THE MINISTRY OF FINANCE -------	THE SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness ---------------
No. 1676/QD-BTC	Hanoi, September 1, 2021

ON ISSUE OF 5 VIETNAM PUBLIC SECTOR ACCOUNTING STANDARDS IN THE FIRST STAGE

THE MINISTER OF FINANCE

Pursuant to the Law on Accounting No. 88/2015/QH13 on November 20, 2015;

Pursuant to the Government’s Decree No. 174/2016/ND-CP dated December 30, 2016 on elaboration of and guidelines for the Law on Accounting;

Pursuant to Government's Decree No. 87/2017/ND-CP dated July 26, 2017 on functions, tasks, powers and organizational structure of the Ministry of Finance;

Implementing Decision No. 1299/QD-BTC dated July 31, 2019 of the Minister of Finance on approval for the Scheme for publishing the system of Vietnam Public Sector Accounting Standards;

At the request of the Director of Accounting and Auditing Supervisory Department; in response to actual implementation of Vietnam Public Sector Accounting Standards.

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Article 1. Approve 5 Vietnam Public Sector Accounting Standards (VPSASs) in the first stage as prescribed in Appendixes below:

1. VPSAS 1: Presentation of Financial Statements (Appendix 01);

2. VPSAS 2: Cash Flow Statement (Appendix 02);

3. VPSAS 12: Inventories (Appendix 03);

4. VPSAS 17: Property, Plant and Equipment (Appendix 04);

5. VPSAS 31: Intangible Assets (Appendix 05).

Article 2. Implementation:

1. Designate the Director of Accounting and Auditing Supervisory Department to:

a. Based on the issued public sector accounting standards, request the competent authorities to make amendments to accounting standards applied to accounting entities in public sector and relevant legal documents, in accordance with applicable regulations on public finance mechanism and state budget, seek guidelines for accounting system applied to entities in each line of business from the Minister of Finance according to predetermined roadmap.

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2. Assign the heads of relevant entities affiliated to the Ministry of Finance to, based on their functions and tasks, study, train and disseminate the Vietnam Public Sector Accounting Standards (VPSASs), apply the practices in an effective and appropriate manner as the basis for proposing and counseling the Ministry on reform of policies in public sector of Vietnam.

Article 3. This Decision comes into force from the date of signing.

Article 4. Director of Accounting and Auditing Supervisory Department; Director of Human Resources Department; Director of Department of Legal Affairs; Chief of Ministry Office and relevant entities shall implement this Decision./.

PP. MINISTER
DEPUTY MINISTER

Ta Anh Tuan

APPENDIX 01

VIETNAM PUBLIC SECTOR ACCOUNTING STANDARD 1
PRESENTATION OF FINANCIAL STATEMENTS
(Issued together with Decision No. 1676/QD-BTC dated September 1, 2021 of the Ministry of Finance)

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The Vietnam Public Sector Accounting Standards (VPSASs) are compiled by the Accounting Public Sector Standard Drafting Board affiliated to the Ministry of Finance to ensure compliance with accounting international practices and in conformity with actual circumstances of Vietnam. Vietnam Public Sector Accounting Standards (VPSASs) have the same reference number with equivalent International Public Sector Accounting Standards (IPSASs).

VPSAS 1 “Presentation of Financial Statements” is compiled based on IPSAS 1

Presentation of Financial Statements” and current regulations on financial regime and budgets of Vietnam. VPSAS 1 sets out provisions in accordance with applicable legislation of Vietnam and regulations to be amended in the coming time. VPSAS 1 does not set out any provision of IPSAS 1 not conformity with the finance and budget regime in a long term, any addition shall be made in line with actual circumstances from time to time.

The IPSAS 1 that prevails is the version issued in 2006, amended in accordance with other international public sector accounting standards up December 31, 2018, issued by International Public Sector Accounting Standards Board (IPSASB).

VPSAS 1 reorganizes the number order of paragraphs compared to the IPSAS. For comparison purpose, a table of reference of paragraphs in VPSAS and paragraphs in IPSAS is issued together with this Standard. In respect of contents relevant to other issued VPSASs, VPSAS 1 recites their reference numbers and names. In respect of contents of VPSASs that have not been issued, this Standard only recites the name or relevant contents referred to, not the reference number, of these VPSASs as in VPSAS 1. The specific recitation of the reference number and name of these VPSASs shall be done later when they have been issued.

