The Lesson for Vietnam - International Experience in Implementing IFRSs

CHAPTER 2 LITERATURE REVIEW

2.4 International Experience in Implementing IFRSs

2.4.4 The Lesson for Vietnam

Based on the experience during adoption or convergence of IFRSs in the world and especially of China and Malaysia, some lessons for Vietnam in the process of applying IFRSs can be drawn as follows:

Firstly, the choice of applying IFRSs for Vietnam: Adoption or Convergence.

We find that the choice of which method to choose to harmonise with IFRSs depends on the specific characteristics of each country, as well as the starting accounting's point of that country itself. The mode of self-development of national accounting systems to reach convergence with IFRSs requires a regulation system strong enough to develop accounting systems for their own country. This approach requires strong financial resources and human resources for implementation, which will be a major difficulty for Vietnam to implement it without support from outside. The other approach is the

adoption of IFRSs. The other approach is Adoption IFRSs. According to (Li 2010), this approach is approved by many international organizations as well as saving time and costs but not considered as an optimal choice for all countries. International accounting standards is expressed in English, while the use of English is still limited in many countries, including Vietnam.

Secondly, Vietnam needs to quickly bring IFRSs into the field of education, creating a deep knowledge of IFRSs for those who have been and will become accountant, as well as the knowledge necessary for investors and managers in enterprises. Besides, Vietnam also needs to further develop the professional accounting associations such as VAA, which help organize training activities, information, broadcasting and update knowledge of IFRSs to members. Moreover, VAA also represents Vietnamese accountants to participate in workshops, accounting forums in the regions and the world, which are good opportunities to learn experience in using IFRSs from other countries.

Finally, based on the experience of other countries, we found that the application of IFRSs should be applied step by step. Countries should develop a clear plan to apply and the application of IFRSs can be done in part for each type of enterprise and it is also acceptable to maintain two accounting systems in the convert period.

Thus, the approaching choice of IFRSs in Vietnam should be based on an analysis of the specific situations as well as a consideration of the challenges brought by each approach. Countries newly switched to market economies, especially China, share many similarities with Vietnam so Vietnam should refer to China's experience when making its selection.

Summary

The globalization process is taking place with rapid growth, which requires the improvement in the quality of financial information. With the trend of globalization and the current strong growth of global capital markets, it is indispensable to have a unified basis for financial statements to be prepared. Therefore, the international accounting convergence is the way that any country should follow for its own sake.

Since 2001, with the establishment of the IASB, more than 100 countries have required or allowed the use of IFRSs. So far there have been about 160 nations and reporting jurisdictions permitting or requiring IFRSs for domestic listed companies, among them approximately 90 countries have fully conformed to IFRSs, and many other countries such as China, Malaysia and the USA are planning to converging IFRSs from GAAP (Jacob and Madu, 2009; IFRS recourse). International accounting convergence not only occurs in developed countries, it is a global trend. Vietnam is no exception.

The Vietnam accounting system has gone through many stages of development and continuous improvement which are absorbed selectively and based on the integration of the international practice. Through the establishment of legal framework including the Accounting Law, VASs, and accounting regimes, a profound reform of Vietnam's accounting toward real concord with international standards have been showed. However, in the system of VASs there exist differences in comparison with IFRSs. The wave of globalization and transnational transactions are growing strongly.

Vietnam’s official WTO membership, along with commitments to open services markets, finance, and banking were promoted the transparency as well as the development of accounting systems. Convergence with international accounting is only a matter of “sooner or later” to Vietnam. Therefore, proactive approaches to IFRSs are necessary tasks. It will help Vietnam better prepare, have better options and succeed earlier. The next section of this paper presents an empirical research about IFRSs in Vietnam.

CHAPTER 3 METHODOLOGY

This chapter introduces the methodological basis for the research study and is divided into five sections. The first provides a hypothesis development. The second provides a theoretical basis for selecting the quantitative and qualitative approach and an overview of research design including questionnaire design and pretesting. The third depicts of the research sample. The fourth describes process of data collection and the data analysis is provided in the last section.

3.1. Development of hypotheses

This survey enhances the practical for assessment and reflects the general perception about IFRSs, which identify the possible solutions available to Vietnam to allow it to use IFRSs smoothly, as a basis for discussing the implications for Vietnam by 2020. The research question that underlies this study is: What are the implications for Vietnam if it applies the International Financial Reporting Standards?

