The purposes are as follows:
(1) helping to consolidate the parent company's Financial Statements in accordance with IFRS while the subsidiary is still applying VAS.
(2) helping businesses to prepare for opening data when gradually applying IFRS (Please refer to here)
Below are the work steps to be taken to convert Financial Statements to IFRS:
Step 1: Compare and identify differences between VAS and IFRS and plan for the conversion.
Enterprises must comprehend the differences in order to decide how they will effect their financial statements if converted to International Accounting Standards (IFRS), which differences will be used, and which ones will not be applied because they are not suitable.
This will help businesses plan detailed implementation for related departments in collecting and processing data for the converting purpose.
The differences between the two standards, please refer to here
Step 2: Develop a template of Financial Statements according to IFRS suitable to the characteristics of the business.
Financial statements in accordance to IFRS will be too long if all items and requirements are presented, however, enterprises can remove contents that are not suitable for their size of operation, type of business, stage of development, type of economic transaction arising, etc. while still ensure compliance.
To complete this task, the Company need to:
- Review carefully the information in IFRS that relating to the presentation and disclosure. Please refer to here
- Refer to IFRS 1 for specific instructions (for enterprises converting to IFRS for the first time)
- Refer to financial statements according to IFRS of enterprises within the same industry (search on the internet)
- Use the IFRS checklist for presentation and disclosure purpose. Contact Crowe Vietnam for the latest version.
Step 3: Develop a detailed account system to serve the preparation of Financial Statements in accordance with IFRS.
On the basis of the financial statement template identified above, enterprises will build a corresponding detailed chart of accounts and assign them with the code of each item on the financial statements to easily aggregate data from different accounts.
This is usually done in Excel; in some cases, it can be done on accounting software if there are corresponding support functions.
Step 4: Identify entries to convert data from the account system according to VAS to the account system according to IFRS.
The data transformation requires retroactive adjustments to be made to determine the opening figures under IFRS. For the first year of conversion to IFRS, IFRS 1 should be consulted for more specific guidance.
The data conversion entries include the following 2 types:
- Balance reclassification entries: Initially the balances on the IFRS chart of account are temporarily transferred from the VAS chart of account, so they may not match the content of that account. Then any account with inappropriate balance will need to be reclassified partly or fully to other appropriate account(s). This type of entry will not affect the total value of assets, liabilities, revenue and expenses because they are only an internal classification between items.
- Adjustment entries: Accounts, where the balances are different due to the recognition criteria, methods of measurement and valuation between the two types of standards, need to have corresponding adjustment entries. Normally, to perform these type of adjustment entries, enterprises must apply appropriate calculation formulas, using appropriate databases in accordance with the specific guidance of each relevant standard. This type of entry will increase/decrease the total value of assets, liabilities, revenue, and expenses, etc.
Moreover, the enterprise gradually collects and prepares the necessary information and data for the detailed notes on the financial statements. All adjusting entries and presentation should be based on sufficient and convincing supporting documents and explanations.
Collecting and preparing data for conversion entries requires time and effort, organizations must develop an early and detailed processing plan that is appropriate for their size and structure to ensure that related departments coordinate effectively and in a timely manner.
See further in “Over view of IFRS” here
Step 5: Prepare data on the Financial Statements and complete the corresponding notes.
After completing the data of the account system according to the IFRS, the enterprise will summarize and prepare the data for each item on the financial statements according to the previously developed report template (usually using Excel files and data assignment commands).
In addition, the enterprise must complete the presentation and disclosure of detailed information in the Notes to the financial statements.
For the first year of conversion to IFRS, IFRS 1 should be consulted for more specific guidance.
Step 6: Review and re-check the reasonableness of the data as a whole, also the compliance with the presentation and disclosure of information in the financial statements à Complete
- Perform overall reconciliation of figures in Financial Statements prepared in accordance with IFRS and VAS to ensure that any discrepancies are properly explained.
- Review all presentations and disclosures in accordance with IFRS to ensure they have been fully and appropriately implemented.