was approximately the same
as that of India, and far lower than that of Indonesia or the Philippines. The
government budget deficit increased from around 1-2 percent of GDP during
the second half of the 1990s to around 5 percent during the 2000s, and the trade deficit
has widened, to more than 5 percent of GDP since 2003. In the most recent years
(2007-2011), inflation has again re-emerged as a major concern. For further information
about recent (especially macroeconomic and structural) developments in the
Vietnamese economy (see Leung, 2010 and the references therein).
Vietnam has been a member of the Association of Southeast Asian Nations
(ASEAN) since 1995 and the World Trade Organization since 2007. It has also entered
a number of bilateral trade and investment agreements, notably the US-Vietnam
Bilateral Trade Agreement (in operation since 2001). As it became increasingly
integrated with the regional and global economies, major changes have occurred in the
structure of the economy and the ways in which business is conducted, including
accounting systems and practices.
3. Evolution of financial accounting system
3.1 Before 1986
During the first half of the twentieth century, Vietnams accounting system was
heavily influenced by the French system, especially in the formal sector of the economy
and for official (e.g. taxation) purposes. After 1954, when the country became divided,
South Vietnams accounting system continued to be influenced by the French system
(with some exposure to the American system during the Vietnam War) while North
Vietnam followed the Chinese approach and, from 1969, the Soviet accounting style
(Aleonard, 1997; Narayan and Godden, 2000; Nguyen and Huyen, 1997).
The Norths socialist economic system was extended to cover the entire country in
1975 when the war ended and the country was re-unified. The main features of this
central planning economic system, and of the accounting system that had been
developed to serve it, are very similar to those which applied at the time in the former
Soviet Union, CEE countries, and China. These characteristics are well documented in
the literature (see, e.g., Bailey, 1995; Richard, 2003; Solodchenko and Sucher, 2005;
Huang and Ma, 2001; Ezzamel et al., 2007). In essence, accounting was employed as an
instrument to help monitor the extent to which state enterprises fulfilled their targets
as specified in the national plan. Conceptually the accounting system was built on the
foundation of the fund accounting equation:
Total fund application Total sources of funds
Enterprises operating in any given sector or industry would use a uniform accounting
system applicable to that sector or industry, comprising a uniform chart of accounts,
uniform financial statements, common forms to be used in generating source
documents, and common accounting procedures. Under this system, accountants
worked with rules and regulations that tended to be highly detailed, procedural, and
rigidly prescriptive.
3.2 The period 1986-1995
The year 1986 marked the launch of a sweeping program of economic reforms in
Vietnam, known as Doi Moi (renovation), which broadened and deepened regulatory

Developing
transitional
economy
77

ARA
21,1

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

78

changes that the country had experimented with since the late-1970s. This economic
reform process placed the country on a transitional path toward a market-oriented
economy, and occurred against the background of major changes in the Chinese
economic system, which had been initiated around 1978 and which are still ongoing,
and the collapse of the socialist planning system in CEE in the late-1980s and
early-1990s.
Vietnams financial accounting system was modified to accommodate and address
newly allowed business activities, undertaken by newly allowed forms of business
enterprises. Not surprisingly, the changes occurring in the accounting system tended
to lag a little behind the reality of changes in the transitional economy. For example,
the ordinance (
) on accounting and statistics was not promulgated until
1988 (by the President of the State Council). This ordinance provided the basis for
regulations regarding the accounting information and statistics to be collected and
prepared for a variety of enterprises including not only SOEs and collectives (as
under the previous system) but also state-private joint ventures, and private
enterprises (Narayan and Godden, 2000).
Accordingly, new accounts and new procedures were introduced, while some
existing ones were revised. For example, under the old chart of accounts, issued in
1970, there had been only one single account for sales. To accommodate increasing
export sales, the updated chart of accounts, issued in 1989, introduced two new subaccounts: domestic sales and overseas sales. Conversely, while the old account
other bank deposits had comprised many sub-accounts to keep track of transactions
for various specific purposes such as bank deposits for major repairs and bank
deposits for grants received from the state under the new rules, these sub-accounts
were abandoned, and all transactions related to bank deposits were monitored through
the single, main account without references to their specific purposes. The system of
financial reports was also revised. As the old statement, profit/loss and balances
vis-a`-vis the state, had become inadequate for the new economic environment, it was
replaced by a new statement, business results report, which provided more detailed
information about revenues, expenditures, and profits.
In general, the 1989 chart of accounts and the accompanying regulations allowed
enterprises more (but still limited) flexibility in preparing accounting information for
their own management purposes. Nevertheless, the system continued to rely on
uniform charts of accounts and detailed, prescriptive rules to govern the way such
information was prepared. Thus it retained a key characteristic of the Soviet
accounting system (Nguyen, 2005). Further, the system continued to serve primarily
the states requirements, especially in the taxation area, rather than the information
needs of other stakeholders, such as management, investors, and creditors (Adams and
Do, 2003).
3.3 The period 1995-2012
As the economic reform process deepened, it became evident that the (incrementally)
revised accounting system, based on the 1988 ordinance of accounting and statistics,
was no longer adequate for the requirements of an economy in rapid transition, with
many new and complex business transactions, including transactions with foreign
investors and trading partners. Instead, it was considered (as was the case in Russia,
CEE, and China) that a suitable replacement system would have to be one which broke
more fundamentally with the old, fund-based accounting system. There was also
a desire to pursue greater economic integration at both the regional and global levels,

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

and it was thought that adopting western accounting principles and practices would
assist in achieving this goal.
The Vietnamese government established an Accounting Reform Committee in 1994.
Around this time, foreign countries and multilateral organizations also assisted the
government in developing and considering various options in this area[1]. Following
these deliberations and consultations, in 1995 the Ministry of Finance (MOF) issued
a new set of regulations on enterprise accounting, the 1995 Enterprise Accounting
System (EAS)[2], which was to apply in every type of enterprises and in every area of
business, except banks and financial organizations.
The promulgation of this set of regulations was arguably the most significant
landmark in the evolution of financial accounting in Vietnam during the past 25 or
so years. The basic philosophy underlying the new accounting system that
emerged in subsequent years was no longer in line with the old, Soviet-style socialist
planning instead, it was far more consistent with the market system and
western business practices and norms. Further (and rather smaller) changes in the
ensuing years have helped to clarify and consolidate this significant break with
the past, and to facilitate the gradual convergence of the Vietnamese accounting
system toward international practices. In 2006, MOF issued a new EAS, which
can be seen largely as an updated version of, rather than a break with, the 1995
EAS document.