Until the issue date of VPSAS 1 (2021), the relevant standards below have been not issued:

No.

Name of public sector accounting standard

Paragraph referred to

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Separate Financial Statements

Consolidated Financial Statements

Accounting Policies, Changes in Accounting Estimates and Errors

25(a); 30(a); 86; 104(d); 110; 122

...

The Effects of Changes in Foreign Exchange Rates

51(d)

Financial Instruments: Recognition and Measurement

Events after the Reporting Date

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Employee Benefits

101; 102

Provisions, Contingent Liabilities and Contingent Assets

115(d)

Financial Instruments: Presentation

115(d)

...

Investment Property

125

Disclosure of Interests in Other Entities

125

VPSAS 1 - PRESENTATION OF FINANCIAL STATEMENTS

Process of issue, amendments to VPSAS 1
(hereinafter referred to as Standard)

The first version of VPSAS 1 is issued together with Decision No. 1676/QD-BTC dated September 1, 2021 of the Minister of Finance.

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Standards with the same effective date include:

- VPSAS 2: Cash Flow Statement;

- VPSAS 12: Inventories;

- VPSAS 11: Property, Plant and Equipment;

- VPSAS 31: Intangible Assets.

VPSAS 1 - PRESENTATION OF FINANCIAL STATEMENTS

CONTENTS

Contents of VPSAS 1 “Presentation of Financial Statements” are presented from paragraphs 1 through 137. Every paragraph have the same validity.

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Paragraph

I. GENERAL PROVISIONS

Objectives

Scope

Definitions

Economic Entity

Future Economic Benefits or Service Potential

Materiality

Net Assets/Equity

...

Purpose of Financial Statements

Responsibility for Financial Statements

Components of Financial Statements

Overall Considerations

Fair Presentation and Compliance with VPSASs

Going Concern

Consistency of Presentation

Materiality and Aggregation

Offsetting

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Minimum Comparative Information

Structure and Content

Introduction

Identification of the Financial Statements

Reporting Period

Timeliness

Statement of Financial Position

Current/Non-current Distinction

Current, Non-Current Assets

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Information to be Presented on the Face of the Statement of Financial Position

Information to be Presented either on the Face of the Statement of Financial Position or in the Notes

Statement of Financial Performance

Surplus or Deficit for the Period

Information to be Presented on the Face of the Statement of Financial Performance

Information to be Presented either on the Face of the Statement of Financial Performance or in the Notes

Statement of Changes in Net Assets/Equity

Cash Flow Statement

Notes

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Disclosure of Accounting Policies

Key Sources of Estimation Uncertainty

Capital

Other Information

1-11

2-4

5-11

6-8

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12-137

12-15

16-17

18-22

23-46

23-25

26-29

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33-35

36-40

41-46

47-137

47-48

49-53

54-55

...

57-62

63-66

67-74

75-79

80-84

85-103

85-87

88-91

92-103

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112

113-117

118-125

126-133

134-135

136-137

Reference of paragraphs in VPSASs equivalent to paragraphs in IPSASs

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Objective

1. The objective of this Standard is to prescribe the manner in which general purpose financial statements should be presented to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. To achieve this objective, this Standard sets out overall considerations for the presentation of financial statements, guidance for their structure, and minimum requirements for the content of financial statements prepared under the accrual basis of accounting. The recognition, measurement and disclosure of specific transactions and other events are dealt with in other VPSASs.

Scope

2. This Standard shall be applied to all general purpose financial statements prepared and presented under the accrual basis of accounting in accordance with VPSASs.

3. General purpose financial statements are those intended to meet the needs of users who are not in a position to demand reports tailored to meet their particular information needs. Users of general purpose financial statements include taxpayers and ratepayers, members of the legislature, regulatory bodies, creditors, suppliers, the media, and employees. General purpose financial statements include those that are presented separately or within another public document such as an annual report. This Standard does not apply to condensed interim financial information.

4. This Standard applies to the preparation of both consolidated financial statements and separate financial statements, as defined in relevant VPSASs.