Firstly, globalization process provides great opportunities for Vietnamese enterprises to reach new heights. From the practical demands of the economy, when business activities become increasingly complex, so the rapid application of IFRSs becomes more urgent than ever. Applying IFRSs means a new accounting environment to be formed, and it requires providing full information about IFRSs. To provide implications for the application of IFRSs in Vietnam, this study would like to evaluate the sources of information on IFRSs for who cares in Vietnam during this time. So the first hypothesis as follows:

H1: The information of IFRSs in Vietnam is adequate and diversified.

Secondly, when joining the WTO, the Vietnam’s goal is to complete the integration in the field of international accounting and auditing before 2020. In which, the period 2010 - 2020, dynamic phase of integration: Vietnam’s comprehensive integration and equality with other countries in the field of accounting and auditing, we can both import and export accounting and auditing services. Thus, the rapid update and

refine VASs to fit with IFRSs is as inevitability. Therefore, the second hypothesis would be:

H2: The update and refine VASs to fit with IFRSs is indispensable.

Next, the current globalization of the world economy has made business activities more standardized (Epstein, 2009). Along with the strong development of capital markets and multinational enterprises, the financial transactions are great and growing complexity worldwide. According to Nobes (2001), Carroll (2003), Jermakowicz et al. (2006), Epstein (2009), Gyasi (2010), and Jauffret (2010), the application of IFRSs to record and report on the economic activities of enterprises will bring many benefits. This content was presented as advantages of IFRSs in literature review. To revaluate of the benefits from applying IFRSs to Vietnam, the third hypothesis would be:

H3: The benefits of applying IFRSs in Vietnam are clear.

For enterprises

H3a: Using IFRSs reduce cost of capital for company

H3b: Using IFRSs increase the reliability of the financial statements H3c: Using IFRSs reduce reporting transform cost

For investors

H3d: Increase international comparability of financial information thereby increasing investment opportunities

H3e: Increase transparency for the capital market to reduce risks For State/ nation

H3f: Adopting IFRSs reduces the development and maintenance cost for nation accounting standards

H3g: Create confidence for investors, contributing to the development of stock market.

For accountants and Auditors

H3h: Accountants and auditors become more competitive

Finally, besides the benefits of IFRSs, the application of IFRSs takes many challenges for many countries including Vietnam. According to Kannan (2009), most enterprises faced a lack of practical experiences about IFRSs. In the present period of

transition to IFRSs in Vietnam, it will be difficult not only because there are the differences between IFRSs and VASs, but also IFRSs is considered to be very complex, even for developed economies. So the fourth hypothesis is as follow:

H4: The challenges of applying IFRSs in Vietnam are clear.

H4a: IFRSs are more complex than the current situation H4b: Language barrier due to IFRSs is presented in English H4c: Knowledge of IFRSs is still limited

3.2 Research Design

A research design is the strategy for a study and the procedures for the collection, measurement, and analysis of data. Researchers choose their research design essentially based on the nature of the research questions to test the hypotheses (Cooper and Schindler, 2008; Yin, 2009). The finger 3.1 shows hypothesis testing and the research process.

Figure 3.1 Hypothesis Testing and the Research Process

This study uses quantitative and qualitative research through a questionnaire survey approach. According to Gallier (1985), survey is a measurement process to

“obtain snapshots of practice, situations or views at a particular point in time (via questionnaires or interviews) from which inferences are made (using quantitative analytical techniques) regarding the relationship that exist in the past, present and future”. The advantages of this method are “useful in describing the characteristics of large population”. It can be asked many questions about a topic to make more flexibility to the analysis and used mail or email to be easy administered remote locations.

However, the main weakness of survey is that the researcher must guarantee a large number of selected samples which will reply (Cooper and Schindler, 2008).

3.2.1 Questionnaire Design

This study uses an email survey through questionnaire to solicit responses from the population as Vietnamese accountants and accounting lecturers. By this way, it is possible to get a large amount of data to be analyzed statistically. The questionnaires in this study comprise many questions to divide into five sections.

The first section requires the respondent to circle or highlight the appropriate answer, either “yes” or “no” or choose the best answer for multiple-choice questions in the column provided, regarding ones about their understanding of IFRSs. This section deals with the first hypothesis: The information of IFRSs in Vietnam is adequate and diversified.