Developing
transitional
economy
79

4. Current financial accounting system


4.1 Regulatory framework
The current framework of legislations and regulations governing the accounting
system is illustrated in Figure 1. At the highest level, the Accounting Law (
) was
enacted by the National Assembly in 2003. It recognizes both financial and
management accounting, and deals with key, basic issues such as the requirements to
be met by accounting information and statements, responsibility for formulating and
issuing accounting standards (this responsibility is allocated to the MOF), and how the
accounting profession is to be regulated. At the same level are a number of other
National Assembly-enacted laws which govern related aspects of business, such as
taxation, or the legal forms of business enterprises. The second level in the regulatory

Accounting law
(2003)

Other laws

Prime ministerial decrees

Vietnamese accounting
standards (2001-2005)

Enterprise
accounting system
(2006)

SME Accounting
system (2006)

Accounting systems
for special sectors

Figure 1.
Structure of Vietnamese
laws and regulations on
accounting

ARA
21,1

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

80

structure comprises a number of prime ministerial decrees (


) relating to
various aspects of business and finance[3].
At the third level is a set of accounting standards promulgated at the ministerial
decision (
) level to date, 26 such standards have been issued by the MOF
through a series of five ministerial decisions. Vietnamese accounting standard (VAS)
1 provides the theoretical framework and outlines overall principles, and each of the
other VASs has been designed to harmonize with a corresponding International
Accounting Standard (IAS).
A key document at the fourth level of the regulatory framework is the 2006
Enterprise Accounting System (EAS). Although this document was also issued by the
MOF at the ministerial decision level, its content could be seen as providing a more
concrete and practical interpretation of the VASs, which are generally more abstract
and far briefer.
From the viewpoint of historical continuity, the 2006 EAS can also be seen as an
updated version of the 1995 EAS document, which (as discussed in Section 3.3)
represents perhaps the most significant regulatory change in Vietnamese
accounting during recent decades. Both documents provide detailed regulations
and specifications regarding a chart of accounts, financial statements format,
accounting documentation requirements, and how accounting books are to be
maintained.
As the 2006 EAS document is quite comprehensive in its scope, many of its
provisions are not of direct relevance to small and medium enterprises (SMEs), whose
business activities and transactions tend to be far simpler than those of large
enterprises. In parallel with the 2006 EAS, therefore, the MOF also issued the 2006
Small and Medium Enterprise Accounting System (SMEAS). This is essentially a
slimmed-down version of the 2006 EAS, and is built on the basis of full or partial
application of 19 out of the 26 existing VASs, with the remaining seven VASs being
considered of little relevance to SMEs.
In terms of the number of enterprises legally registered in Vietnam, SMEs totally
dominate large enterprises, accounting for about 96 percent of the total number (Tran
and Ramachandran, 2006). However, large enterprises tend to account for
disproportionate shares of total output. Thus, while the 2006 EAS (the more general
and comprehensive document) applies to a much smaller number of enterprises, its
coverage in terms of GDP share is more significant than that of the 2006 SMEAS
(the slimmed-down document). Most SMEs are owned by domestic private investors,
while large enterprises tend to be fully or partially owned by the state and/or
foreign investors.
To complete the description of the regulatory framework, Figure 1 illustrates the
fact that the above two sets of regulations do not cover a number of special sectors
or industries, such as oil and gas, electricity, and banking and finance. Accounting for
enterprises in each of these industries is governed by their own set of regulations,
comparable to the 2006 EAS but adapted to suit the particular requirements of
the industry.
Finally, it should be noted that the MOF frequently issues circulars (Tho#ng T),
which are at a lower level in the regulatory hierarchy than ministerial decisions, to
provide additional guidance or further clarification regarding provisions made in
documents issued at the above four levels. Taken together, these legislations,
regulations, and rules represent a web of highly detailed and rigid prescriptions for the
preparers of accounting information.

4.2 Current system as a mixture of old and new elements


The current financial accounting system in Vietnam is a combination of a number of
new elements taken from western accounting and some elements retained from the pre1995 accounting system. In particular:

Developing
transitional
economy

The system is based on fundamental concepts and principles, as well as


measurements and disclosure requirements, adopted from western accounting.
For example, the fundamental accounting equation has now changed to:

81

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

Assets liabilities equities


.

rather than the old fund accounting equation.


New financial statements have been introduced and existing ones modified in
harmonization with international practice. For example, the cash flow statement,
which did not exist in the Vietnamese system prior to 1986, has become one of
the obligatory reports in the current system. The formation of this report is
based on VAS 24, designed to harmonize with IAS 7. Other financial statements
(such as balance sheet and income statement) have been modified to harmonize
with international accounting practices.

VASs are seen as providing general guidelines which are harmonized with
international standards.

Yet, at the same time, uniform charts of accounts and detailed rules and
instructions are still maintained[4]. As new types of transactions (which had
not existed under central planning) began to emerge, new accounts were
simply added to the chart to address them e.g. provision for declines in the
value of inventories, provision for bad debts, shares in joint ventures, and
value-added tax.

Previous authors have documented the continued maintenance of uniform charts of


accounts in other transitional economies, including Russia, Romania, the Czech
Republic, Poland, and China, to name but a few (Richard, 1995; Schroll, 1995; Vellam,
2004; Huang and Ma, 2001; Lawson et al., 2009). In principle, one advantage of
continuing to use a uniform chart of accounts and highly detailed rules is that
accountants who are familiar with the old system, and are not used to having to
make significant decisions, do not have to make big adjustments or get too far out
of their comfort zone. That incremental approach also suits many SMEs whose
business transactions are simple and require little choice with respect to different
accounting methods.
A drawback of this approach, however, is that it limits the range of options in terms
of accounting methods available, thus potentially reducing the value (to management
and investors) of the produced accounting information. It also provides little incentive
for accountants to enhance their professional skills, as they have few opportunities to
exercise judgment or use sophisticated methods (Mai, 2008).
How favorably, then, do domestic stakeholder groups view the current, mixed
system? In particular, do they see benefits flowing from the 1995 decision to abandon
the old systems theoretical framework and basic accounting principles and to adopt
the corresponding elements of western accounting? The results from a survey
conducted by Nguyen (2005) provide some light on the latter question. (The current
authors had no association with this earlier survey.)

ARA
21,1

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

82

The survey covers five groups of stakeholders, namely, enterprise managers, bank
officers, independent auditors, state (including taxation) officers, and university
lecturers. A total of 141 responses were obtained from two of the countrys major cities,
including Ho Chi Minh City, the financial and commercial heart of the country. In
essence, the respondents were asked to compare the new, mixed system (in operation
since 1995) with the previous, fund-based socialist system, in terms of the information
they provided to assist decision making by enterprise management, investors,
and state officials. On a five-point Likert scale, with 1 indicating total disagreement
and 5 indicating total agreement with a statement to the effect that the new system
has produced more useful information, the mean scores obtained for a range of
statements, dealing with various aspects of the comparison, were all around 4. These
results suggest that the major break, undertaken in 1995, with the old system has been
moderately well received.
Nguyen Cong Phuongs survey was conducted before the 2006 EAS was issued.
Further, the surveys questions focussed exclusively on the benefits and advantages of
adopting the new system, with no explicit mention of the associated costs and
disadvantages. To update and supplement the above findings, therefore, the current
authors conducted, in 2010, a series of interviews with heads and vice heads of
accounting departments of 20 medium-to-large enterprises in Ho Chi Minh and
Da Nang cities, two of the most important economic centers in the country.
Of these enterprises, six were SOEs, 11 were joint-stock enterprises (with some
domestic private equity), two were joint ventures (with some foreign equity), and one
was 100 percent foreign owned[5]. In total, 15 of the 20 interviewees had practiced
accounting since before 1995 and felt able to offer opinions regarding comparisons
between the new and the pre-1995 financial accounting systems.
During the course of the interviews, each interviewee was asked to respond to a set
of fixed questions (in the form of a short questionnaire) and also to comment
and expand on these quantitative responses. Table II presents a summary of their
numerical ratings with regard to the advantages, disadvantages, and net benefit of the
current system relative to the old.