Definitions

5. The following terms are used in this Standard with the meanings specified:

Distributions to owners means future economic benefits or service potential distributed by the entity to all or some of its owners, either as a return on investment or as a return of investment.

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Accrual basis means a basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid). Therefore, the transactions and events are recorded in the accounting records and recognized in the financial statements of the periods to which they relate. The elements recognized under accrual accounting are assets, liabilities, net assets/equity, revenue and expenses.

Revenue is the gross inflow of economic benefits or service potential during the reporting period when those inflows result in an increase in net assets/equity, other than increases relating to contributions from owners.

Economic entity means a group of entities comprising a controlling entity and one or more controlled entities for financial reporting purposes.

Liabilities are present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits or service potential.

Assets are resources controlled by an entity as a result of past events and from which future economic benefits or service potential are expected to flow to the entity.

Net assets/equity is the residual interest in the assets of the entity after deducting all its liabilities.

Notes contain information in addition to that presented in the statement of financial position, statement of financial performance, statement of changes in net assets/equity and cash flow statement. Notes provide narrative descriptions or disaggregations of items disclosed in those statements and information about items that do not qualify for recognition in those statements.

Contributions from owners means future economic benefits or service potential that has been contributed to the entity by parties external to the entity, other than those that result in liabilities of the entity, that establish a financial interest in the net assets/equity of the entity, which:

(a) Conveys entitlement both to (i) distributions of future economic benefits or service potential by the entity during its life, such distributions being at the discretion of the owners or their representatives, and to (ii) distributions of any excess of assets over liabilities in the event of the entity being wound up; and/or

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Terms defined in other Vietnam Public Sector Accounting Standards (VPSASs) are used in this Standard with the same meaning as in those other Standards.

Economic Entity

7. Other terms sometimes used to refer to an economic entity include “consolidated entity”, “superior accounting entity” and “budget estimate unit level I”.

8. An economic entity may include entities with both social policy and commercial objectives. For example, a Ministry may include administrative entities that are funded by the state budget to perform assigned tasks and duties, as well as public sector entities that both perform assigned tasks and provide services as per the law.

Future Economic Benefits or Service Potential

9. Assets provide a means for entities to achieve their objectives. Assets that are used to generate net cash inflows are often described as embodying “future economic benefits”. Assets that are used to deliver goods and services in accordance with an entity’s objectives but which do not directly generate net cash inflows are often described as embodying “service potential.” To encompass all the purposes to which assets may be put, this Standard uses the term “future economic benefits or service potential” to describe the essential characteristic of assets.

Materiality

10. Assessing whether an omission or misstatement could influence decisions of users, and so be material, requires consideration of the characteristics of those users. Users are assumed to have a reasonable knowledge of the public sector and economic activities and accounting and a willingness to study the information with reasonable diligence. Therefore, the assessment needs to take into account how users with such attributes could reasonably be expected to be influenced in making and evaluating decisions.

Net Assets/Equity

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II. SPECIFIC PROVISIONS

Purpose of Financial Statements

12. Financial statements are a structured representation of the financial position and financial performance of an entity. The objectives of financial statements are to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making and evaluating decisions about the allocation of resources. Specifically, the objectives of general purpose financial reporting in the public sector should be to provide information useful for decision-making, and to demonstrate the accountability of the entity for the resources entrusted to it by:

(a) Providing information about the sources, allocation and uses of financial resources;

(b) Providing information about how the entity financed its activities and met its cash requirements;

(c) Providing information that is useful in evaluating the entity’s ability to finance its activities and to meet its liabilities and commitments;

(d) Providing information about the financial condition of the entity and changes in it; and

(e) Providing aggregate information useful in evaluating the entity’s performance in terms of service costs, efficiency and accomplishments.

13. General purpose financial statements can also have a predictive or prospective role, providing information useful in predicting the level of resources required for continued operations, the resources that may be generated by continued operations, and the associated risks and uncertainties. Financial reporting may also provide users with information:

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14. To meet these objectives, the financial statements provide information about an entity’s:

(a) Assets;

(b) Liabilities;

(d) Revenue;

(e) Expenses;

(f) Other changes in net assets/equity; and

(g) Cash flows.