The next section is to be answered for the second hypothesis: “the update and refine VASs to fit with IFRSs is indispensable”. It would define what standards should be issued in order by preference if Vietnam promulgates standards lacking compared to IFRSs; here the respondents are asked to select and rank for five standards from lack of twelve VASs compared with IFRSs. It is also an attempt to identify the time and best way to apply IFRSs in the future from how the respondents will circle or highlight the best answer for multiple-choice questions.

The third questions section deals with the third hypothesis: “The benefits of applying IFRSs in Vietnam are clear”. The section covers a list of nineteen expected benefits of the conversion to IFRSs to enterprises, investors, State/ nation, accountants

and auditors in Vietnam. Respondents are asked to indicate their opinions based on a five-point Likert scale for measurement of the answers which range from “1” (strongly disagree) to “5” (strongly agree).

The fourth section deals with the fourth hypothesis: “The challenges of applying IFRSs in Vietnam are clear” which includes five items of expected challenges of applying IFRSs in Vietnam. Herein respondents are asked to indicate how agree in each challenge to them by using a five-point Likert scale from “1” (strongly disagree) to “5”

(strongly agree).

The final section was designed to acquire the respondent’s basic information regarding gender, age, level of academic qualification, job, and years of experience in teaching and working as an accountant (Demographic information).

The contents of questionnaire will be showed in Appendix E. The questionnaire first is designed in English then translated into Vietnamese for the respondents to easily and fully understand the real essence of the questionnaire. The translated version is then checked by a group of professional translators to ensure the consistence in meaning.

3.1.2 Pretesting of Questionnaire

Pre-testing of the questionnaires was conducted and was particularly important to get feedback from people with diverse expertise and knowledge. According to Cooper and Schindler (2008), pre-testing is the most important step to improve questionnaires. The purpose of the pretest was to see how well the cover letter motivated respondents. The test demonstrated whether the instructions, the wording of questions and sequencing were clear. Firstly, the questionnaire was reviewed by some professors in I-Shou University and some accounting experts. Secondly, a pre-testing was performed by sending emails to 10 lecturers and 10 accountants in Vietnam. They were asked to critique the cover letter, the instructions, and each of the questions and answers. This ensured that they interpreted the researcher's intentions correctly.

3.3 Sampling Design

The population selected was comprised of accountants in enterprises and accounting lecturers in Vietnam, both groups directly responsible for bringing IFRSs

into practice and applying these standards in Vietnam in the future. Specifically, accountants are the direct user of IFRSs, and accounting lecturer with the task of training will help enterprises and investors understand and apply reasonable IFRSs in preparing financial statements and decision making.

The sample in this study can be described as a convenient sample since it is not selected randomly. Rather, the researcher has contacted accounting lecturers of fourteen universities, the members of VAA and accountants at selected companies and asked for their participation in the study. A total of 80 lecturers, 62 accountants and 4 auditors and 2 financial officers agreed to participate and are included in the sample.

3.4 Data Collection

In today’s world, the number of Internet users is increasing rapidly. According to Couper (2000) and Kwak and Radler (2002), the applicability and significance of the internet has become of great importance to many researchers. Specifically, an internet-based survey via email has brought many advantages such as reduction in research costs and efficient administration in terms of time (Kiesler and Sproull, 1986; Schaefer and Dillman, 1998; Weible and Wallace, 1998; Kwak and Radler, 2002). It also provides an easier and higher response rate (Flaherty, et al., 1998; Sheehan, 2006) because “people tend to provide longer open-ended responses to email than to other types of surveys”

(Paolo, et al., 2000), and responses to email survey tend to be more candid than responses to mail or phone surveys (Bachmann, Elfrink and Venzana, 1999).

Based on this, the researcher collected data by sending emails to accountants and accounting lecturers in Vietnam. The content of the email included a questionnaire, a cover letter and two return-email addresses. The researcher hoped to achive the highest level of response rates and to reduce internet error. The cover letter described the content of the survey and explained the importance of a response.

The data were collected during February to March, 2011. To ensure a high level of response from lecturers, the researcher went to the accounting faculty of five universities in Hanoi to present in person the purpose of questionnaire and the cover letter to some respondents. Then assistants of accounting faculties were asked to help collect these questionnaires during the following two weeks. The lecturers were very

willing to complete the survey, and they also assisted the researcher in distributing and collecting the questionnaire.