How strongly would you agree or disagree with the following statements?
(1 strongly disagree, 2 disagree, 3 neither, 4 agree, 5 strongly agree)

Table II.
Responses of
15 interviewees
regarding advantages
and disadvantages of
the current vs the
pre-1995 financial
accounting system

Mean

SD

1. Accounting information reflects the enterprises true situation better than before 3.86
2. Accounting information is easier to understand than before
3.93
3. Accounting system better meets the needs of management
4.00
4. Accounting system better meets the needs of investors
4.14
5. Accounting system better meets the requirements of international relations
4.29
How strongly would you agree or disagree with the following statements?
(1 strongly disagree, 2 disagree, 3 neither, 4 agree, 5 strongly agree)
Mean
1. Accounting information is less consistent across different enterprises and years
than before
2.79
2. The work of accountants is more complex and less clear-cut than before
2.07
3. Accountants have difficulties with the taxation office more frequently than before 2.79
Mean
How would you rate the net benefit (benefitscosts) of the shift from the pre-1995 to
the current financial accounting system? (1 strongly negative 2 negative,
3 neither, 4 positive, 5 strongly positive)
4.20

0.64
0.59
0.53
0.52
0.45
SD
0.67
0.70
0.86
SD
0.41

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

The table consists of three sections. In the upper section, we report interviewees
reactions to five statements about possible advantages of the new system. Not
surprisingly, most interviewees agree or strongly agree with the statement the new
system better meets the needs of international relations: the fifth data row shows
that the average rating was 4.29 on a scale from 1 to 5, where 1 indicates strongly
disagree and 5 strongly agree. As shown in data rows 1-4, the interviewees also had
a generally favorable view regarding other aspects of the new system: it tended to be
seen as producing information that is easier to understand, better reflects an
enterprises situation, and better meets the requirements of investors as well as the
enterprises own management.
The second section of the table summarizes the interviewees reactions to three
statements regarding possible disadvantages of the current system. Interestingly, most
did not see the new system as making accountants tasks more complex or ambiguous
indeed, the average rating on statement no. 2 in this section was 2.07, indicating
rather the reverse. Similarly, most interviewees did not view the new system as causing
more difficulties with the taxation department, or reducing consistency across
enterprises or over time.
The tables third section consists of a single question, asking interviewees to rate
the net benefit of shifting from the old to the current system. In line with the responses
in the first two sections, most interviewees saw the shift as generating net benefits,
with the average rating being 4.20. This finding tends to confirm that the new financial
accounting system has generally met with approval among Vietnamese accounting
professionals. Other findings from these interviews are reported in Section 5.
Before ending this brief description of the current system, it should be noted that,
since 2006, accounting regulations and tax regulations have provided for different
treatments of the concept of profit. Accounting profit is now to be calculated in
accordance with VAS 17, which is harmonized with IAS 12, while taxable profit/income
is to be calculated according to current tax rules and regulations. It is no longer
the case that the accounting profit reported by an enterprise must also serve as a basis
for calculating its taxes.
5. Harmonization with international standards
As part of the process to integrate the country more closely into the regional and global
economies, and following suggestions made by a number of donor countries and
multilateral organizations, the Vietnamese government undertook to take steps toward
harmonizing the national accounting system with international systems. Thus
Vietnam has been one of the 100-plus countries which have made efforts to implement
IASs (Deegan, 2009). During the implementation process, however, some countries may
prefer to make adjustments to the standards in order to suit their own national
conditions (Adams and Do, 2003). In Vietnams case, instead of adopting all of the
original IASs, as recommended by some foreign advisors, the MOF has opted for a
more selective and gradual approach. There has been considerable support for this
approach among domestic commentators (see, e.g., Phan, 2009; Nguyen, 2011).
In 1999 the MOF established the Vietnamese Accounting Standards Committee
(VASC) to oversee the task of researching and drafting national accounting
standards. This committee consisted of 13 members, of whom only one formally
represented accounting professional organizations, and only two were scholars from
the university/research sector the remaining ten members were all senior officials
in key government agencies such as MOF, General Department of Taxation,

Developing
transitional
economy
83

ARA
21,1

84

State Treasury, and State Securities Commission. As senior members of the accounting
profession, most committee members had been trained in the old, Soviet style.
From 2001 and 2005, MOF issued five ministerial decisions to promulgate
26 VASs (at the third level of the regulatory hierarchy, as shown in Figure 1). Table III
is a list of these standards, together with eight draft standards which are still under
consideration but are expected to be issued in the near future[6]. Of all these, VAS 1 is
the most general it establishes the overall theoretical framework and specifies
how specific situations that are not covered by any of the subsequent standards
are to be addressed.

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

Vietnamese accounting standarda


VAS 01
VAS 02
VAS 03

Framework
Inventories
Tangible fixed assets

2002
2001
2001

IAS 2
IAS 16

VAS 04
VAS 05
VAS 06
VAS 07

Intangible fixed assets


Investment property
Leases
Accounting for investments in
associates
Financial reporting of interest
in joint ventures
The effects of changes in
foreign exchange rates
Business combinations
Revenues and other incomes
Construction contracts
Borrowing costs
Income taxes
Provisions, contingent
liabilities and contingent assets

2001
2003
2002
2003

IAS
IAS
IAS
IAS

38
40
17
28

Inventories
Property, plant and
equipment
Intangible fixed assets
Investment property
Leases
Investments in associates

2003

IAS 31

Interests in joint ventures

2002

IAS 21

Insurance contracts
Presentation of financial
statements
Disclosures in the financial
statements of banks and
similar financial institutions

2005
2003

Events after the reporting


period
Statements of cash flow
Consolidated financial
statements and accounting for
investments in subsidiaries
Related party disclosures
Interim financial reporting
Segment reporting