15. Whilst the information contained in financial statements can be relevant for the purpose of meeting the objectives in paragraph 15, it is unlikely to enable all these objectives to be met. This is likely to be particularly so in respect of entities whose primary objective may not be to make a profit, as managers are likely to be accountable for the achievement of service delivery as well as financial objectives. Supplementary information, including non-financial statements, may be reported alongside the financial statements in order to provide a more comprehensive picture of the entity’s activities during the period.

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16. The accounting entity (including economic entity) is responsible for preparing the financial statements as per the law, under which a person is assigned to prepare the financial statements. The financial statements shall bear the signatures of the individual who prepares them, chief accountant/accountant in charge (or a duly authorized person), the head of entity (or a duly authorized person) at the time of signing the financial statements as per the law. With regard to other cases, for example the case in which a council is responsible for approving the financial statements, etc. the applicable regulations and laws shall apply.

17. The State Treasury shall prepare national financial statements and provincial financial statements. The preparation and signing of state financial statements shall comply with applicable regulations and laws on state financial statements.

Components of Financial Statements

18. A complete set of financial statements comprises:

(a) A statement of financial position;

(b) A statement of financial performance;

(c) A statement of changes in net assets/equity;

(d) A cash flow statement;

(e) When the entity makes publicly available its approved budget, a comparison of budget and actual amounts either as a separate additional financial statement or as a budget column in the financial statements; and

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(g) A comparison with previous period as specified in paragraph 41 and 42.

19. The financial statements provide users with information about an entity’s resources and obligations at the reporting date and the flow of resources between reporting dates. This information is useful for users making assessments of an entity’s ability to continue to provide goods and services at a given level, and the level of resources that may need to be provided to the entity in the future so that it can continue to meet its service delivery obligations.

20. Public sector entities that are funded by state budget or other resources from the state are typically subject to budgetary limits in the form of appropriations or budget authorizations (or equivalent), which may be given effect through authorizing legislation. General purpose financial reporting by public sector entities may provide information on whether resources were obtained and used in accordance with the legally adopted budget. Entities which make publicly available their approved budget(s) are required to comply with the requirements of presentation of budget information in financial statements. The comparison between the budgeted amounts and actual amounts may be presented in various different ways, including:

• The use of a columnar format for the financial statements, with separate columns for budgeted amounts and actual amounts.

Disclosure that the budgeted amounts have not been exceeded.

21. Entities are encouraged to present additional information to assist users in assessing the performance of the entity, and its stewardship of assets, as well as making and evaluating decisions about the allocation of resources. This additional information may include details about the entity’s outputs and outcomes in the form of performance indicators, statements of service performance, program reviews and other reports by management about the entity’s achievements over the reporting period.

22. Entities are also encouraged to disclose information about compliance with legislative, regulatory or other externally-imposed regulations. When information about compliance is not included in the financial statements, it may be useful for a note to refer to any documents that include that information. Knowledge of non-compliance is likely to be relevant for accountability purposes and may affect a user’s assessment of the entity’s performance and direction of future operations. It may also influence decisions about resources to be allocated to the entity in the future.

Overall Considerations

Fair Presentation and Compliance with VPSASs

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24. An entity whose financial statements comply with VPSASs shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with VPSASs unless they comply with all the requirements of VPSASs issued by the Ministry of Finance.

25. In virtually all circumstances, a fair presentation is achieved by compliance with applicable VPSASs. A fair presentation also requires an entity:

(a) To select and apply accounting policies in accordance with VPSAS regarding accounting policies, changes in accounting estimates and errors. This Standard sets out a hierarchy of authoritative guidance that management considers in the absence of a Standard that specifically applies to an item.

(b) To present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.

(c) To provide additional disclosures when compliance with the specific requirements in VPSASs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

Going Concern

26. When preparing financial statements an assessment of an entity’s ability to continue as a going concern shall be made. This assessment shall be made by those responsible for the preparation of financial statements. Financial statements shall be prepared on a going concern basis unless there is an intention to liquidate the entity or to cease operating. When those responsible for the preparation of the financial statements are aware, in making their assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, those uncertainties shall be disclosed. When financial statements are not prepared on a going concern basis, that fact shall be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern.

27. Financial statements are normally prepared on the assumption that the entity is a going concern and will continue in operation and meet its statutory obligations for the foreseeable future. In assessing whether the going concern assumption is appropriate, those responsible for the preparation of financial statements take into account all available information about the future, which is at least, but is not limited to, twelve months from the approval of the financial statements.