3.5 Data Analysis

The SPSS 17.0 computer software was used to analyze the quantitative data.

The respondents’ background information and the descriptive statistics of their responses to other items, such as frequencies, percentages, means and standard deviations were reported.

To test the above four hypothesis, the data were subjected to one samples t-tests.

Also, to investigate the relationship between the background variables and the evaluation of IFRSs resource, the ways and the reasons to contacting the IFRSs information, the suitable time and way in applying IFRSs, the benefits and challenges scores, a cross tabulation analysis with Chi-Square test, an independent sample t-tests and one way ANOVA were applied. The background variables were the independent variables, and the others items and scores were dependent variables.

In addition, a logistic regression statistics was applied to measure the direction of the association between the way to be chosen for applying IFRSs and the expected benefits of using IFRSs. The logistic regression equation is:

WAY = f (α, benefit for enterprises factors; benefit for investors factors; benefit for nation factors; benefit for accountants and auditors factors)

In which the assumption that the approach to apply IFRSs (WAY) is assigned 1 means convergence, 0 means adoption. The results obtained from the analysis are reported in the next section.

CHAPTER 4 RESULTS AND DISCUSSION

The purpose of this study is to examine the possible solutions regarding the most suitable timing and the best way to apply IFRSs to Vietnam. In this chapter, the statistical analysis will be showed and all hypotheses which were stated in the third chapter will be discussed. Firstly, it starts with describing the characteristics of respondents. Secondly, the related data in the route to applying IFRSs are outlined along with test for the hypotheses. Finally, a summary of all results and discussions is provided in the last section.

4.1 Characteristics of the respondents

The frequency distribution of respondents’ demographic is showed in Appendix G. The mean age of the sample was 37.4 years old (range of 25 to 75 years, SD = 9.3 years). Approximately fifty percent of the respondents were under 35 years old ( 50.7%, n = 75), 47 respondents (31.8%) were 36 to 45 years old, 18 respondents (12.2%) were aged 46 to 55 years old and 8 respondents (5.4%) were 56 or older. The majority of respondents were female (55.4 %, n = 82) and 44.6 % (n = 66) were male. However, the difference between the percentage of male and female is negligible therefore ensuring objectivity when making assessments to the general population.

Regarding education level, 54 respondents (36.5%) obtained a bachelor’s degree, 73 (49.3%) had a master’s degree, and 21 (14.2%) had a doctor’s degree. In which, 80 respondents (54.1%) were lecturers, 62 respondents (41.9%) were accountants and 6 others (4.1%) were auditors or financial officers. Interestingly, 87.5% of lecturers have a master’s degree or doctor’s degree while only 33.8% of accountants have a master’s degree and no one has a doctor’s degree.

Of those who responded to the question regarding their level of investment in the stock market, 51 respondents (34.5%) have never invested, 86 respondents (58.1%) invest sometimes, and only 11 respondents (7.4%) invest often. It means that the sample not only represented the accounting lecturers and the accountants but also partly represented the general investor (65.5% of respondents) in Vietnam.

For years of teaching experience, the mean is 9.96 years (range of 1 to 45 years, SD = 9.22 years) in which 37 (46%) lecturers have worked for 5 years or less, 15 (18.8%) of lecturers have worked 6 to 10 years, 10 (12.5%) of lecturers were 11 to 15 years, and 18 (22.5%) others have worked more than 15 years.

Regarding the teaching course of respondents, 65 (69.1%) of the lecturers are responsible for the accounting course, 25 (26.6%) of the lecturers are responsible for the auditing course, and 4 (4.3%) lecturers are responsible for the finance course. Only 80 respondents were lecturers however 94 responses referred to teaching course. It is because some lecturers are responsible for not only the accounting course but also the auditing or the finance course.

In addition, lecturers were asked about IFRSs course in their university, 4 (5%) of them are unsure of teaching IFRSs course or not, 59 (73.8%) lecturers answer there is no IFRSs course taught there, only 17 (21.3%) others answered that there is the IFRSs course taught in their university. The result showed that the teaching of IFRSs at the universities in Vietnam is a negligible. Potentially this leads to the lack of adequate knowledge of accountants and auditors about IFRSs at this time.

When asked for the experiences of working as an accountant, 20 (23%) accountants have worked for 5 years or less, 27 (31%) accountants have worked for 6

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