2003

VAS 08
VAS 10
VAS 11
VAS 14
VAS 15
VAS 16
VAS 17
VAS 18
VAS 19
VAS 21
VAS 22

VAS 23
VAS 24
VAS 25

Table III.
VASs and equivalent
IASs/IFRSs

IAS/IFRSa

VAS 26
VAS 27
VAS 28

2005
2001
2002
2002
2003
2005

2005

2002
2003
2003
2003
2003

The effects of changes in


foreign exchange rates
IFRS 3
Business combinations
IAS 18
Revenue
IAS 11
Construction contracts
IAS 23
Borrowing costs
IAS 12
Income taxes
IAS 37
Provisions, contingent
liabilities and contingent
assets
IFRS 4
Insurance contracts
IAS 1
Presentation of financial
statements
IAS 30 (from Disclosures in the financial
2007: IFRS 7) statements of banks
and similar financial
institutions (from 2007:
financial instruments:
disclosures)
IAS 10
Events after the reporting
period
IAS 7
Statements of cash flow
IAS 27
Consolidated and separate
financial statements
IAS 24
IAS 34
IAS 14

Related party disclosures


Interim financial reporting
Segment reporting

(continued)

Vietnamese accounting standarda

IAS/IFRSa

VAS 29

IAS 8

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

VAS 30

Changes in accounting policies, 2003


accounting estimates and
errors
Earnings per share
2005
b
Share-based payment
b
Non-current assets held for sale
and discontinued operations
Exploration for and evaluation
of mineral assets
Financial instruments

IAS 33
IFRS 2
IFRS 5

IFRS 6

IFRS 7
IAS 39

Accounting for government


grants and disclosure of
government assistance
Employee benefits
Impairment of assets
Agriculture

IAS 20

IAS 19
IAS 36
IAS 41

b
b

Accounting policies, change


in accounting estimates and
errors
Earnings per share
Share-based payment
Non-current assets held for
sale and discontinued
operations
Exploration for and
evaluation of mineral assets
Financial instruments:
disclosures
Financial instruments:
recognition and
measurement
Accounting for government
grants and disclosure of
government assistance
Employee benefits
Impairment of assets
Agriculture

Notes: aCorrespondence between VASs and IASs/IFRSs is generally not exact (see main text for
details); bunder consideration

Officials in the accounting department of MOF, as well as a number of external


observers, have expressed the opinion that these VASs accord, to a fairly high extent,
with their IAS counterparts (Adams and Do, 2003; Phung, 2006; Ha, 2008). By contrast,
Sarikas et al. (2009), Pham (2010) and others tend to see the extent of convergence
between the VAS and IAS/IFRS systems as rather modest.
In setting VASs, the authorities have tended to focus on IASs which had been issued
by the International Accounting Standards Board (up to 2003) and to overlook the more
recent changes, including those embodied in International Financial Reporting
Standards (IFRSs). In 2007, for example, IAS 30, which deals with disclosure in the
financial statements of banks and similar financial institutions, was superseded
by IFRS 7. Nevertheless, VAS 22, which was promulgated in 2005 and modeled after
IAS 30, has not been updated to harmonize with IFRS 7.
At a more substantive level, the content of VASs and the actual ways to comply with
them continue to differ from international practices in four important respects. First,
while fair value is an integral component of IASs/IFRSs, it has not been incorporated
into the VAS system, and this situation is unlikely to change in the near future. In
Vietnam, as in many other transitional and/or developing economies, a lack of active
and transparent markets often makes it difficult to obtain reliable estimates of fair
value. Accordingly, VASs have continued to rely mainly on historical costs, and assets
(such as property, plant, and equipment) are revaluated only rarely. For example,
SOEs only undertake asset revaluations following decisions made by the government,
or in preparation for equitization. Similarly, other enterprises typically revaluate
assets only on special occasions, e.g. when these assets are to be used as (part of) the

Developing
transitional
economy
85

Table III.

ARA
21,1

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

86

enterprises contribution to the capital of a joint venture, equity investment in a


subsidiary enterprise, or investment in an associated enterprise.
Second, while the philosophy underlying the IASs/IFRSs is to allow the accountant
considerable flexibility in exercising judgment (e.g. in selecting estimation methods),
the Vietnamese system continues to rely on uniform charts of accounts and detailed
prescriptions (e.g. those contained in the 2006 EAS). The latter approach severely
limits the extent to which accountants can make use of their own judgment and
knowledge of sophisticated accounting methods. As Sarikas et al. (2009) pointed out,
typically where the intention of international standards may be to allow a number
of alternative methods, the Vietnamese approach would be to select only one of those
methods for adoption. In effect, the Vietnamese standard in question would be merely
a downsized version of its international counterpart. An exception to this general
observation is the treatment of inventories. Following IAS 2, which had been issued in
1993, VAS 2 (issued in 2001) allows the accountant to select from among four methods:
first-in first-out, specific identification, weighted average, and last-in last-out (LIFO).
Although the LIFO formula was dropped when IAS 2 was revised in 2003, VAS 2
has not been updated and therefore in principle LIFO remains permissible under
Vietnamese regulations.
Third, in line with the above two sets of issues but unlike IAS 1 (revised in 2003),
Vietnamese companies are not required (under VAS 21) to disclose managements key
judgments and assumptions, or other sources of estimation uncertainty.
Fourth, to date there are still no formal VASs governing the treatment of a number of
important items, such as financial instruments, employee benefits, and impairment of
assets, although some items (such as financial instruments, or items relating to
agriculture) have continued to be covered by the 2006 EAS and administrative circulars.
From the above brief review of the remaining gaps between VASs and IASs/IFRSs,
it can be seen that, in line with standard theory such as the theory of diffusion
of innovations (Rogers, 2003) and with the experiences of other countries, the
features and elements of the IAS/IFRS system that were adopted most readily in
Vietnam have tended to be those that are compatible with previous practices and
with the underlying economic and social context. For further details regarding
differences between VASs and IASs/IFRSs, see, for example, Deloitte Touche
Tohmatsu (2003), PriceWaterhouseCoopers (2008), and eStandardsForum (2010).
It should be noted that other transitional economies have had to grapple with issues
similar to those outlined above. In Vietnam, as in some of those countries, the
remaining gaps between the domestic accounting system and actual international
practices have resulted in a need for many foreign-owned enterprises to prepare two
sets of financial reports: one set would follow IASs/IFRSs or standards adopted by the
parent company overseas, while the other complies with domestic requirements
(Adams and Do, 2003; Nguyen, 2008).
Is there an urgent need for the gaps to be narrowed further? The answer to this
question depends on, among other things, knowing who are or will be the main users
of the accounting information to be prepared. Briston (1978), Hove (1986), Nobes (1998),
Bailey (1995), Solodchenko and Sucher (2005), Sucher et al. (2005), and others have
pointed out that, in many developing and/or transitional countries, economic
conditions (especially in capital markets) are such that there are relatively few
private investors who are heavily dependent on accounting information in making
their investment decisions. This runs counter to a basic assumption implicit in the
IAS/IFRS approach.