28. The degree of consideration depends on the facts in each case, and assessments of the going concern assumption are not predicated on the solvency test usually applied to business enterprises. There may be circumstances where the usual going concern tests of liquidity and solvency appear unfavorable, but other factors suggest that the entity is nonetheless a going concern. For example:

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(b) For an individual entity, an assessment of its statement of financial position at the reporting date may suggest that the going concern assumption is not appropriate. However, there may be multi-year funding agreements, or other arrangements, in place that will ensure the continued operation of the entity.

29. The determination of whether the going concern assumption is appropriate is primarily relevant for individual entities. For individual entities, in assessing whether the going concern basis is appropriate, those responsible for the preparation of financial statements may need to consider a wide range of factors relating to current and expected performance, potential and announced restructurings of organizational units, estimates of revenue or the likelihood of continued government funding, and potential sources of replacement financing before it is appropriate to conclude that the going concern assumption is appropriate.

Consistency of Presentation

30. The presentation and classification of items in the financial statements shall be retained from one period to the next unless:

(a) It is apparent, following a significant change in the nature of the entity’s operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in VPSAS regarding accounting policies, changes in accounting estimates and errors; or

(b) A VPSAS requires a change in presentation.

31. A significant acquisition or disposal, or a review of the presentation of the financial statements, might suggest that the financial statements need to be presented differently. For example, an entity may dispose of a service division that represents one of its most significant controlled entities and the remaining economic entity conducts mainly administrative and policy advice services. In this case, the presentation of the financial statements based on the principal activities of the economic entity as a financial institution is unlikely to be relevant for the new economic entity.

32. An entity changes the presentation of its financial statements only if the changed presentation provides information that is reliable and is more relevant to users of the financial statements and the revised structure is likely to continue, so that comparability is not impaired. When making such changes in presentation, an entity reclassifies its comparative information in accordance with paragraph 44 and 45.

Materiality and Aggregation

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34. Financial statements result from processing large numbers of transactions or other events that are aggregated into classes according to their nature or function. The final stage in the process of aggregation and classification is the presentation of condensed and classified data, which form line items on the face of the statement of financial position, statement of financial performance, statement of changes in net assets/equity and cash flow statement, or in the notes. If a line item is not individually material, it is aggregated with other items either on the face of those statements or in the notes. An item that is not sufficiently material to warrant separate presentation on the face of those statements may nevertheless be sufficiently material for it to be presented separately in the notes.

35. Applying the concept of materiality means that a specific disclosure requirement in a VPSAS need not be satisfied if the information is not material.

Offsetting

36. Assets and liabilities, and revenue and expenses, shall not be offset unless required or permitted by a VPSAS.

37. It is important that assets and liabilities, and revenue and expenses, are reported separately. Offsetting in the statement of financial performance or the statement of financial position, except when offsetting reflects the substance of the transaction or other event, detracts from the ability of users both to understand the transactions, other events and conditions that have occurred and to assess the entity’s future cash flows. Measuring assets net of valuation allowances – for example, obsolescence allowances on inventories and doubtful debts allowances on receivables – is not offsetting.

38. VPSAS regarding revenue from exchange transactions defines revenue and requires it to be measured at the fair value of consideration received or receivable, taking into account the amount of any trade discounts and volume rebates allowed by the entity. An entity undertakes, in the course of its ordinary activities, other transactions that do not generate revenue but are incidental to the main revenue-generating activities. The results of such transactions are presented, when this presentation reflects the substance of the transaction or other event, by netting any revenue with related expenses arising on the same transaction. For example: Gains and losses on the disposal of non-current assets, including investments and operating assets, are reported by deducting from the proceeds on disposal the carrying amount of the asset and related selling expenses.

39. In addition, gains and losses arising from a group of similar transactions are reported on a net basis, for example, foreign exchange gains and losses. Such gains and losses are, however, reported separately if they are material.

40. The offsetting of cash flows is dealt with in VPSAS 2, “Cash Flow Statements.”

Comparative Information

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41. Except when a VPSAS permits or requires otherwise, comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements. Comparative information shall be included for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements.

