When considering the conversion to IFRS, businesses need to carefully consider factors such as the scope of the conversion, the impact on business processes, adjusting accounting systems and preparing employees. This helps ensure the conversion process is smooth and effective.

Benefits of IFRS conversion for businesses

Vietnam’s application of IFRS is important for businesses to increase their integration into the global financial market and attract foreign direct investment. In addition, applying IFRS can help business owners better understand the value of their company, especially in situations such as mergers and acquisitions or when attracting new shareholders.

Converting to IFRS not only improves the ability to attract foreign direct investment but also helps businesses reduce the cost of issuing shares and bonds to raise capital effectively. The European Community (EU) has recognized that the adoption of IFRS over the past 10 years has led to the establishment of a common accounting language for capital markets.

The transition to IFRS affects all aspects of business operations

One of the main factors contributing to these difficulties is the leadership aspect. These companies view the transition to IFRS as simply a change in accounting policy, which is within the scope of the accounting department. However, the implementation of IFRS requires significant organizational adjustments and depends on the collaboration and coordination of many different departments throughout the company.

Relevant departments such as accounting need to identify the information needed for IFRS accounting that is not currently available in the VAS reporting system. They should also collaborate with the sales and marketing departments. The legal department carefully reviews and makes necessary changes to contracts such as sales contracts, purchase contracts, loan contracts, and lease contracts. Then coordinates with the information technology department to update and edit data fields accordingly.

Read more: 4 factors to help the financial reporting conversion process between VAS and IFRS succeed

Factors affecting the conversion and application of financial statements

International integration pressure

IASB believes that the increasing globalization of business, especially the increase in international economic activities such as trade and investment, has an impact on the implementation of international financial reporting standards. In addition, the implementation of international financial reporting standards can improve the accuracy and quality of financial statements for companies, bringing many benefits to organizations.

State policies

Based on research, the control of the state and financial institutions has a positive impact on the quality of accounting information. In order to meet the requirements of reliable accounting information for users, especially external partners, units must comply with state policies related to the preparation and presentation of financial statements. The legal system plays an important role in determining the application of international financial reporting standards for enterprises. This is evident from the involvement of government agencies in the compilation, development and dissemination of these standards.

Accounting workforce qualifications

In a study conducted by Halyer (2010), it was found that the qualifications of accountants can significantly affect the implementation of international financial reporting standards by companies. A study conducted by Uyar & Güngörmüş (2013) found that the shortage of skilled accountants poses a challenge in implementing international financial reporting standards in organizations. Similarly, according to a study by Zakari (2014), enterprises face difficulties in implementing international financial reporting standards when working with non-professional accountants.

Factors Affecting the Quality of Corporate Financial Statements

Earnings Management

Evaluating the financial health of entities and determining the reliability of reported earnings is a significant concern in the business world in the area of ​​earnings management. It is also used as an analytical tool to assess the impact of changes in accounting standards, external audit practices, compliance measures, corporate governance, and cost of capital.

Corporate Governance

Effective corporate governance is critical to ensuring the integrity and accuracy of financial reporting. The relationship between corporate governance and financial reporting quality has been widely studied. Companies with strong corporate governance have the potential to produce superior quality financial statements. Having a strong corporate governance system is critical for companies and auditors to effectively discharge their responsibilities.

Capital Market

In Vietnam, the capital market has grown significantly in recent years, in line with the needs and commitments to international economic integration. This growth also serves as an incentive for listed companies to improve their overall quality, assessing the accuracy of their financial statements before public disclosure.

Internal Control

Implementing internal control measures is important to minimize information risks and ensure the integrity and reliability of important data. According to the American Institute of Certified Public Accountants (AICPA), the preparation of reliable financial statements and meeting financial reporting objectives requires the implementation of strong internal controls over financial reporting. The quality of financial reporting is influenced by internal controls, which in turn impact information risks and credit ratings (Elbannan, 2009). Therefore, a strong and effective internal control system will help improve the accuracy and reliability of financial statements.

Information technology and accounting information systems

Accounting information systems are designed to produce relevant and reliable information. Because it allows the accounting information system to produce the necessary information in a short period of time, the effective use of information technology is an essential component of the accounting information system. In terms of operation, preparation, processing, presentation and provision of accounting information, information technology has a significant impact on the Accounting Information System.

In order for the information included in the financial statements of enterprises in general and the financial statements of listed companies in particular to be useful and meet the standards contributing to improving the quality of financial statements, it is necessary to identify the factors affecting the financial statements. A solid financial statement will be a useful tool for comparing and contrasting different businesses, determining the current value of the business and facilitating improved decision making.

Read more: Apply IFRS standards in financial reporting in Vietnam