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

The reality is that, in Vietnam, the highest-priority user of accounting information


remains the state (in particular, the taxation department). This observation evidently
applies in the case of most SMEs, but it is also applicable to many large enterprises that
are not wholly or partially foreign owned. The reasons for this are as follows. First,
a number of large enterprises are owned by the state, which is determined to continue
playing a decisive role in the economy.
Second, the stock market is immature and the average investor tends to be
unsophisticated and to place no great emphasis on financial statements as a means to
assess the likely profitability or viability of a company. Indeed, media reports of
high-profile failures on the part of auditors, bank loan officers, and credit rating
agencies in the west (such as the Enron case, or the subprime mortgage crisis) tend to
induce a certain level of skepticism toward reports and analyses from professionals
in the financial sector in general. Thus, many investors simply follow ad hoc advice
from friends and relatives, or rely on their own hunch.
Third, in assessing credit worthiness and considering loan applications, banks
often rely on not only financial statements of the company concerned but also
other criteria, such as whether there are suitable collaterals. Finally, suppliers
who provide goods and services on credit tend to do so on the basis of
long-standing business relationships rather than any analysis of the customers
financial statements.
That leaves the taxation department and foreign investors as the main users of
financial accounting information. In general, the former has little interest in pushing
for faster or more thorough harmonization with international norms. Thus the only
stakeholders with a strong interest in seeing greater harmonization are existing and
potential foreign investors, and large enterprises with reasonable prospects of
attracting foreign investments.
The above discussion, and the fact that the current financial accounting
system already differentiates between large enterprises and SMEs, suggest that a
possible way forward might be to proceed as a two-tier system. For example,
preparers of accounting information for large enterprises in Tier 1 might be allowed
greater flexibility and discretion over time, while accountants serving the needs of
SMEs in Tier 2 could continue to work with detailed rules for a longer period.
Such a tier-based approach would be in keeping with the spirit of the main
recommendations of a report by UNCTAD (2003) on the accounting needs of
developing countries in general.
As discussed in Section 4, the current authors conducted a series of 20 interviews
with Vietnamese accounting professionals in 2010 in researching for this paper. From
the responses obtained in these interviews, it would appear that for many interviewees,
especially those working for SOEs, there had been little urgency to consider in detail
the remaining gaps between Vietnamese and international accounting practices
indeed, such interviewees often appeared rather uncertain as to what specific issues
would need to be resolved in bridging these gaps. A small minority of interviewees
(two out of 20) have used both types of practices (they were working in enterprises with
at least some foreign equity). Respondents in this category tended to comment
favorably on the international practice of allowing preparers of accounting information
greater flexibility in the choice of methods[7]. However, they were rather skeptical
about how rapidly the practice of estimating fair value on the basis of market prices
can spread among Vietnamese enterprises, given the still-developing nature of many of
the local markets.

Developing
transitional
economy
87

ARA
21,1

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

88

6. MA
Under the central planning system, MA as it is generally understood in the west did
not exist in Vietnam. Nevertheless, staff in the statistics, accounting and planning
areas of each enterprise generally carried out a number of activities which were rather
similar in nature to some western MA practices. In particular, they would typically be
involved in all three main phases of the planning cycle. During the planning phase,
their inputs would be required in terms of feedback to higher planning authorities
regarding tentative targets being set and related parameters. During the
implementation phase, they would provide statistics and information which are
essential to the monitoring and control process, and during the post-implementation
phase, they would routinely participate in the analysis of factors influencing
performance outcomes during the just-completed cycle. In essence, the tasks and
procedures involved had much in common with western MA techniques in the
functional areas of budgeting, costing, and planning.
Vietnam began to experiment with limited departures from strict central
planning during the late-1970s and early-1980s (Fforde and De Vylder, 1996). In
particular, a decree was issued in 1981, allowing the so-called three-plan system to
operate. Under this system, the annual plan of each enterprise would have three
elements. The first element was Plan A, which involved mandatory output targets, to
be produced with inputs provided by the state; any profits would be transferred
to the state budget. Thus Plan A represented a continuation of the previous
central planning practices. By contrast, Plan B and Plan C allowed the management
of each enterprise greater degrees of flexibility in making decisions, in terms
of output levels, product types, input sources, sale outlets, and prices. To support
such decision making, access to relevant statistics and information became
critical for management, thus heightening the role of what later came to be known
as MA.
After the launch of Doi Moi in 1986, the economic reform process accelerated and
broadened. The authorities began to allow new forms of enterprise ownership. In
privately owned and foreign-owned enterprises, decision making would of course be
undertaken by the enterprises management (as opposed to external planners). But
even in the case of SOEs, decision making and management functions were also
decentralized and transferred to the local management (Pham, 2002). All these
developments increased the need for some form of MA at the enterprise level.
Management at wholly foreign-owned and joint-venture (foreign-domestic) enterprises
began to introduce and apply western MA techniques and practices (MAPs). These
quickly spread to other (domestic) enterprises, some of which had spontaneously
responded to similar internal needs by adopting western MAPs.
By the mid-1990s, MA courses (in a form recognizable by western academics) had
begun to be offered at some universities. The Accounting Law, promulgated in 2003,
formally recognizes MA as a part of the profession and discipline of accounting. An
MOF circular issued in 2006 contains detailed, specific provisions to guide the
application of MA in enterprises. Since 2007, MA has been one of the subjects included
in annual examinations which are taken by candidates wishing to qualify for the
Auditor Certificate (
) or the Accounting Practitioner Certificate
).
(
What western MAPs have been adopted in Vietnam? How popular (i.e. frequently
adopted) have they been? Have enterprises that adopted western MAPs found them
to be useful? To obtain answers to these and related questions, Doan et al. (2011)

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

conducted, in 2009 and 2010, a questionnaire survey of 181 professional accountants


and follow-up interviews with 20 of these participants.
They found that a number of well-known western MAPs had very little exposure in
Vietnam, in that they were not taught in university MA courses and were adopted
by very few (if any) enterprises. These practices/techniques tended to be related to
benchmarking, strategic planning, and performance evaluation based mainly
on nonfinancial indicators. Of the 32 western MAPs that were reasonably well
known, on average each MAP was adopted by about 75 percent of the respondent
enterprises. Traditional MAPs (defined as those which had been proposed or had
become popular before the mid-1980s) had higher adoption rates than contemporary
MAPs (those that have become popular after the mid-1980s). Enterprises that did
employ western MAPs generally found them to be moderately useful: ratings made by
respondents regarding the benefits of individual MAPs tended to be around 3.4-3.8
on a five-point Likert scale, with 5 being the highest favorable rating.
For present purposes, one of the most interesting results to have emerged from the
above study is that the most popular western MAPs (i.e. MAPs adopted by the largest
numbers of respondents) tended to be those which have similarities with the type of
planning and budgeting activities that had been routinely carried out previously
under central planning. These western MAPs (and their former planning counterparts)
include sale budgeting (sale planning), profit budgeting (profit planning), cost
budgeting (cost planning), production budgeting (production planning), budget
variance analysis (plan fulfillment analysis), product profitability analysis (analysis of
factors affecting profit). Because these MAPs were highly compatible with the ways in
which enterprises had conducted their business, they would have been among the
easiest and least costly for enterprises to adopt.
Given the generally favorable perceptions about western MAPs, it is natural to ask
why enterprises did not adopt, or plan to adopt, more of them. The responses obtained
by Doan et al. (2011) suggest three main reasons. First, typically the accounting
department found itself rather fully occupied with financial accounting tasks and
having relatively few resources to devote to MA. Second, accounting staff available to
the enterprise often lack adequate knowledge and experience to conduct MA tasks
satisfactorily. From these two explanations, a follow-up question arises naturally:
Why cant accounting managers obtain additional resources, especially those suited to
MA? In response to this, the third reason was often cited, namely, many enterprises
(especially SOEs) still regarded MAPs as supplementary tools, to be used mainly in
responding to managements requests for information and advice on a case-by-case
basis, rather than essential tools to be applied on a regular, ongoing basis.
7. Accounting profession
Before 1986, the state was responsible for educating and training sufficient numbers of
accounting staff to serve its management purposes. Accounting graduates from
four-year university and two-year or three-year vocational programs were recruited to
work in SOEs or collectives. There was no accounting professional organization
during this time.
After the mid-1980s, the state no longer assumed responsibility for recruiting
accounting graduates and assigning them to specific jobs. Instead, enterprises were
allowed to recruit qualified candidates to fill accounting positions according to their
own requirements. Accounting graduates came from three levels of academic
programs: university bachelors degree (
: 12 years of schooling plus four years of

Developing
transitional
economy
89

ARA
21,1

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

90

university training); advanced college diploma (


: 12 plus three years of
college training), and intermediate college diploma (
: nine plus three years
of vocational training; or 12 plus two years of vocational training).
As accounting activities became more diversified and sophisticated, there was an
increasing need for the exchange of professional knowledge and practical experiences
among accountants, including those of from western countries. In response, the first
professional accounting organization, the Chief Accountants Club, was founded in
1989 under the auspices of the MOF. The clubs membership rose from around 200
in 1989 to about 600 over the next three years (Narayan and Godden, 2000).
A broader organization, the Vietnam Accounting Association (VAA), was
established in 1994 by the MOF. (The Chief Accountants Club remained in existence
and became a subgroup within VAA.) In 1998, VAA became an official member of the
International Federation of Accountants and of the ASEAN Federation of Accountants.
VAAs membership was around 4,750 in 2000 (Narayan and Godden, 2000).
Reflecting changes in the actual situation, the VAA was renamed Vietnam
Association of Accountants and Auditors (whose preferred acronym was still VAA) in
2004. To become an official member of VAA, in recent years an applicant must hold a
four-year university degree in finance/accounting plus three years of relevant working
experience, or a three-year college diploma plus five years of working experience.
In line with the growth in auditing activities, the VACPA was founded in 2005.
(It also became a subgroup within VAA.) A prerequisite to becoming an official
member of VACPA is to hold an Auditor Certificate. As of June 2010, VACPA had 1,090
official members (VACPA, 2011). Compared with a population of around 88 million, this
represented a very low CPA-to-population ratio by international standards.
Since 2004, persons wishing to obtain an Auditor Certificate (
)
or an Accounting Practitioner Certificate (
) must have
successfully passed an examination held annually by the MOF. The examination for
the Auditor Certificate covers eight subjects, and that for the Accounting Practitioner
Certificate, five subjects. Candidates for both certificates must also possess
demonstrated skills in informatics; additionally, English skills are a prerequisite for
candidates taking the auditor examination.
In order to offer public services as an independent auditor, a person must (among
other things) hold an Auditor Certificate, and must have been registered with VACPA.
In order to offer public services in accounting, such as preparing financial reports for
businesses or taxation returns for individuals, a person must hold either an Auditor
Certificate or an Accounting Practitioner Certificate, and must have been registered
with the VAA.
The first independent auditing firm was established in 1991; this was a state-owned
company, administered by the MOF. In subsequent years, a number of other auditing
firms (both state owned and otherwise) were established; these all operated under
the direct supervision of MOF. Large international auditing firms such as Deloitte
Touche Tohmatsu, Ernst and Young, KPMG, and PriceWaterhouseCoopers have
maintained a presence in the country since the early-1990s. To conform with
international practice, a government decree issued in 2004 required all state-owned
auditing firms to transform themselves into privately owned companies by 2007.
By the end of 2010, about 152 auditing firms had registered with VACPA to provide
professional auditing services; these included four 100 percent foreign-owned
companies. In addition, 25 companies had registered with VAA to provide public
accounting services. Approximately 7,000 accountants/auditors worked in these

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

auditing and public accounting firms. Of these, over 1,600 have obtained certification
by the MOF as auditor or accounting practitioner, and approximately 300 are overseascertified auditors (VACPA, 2011).
VAA and VACPA have gained greater prominence and more responsibilities in
recent years, as the supervision of accounting and auditing activities has shifted
gradually from the MOF to these professional organizations. In particular, they now
manage the process of annual registration of public accountants and public accounting
firms, and auditors and auditing firms. This gives them the authority and the means to
monitor and maintain quality standards. In addition, the professional organizations
have been increasingly involved in the provision of short training courses to update the
knowledge and enhance the skills of professionals who are already certified, and to
help certification candidates prepare for their examinations.
As yet, however, these examinations are still administered by the MOF. Similarly,
to date VAA and VACPA have tended not to provide any significant inputs to the
design of accounting degree programs and individual courses at the various
universities and colleges. Their formal role in the deliberations and preparations of
the national accounting standards has also been rather limited. Interestingly, members
of the VAAs Executive Committee have tended to be senior bureaucrats with
responsibilities in the finance and taxation areas rather than practitioners in the
private sector or academics. According to Narayan and Godden (2000), the MOF
provided funding for VAA, at least in its early years. In order for VAA and VACPA to
function well and to represent their members effectively in any dialogue with the
regulators in the future, greater autonomy would appear to be a desirable goal.
8. Summary and future research directions
A recurrent theme in the literature on accounting in transitional and developing
economies is that changes in accounting regulations, methods and practices frequently
arose as a response to changes in the underlying economic and political environment.
As we have seen in this paper, that proposition appears to have been borne out in the
case of Vietnam. Over the past three decades, as the country first experimented with,
and then embraced, economic liberalization and closer links with western economies,
its accounting system has also changed accordingly.
During the 1980s and early-1990s, while economic reforms were still tentative and
enterprises were still working out how best to operate under the new system, changes
in Vietnamese accounting were incremental: although new accounts and financial
statements were introduced to accommodate new transactions and classes of
enterprises, the system remained largely unchanged from its previous, Soviet style.
It was only after the mid-1990s, when the economic reform process had been firmly
in place for a decade, that fundamental changes to the system began to occur, including
the adoption of western accounting principles and standards.
At present, the countrys accounting system contains elements taken from both the
IAS/IFRS approach and the pre-1995 Vietnamese system, which was itself the result of
combining the Soviet style and the traditional French system. Despite the considerable
efforts already made toward harmonization, there remain significant differences
between VASs and international ones, as embodied in the IFRSs. For example, the
country has not chosen to adopt the practice of reporting fair value, and this is unlikely
to change in the near term. In addition, it has continued to rely on charts of accounts
and detailed rules, treating them as instruments and means to help accountants apply
the national accounting standards appropriately. Further convergence toward

Developing
transitional
economy
91

ARA
21,1

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

92

international practice in these regards may be slow, especially in the SME sector, and
may result in a segmented financial accounting system, where enterprises in different
tiers of the system may be allowed, for example, different degrees of flexibility.
These observations are, in the main, consistent with the findings and reflections
of Bailey (1995), Nobes (1998), Huang and Ma (2001), Richard (2003), Xiao et al. (2004),
Sucher et al. (2005), Ezzamel et al. (2007), Mashayekhi and Mashayekh (2008), and
Lawson et al. (2009) for other countries around the world. It is hoped that the present
paper will make a contribution to this literature by providing complementary
information regarding an infrequently reported country, and by considering both the
pros and cons of harmonizing with IASs/IFRSs in a developing-country context.
In the future, it will be of interest to monitor the rate at which VASs converge to
IASs/IFRSs, and to assess the extent to which true convergence occurs i.e. in
substance and spirit, as well as in form. Standard theories (such as the theory of
diffusion of innovations) and international experiences suggest a number of factors
which may be key determinants of this convergence process, and it may be instructive
to test these prior expectations against the actual outcomes. In particular, FDI and
overseas development assistance are likely to continue playing a significant role as
drivers of capital accumulation, structural change, and economic growth. As such,
their influence on the type of financial information demanded and produced, and on
accounting practice and systems, may be profound.
For a variety of reasons, Vietnam is undergoing substantial changes in corporate
governance (see, e.g., Le and Walker, 2008). In turn, these will affect both the quantity
and quality of accounting information required by management and by investors.
Similarly, the country has been in the process of reforming its public administration
system and practices, and this process will probably require a major transformation in
public sector accounting. These, and other, ongoing significant changes invite careful
observation and analysis by researchers.
Notes
1. An example of these aid projects was the European Union Technical Assistance Program
Vietnam (EUROTAP-VIET) Accounting and Auditing Project, which provided support in
this area during the period 1995-1998, to the value of 8.2 million ECU.
2. The original wordings in Vietnamese were
which may be
translated literally as enterprise accounting regime. The translation in the text, which
replaces regime with system, is in keeping with common usage of the terms in similar
contexts by other authors in the literatures on Vietnamese and Chinese accounting.
3. An example of these is a 2004 decree which (among other things) requires all state-owned
auditing firms to transform themselves into privately owned companies by 2007; see
Section 7.
4. Typically the chart of accounts comprises nine classes. Of these, accounts from classes 1 to 4
provide information to be used in drawing up the balance sheet. Accounts from classes 5 to 9
provide information presented in the income statement.
5. Within each of these four ownership categories, the subject enterprises were selected at
random from a total list of 199 potential subject enterprises (this list had been constructed
via the snowball approach where potential subjects were asked to recommend other
potential participants, and so on).
6. It appears that since 2006, further work on VAS development has been delayed, due partly to
resource constraints and uncertainty over the precise roles of MOF and of professional

accounting bodies such as the Vietnam Association of Certified Public Accountants


(VACPA). At writing, a new set of VASs, based upon an updated version of the IFRSs, is
expected to be developed by 2013 (eStandardsForum, 2010).

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

7. It is interesting to note that, in a comparison of financial reports produced under IASs and
under Chinese accounting standards which applied during the 1990s, Eccher and Healy
(2000) found that information produced using the IAS system was no more useful than that
prepared using Chinese standards, in terms of either the explanatory power of reported
accruals for cash flows, or the association between reported earnings and subsequent
stock returns.
References
Adams, H.A. and Do, L.T. (2003), Vietnamese Accounting Standards Intent and Purpose
Contrasted to International Accounting Standards, ACW, Hanoi.
Aleonard, L. (1997), Systems of accounting in Vietnam, in Baydoun, N., Nishimura, A. and
Willett, R. (Eds), Accounting in the Asia-Pacific Region, Wiley and Sons, Singapore, pp. 378-399.
Bailey, D. (1995), Accounting in transition in the transitional economy, European Accounting
Review, Vol. 4 No. 4, pp. 595-623.
Briston, R.J. (1978), The evolution of accounting in developing countries, International Journal
of Accounting Education and Research, Vol. 14 No. 1, pp. 105-120.
CIA (2011), The World Factbook, CIA, available at: www.cia.gov/library/publications/the-worldfactbook/geos/vm.html (accessed January 29, 2011).
Deegan, C. (2009), Financial Accounting Theory, 3rd ed., McGraw-Hill Australia Pty Ltd, Sydney,
NSW.
Deloitte Touche Tohmatsu (2003), Vietnamese Accounting Standards vs Current Accounting
Regulations, Deloitte Touche Tohmatsu.
Doan, N.P.A., Nguyen, D.T. and Mia, L. (2011), Western management accounting practices
in Vietnamese enterprises: adoption and perceived benefits, Pacific Accounting Review,
Vol. 23 No. 2, pp. 162-164.
Eccher, E.A. and Healy, P.M. (2000), The role of international accounting standards in
transitional economies: a study of the Peoples Republic of China, Electronic Paper
Collection, Social Science Research Network.
eStandardsForum (2010), Vietnam: international financial reporting standards, available
at: www.estandardsforum.org/vietnam/standards/international-financial-reportingstandards (accessed June 8, 2011).
Ezzamel, M., Xiao, J. and Pan, A. (2007), Political ideology and accounting regulation in China,
Accounting, Organizations and Society, Vol. 32 Nos 7-8, pp. 669-700.
Fforde, A. and De Vylder, S. (1996), From Plan to Market: The Economic Transition in Vietnam,
Westview Press, Boulder, CO.
Ha, T.N.H. (2008), Vietnamese accounting and auditing system has gradually harmonized
with international norms and has been accepted by other countries (
),
Vietnamese Auditing Journal, Vol. 11, pp. 47-49.
Hove, M.R. (1986), Accounting practices in developing countries: colonialisms legacy of
inappropriate technologies, International Journal of Accounting, Vol. 22 No. 1,
pp. 81-100.
Huang, A. and Ma, R. (2001), Accounting in China in Transition: 1949-2000, World Scientific,
Singapore.
IMF (2007), Vietnam: selected issues, IMF Country Report No. 07/385, IMF, Washington, DC.

Developing
transitional
economy
93

ARA
21,1

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

94

Lawson, R., Yang, J. and Yuan, H. (2009), Accounting in China: a long journey to the rebirth of a
profession, Cost Management, Vol. 23 No. 2, pp. 5-15.
Le, M.T. and Walker, G. (2008), Corporate governance of listed companies in Vietnam, Bond
Law Review, Vol. 20 No. 2, pp. 1-80.
Leung, S.E. (2010), Vietnam: an economic survey, Asian-Pacific Economic Literature, Vol. 24
No. 2, pp. 83-103.
Mai, T.H.M. (2008), Vietnamese accounting standard system: from theory to practice
(
), Vietnamese
Accounting Journal, Vol. 4, pp. 12-14.
Mashayekhi, B. and Mashayekh, S. (2008), Development of accounting in Iran, International
Journal of Accounting, Vol. 43 No. 1, pp. 66-86.
Narayan, F.B. and Godden, T. (2000), Financial Management and Governance Issues in Vietnam,
Asian Development Bank, Manila.
Nguyen, C.P. (2005), A study on Vietnamese accounting system (
), research paper, Danang University, Danang.
Nguyen, H.C. (2011), The possibilities of adopting IAS/IFRS in Vietnam: an analysis, Corporate
Ownership & Control, Vol. 9 No. 1, pp. 161-170.
Nguyen, D.T. and Huyen, P. (1997), Vietnam, in Ma, R. (Ed.), Financial Reporting in the Pacific
Asia Region, World Scientific Publishing Co. Inc, Singapore, pp. 413-433.
Nguyen, P.M. (2008), Adoption of accounting standards in Vietnam from the viewpoint
of international professional association
, Vietnamese Auditing Journal, Vol. 4, pp. 44-46.
Nobes, C.W. (1998), Accounting in Developing Economies: Questions about Users, Uses and
Appropriate Reporting Practices, ACCA, London.
Pham, H.H. (2010), De jure convergence between Vietnamese and International Accounting
Standards (
), Vietnamese Journal of Science and Technology, Vol. 40 No. 40,
pp. 155-164.
Pham, Q. (2002), Toward the construction of a system of management accounting reports and
its application in Vietnamese enterprises (
), unpublished
PhD dissertation, The National Economics University, Hanoi.
Phan, T.P.L. (2009), Vietnam has not fully adopted IASs/IFRSs, why? (
), available at: www.vacpa.org.vn/
index.php?omodules&nforum&fforum_detail&idforum275&page5 (accessed
January 29, 2011).
Phung, T.D. (2006), Possible harmonization between Vietnamese accounting standards and
ASEAN and international accounting standards (
), Vietnamese
Accounting Journal, Vol. 1, pp. 24-25.
PriceWaterhouseCoopers (2008), Similarities and differences: a comparison of IFRS and Thai GAAP,
Vietnamese GAAP, Cambodian GAAP and Laos GAAP, PriceWaterhouseCoopers, October.
Richard, J. (1995), The evolution of the Romanian and Russian accounting charts after the collapse
of the communist system, European Accounting Review, Vol. 4 No. 2, pp. 305-322.
Richard, J. (2003), Accounting in Eastern Europe: from communism to capitalism, in Walton, P.,
Haller, A. and Raffournier, B. (Eds), International Accounting, 2nd ed., Thomson, London,
pp. 332-347.

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

Rogers, E.M. (2003), Diffusion of Innovations, 5th ed., London Free Press, New York, NY.
Sarikas, R.H.S., Hien, V.D. and Djatej, A.M. (2009), International influence on accountancy in
Vietnam, in McGee, R.W. (Ed.), Corporate Governance in Developing Economies: Country
Studies of Africa, Asia and Latin America, Springer, New York, NY, pp. 181-192.
Schroll, R. (1995), The new accounting system in the Czech Republic, European Accounting
Review, Vol. 4 No. 4, pp. 827-832.
Solodchenko, I. and Sucher, P. (2005), Accounting in Ukraine since independence: real politik,
problems and prospects, European Accounting Review, Vol. 14 No. 3, pp. 603-633.
Sucher, P., Kosmala, K., Bychkova, S. and Jindrichovska, I. (2005), Introduction: transitional
economies and changing notions of accounting and accountability, European Accounting
Review, Vol. 14 No. 3, pp. 571-577.
Tran, D.K.N. and Ramachandran, N. (2006), Capital structure in small and medium-sized
enterprises: the case of Vietnam, ASEAN Economic Bulletin, Vol. 23 No. 2, pp. 192-211.
Tyrrall, D., Woodward, D. and Rakhimbekova, A. (2007), The relevance of International
Financial Reporting Standards to a developing country: evidence from Kazakhstan,
International Journal of Accounting, Vol. 42 No. 1, pp. 82-110.
UNCTAD (2003), Accounting needs of developing countries, in Walton, P., Haller, A. and
Raffournier, B. (Eds), International Accounting, 2nd ed., Thomson Learning EMEA,
London, pp. 336-384.
VACPA (2011), List of auditors (in Vietnamese: Danh sach Kiem Toan Vien), available
at: www.vacpa.org.vn/index.php?omodules&ninspector&finspector&idtype131
(accessed April 15, 2011).
Vellam, I. (2004), Implementation of International Accounting Standards in Poland: can true
convergence be achieved in practice?, Accounting in Europe, Vol. 1 No. 1, pp. 143-167.
Xiao, J.Z., Weetman, P. and Sun, M. (2004), Political influence and coexistence of a uniform
accounting system and accounting standards: recent developments in China, Abacus,
Vol. 40 No. 2, pp. 193-218.
Yang, D.C. and Nguyen, A.T. (2003), The enterprise accounting system of Vietnam and United
States generally accepted accounting principles: a comparison, Advances in International
Accounting, Vol. 16, pp. 175-192.
Further reading
Deloitte Touche Tohmatsu (2006), IAS plus-country and regional updates Vietnam, available
at: http://iasplus.com/country/vietnam.htm (accessed May 19, 2010).
About the authors
Doan Ngoc Phi Anh is a Lecturer in the Department of Accounting, Danang University of
Economics, Danang, Vietnam. He has completed a PhD in the Department of Accounting,
Finance and Economics at Griffith University, Brisbane, Australia. His main research interests
include management accounting in developing and transitional countries, financial analysis and
internal control systems. Doan Ngoc Phi Anh is the corresponding author and can be contacted
at: phianhdn@yahoo.com, Ngoc. Doan@griffith.edu.au
Duc-Tho Nguyen is a Professor in the Department of Accounting, Finance and Economics,
Griffith Business School, Griffith University. He gained his PhD from the Australian National
University in 1981, and since 1989 has been with Griffith University, where he has held senior
positions, including Dean of Commerce and Head of School. He has consulted for the World
Bank, UNDP, ILO, AusAID and other organizations.
To purchase reprints of this article please e-mail: reprints@emeraldinsight.com
Or visit our web site for further details: www.emeraldinsight.com/reprints

Developing
transitional
economy
95

This article has been cited by:

Downloaded by DIPONEGORO UNIVERSITY At 20:38 11 September 2014 (PT)

1. N. K. Rozhkova. 2015. Synthetic and Analytical Accounting of Inventory as a Tool to Improve Inventory
Accounting System in Vietnam. Journal of Economics, Business and Management 3:5, 489-492. [CrossRef]

You might also like