42. An entity shall present, as a minimum, one statement of financial position with comparative information for the preceding period, one statement of financial performance with comparative information for the preceding period, one cash flow statement with comparative information for the preceding period and one statement of changes in net assets/equity with comparative information for the preceding period, and related notes.

43. In some cases, narrative information provided in the financial statements for the preceding period(s) continues to be relevant in the current period. For example, an entity discloses in the current period details of a legal dispute, the outcome of which was uncertain at the end of the preceding period and is yet to be resolved. Users may benefit from the disclosure of information that the uncertainty existed at the end of the preceding period and from disclosure of information about the steps that have been taken during the period to resolve the uncertainty.

44. When the presentation or classification of items in the financial statements is amended, comparative amounts shall be reclassified unless the reclassification is impracticable. When comparative amounts are reclassified, an entity shall disclose:

(a) The nature of the reclassification;

(b) The amount of each item or class of items that is reclassified; and

(c) The reason for the reclassification.

45. When it is impracticable to reclassify comparative amounts, an entity shall disclose:

(a) The reason for not reclassifying the amounts; and

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46. Enhancing the inter-period comparability of information assists users in making and evaluating decisions, especially by allowing the assessment of trends in financial information for predictive purposes. In some circumstances, it is impracticable to reclassify comparative information for a particular prior period to achieve comparability with the current period. For example, in a public hospital, data about revenue on healthcare may not have been collected in the prior period(s) from each ward and department but the data must be collected in current period, it may not be practicable to recreate the comparative information about revenue on healthcare from each ward and department to achieve comparability with the current period.

Structure and Content

Introduction

47. This Standard requires particular disclosures on the face of the statement of financial position, statement of financial performance, and statement of changes in net assets/equity, and requires disclosure of other line items either on the face of those statements or in the notes. VPSAS 2 sets out requirements for the presentation of a cash flow statement.

48. This Standard sometimes uses the term “disclosure” in a broad sense, encompassing items presented on the face of the (a) statement of financial position, (b) statement of financial performance, (c) statement of changes in net assets/equity, and (d) cash flow statement, as well as in the notes. Disclosures are also required by other VPSASs. Unless specified to the contrary elsewhere in this Standard, or in another Standard, such disclosures are made either on the face of the statement of financial position, statement of financial performance, statement of changes in net assets/equity or cash flow statement (whichever is relevant), or in the notes.

Identification of the Financial Statements

49. The financial statements shall be identified clearly, and distinguished from other information in the same published document.

50. VPSASs apply only to financial statements, and not to other information presented in an annual report or other document. Therefore, it is important that users can distinguish information that is prepared using VPSASs from other information that may be useful to users but is not the subject of those requirements. Where applicable, there may be other documents that also use the term financial statements but are not the financial statements presented as required by this standard.

51. Each component of the financial statements shall be identified clearly. In addition, the following information shall be displayed prominently, and repeated when it is necessary for a proper understanding of the information presented:

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(b) Whether the financial statements cover the individual entity or the economic entity;

(c) The reporting date or the period covered by the financial statements, whichever is appropriate to that component of the financial statements;

(d) The presentation currency, as defined in VPSAS regarding the effects of changes in foreign exchange rates; and

(e) The units used in presenting amounts in the financial statements.

52. The requirements in paragraph 51 are normally met by presenting page headings and abbreviated column headings on each page of the financial statements. Judgment is required in determining the best way of presenting such information. For example, when the financial statements are presented electronically, separate pages are not always used; the above items are then presented frequently enough to ensure a proper understanding of the information included in the financial statements.

53. Financial statements are often made more understandable by presenting information in thousands or millions of VND or other units of the presentation currency if prescribed by law. This is acceptable as long as the level of rounding in presentation is disclosed and material information is not omitted.

Reporting Period

54. Financial statements shall be presented at least annually; the annual reporting period is 12 months in a calendar year. When an entity’s reporting date changes and the annual financial statements are presented for a period longer or shorter than one year, an entity shall disclose, in addition to the period covered by the financial statements:

(a) The reason for using a longer or shorter period; and

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55. In exceptional circumstances, an entity may be required to, or decide to, change its reporting date, for example schools change their reporting periods by academic year. When this is the case, it is important that (a) users be aware that the amounts shown for the current period and comparative amounts are not comparable, and (b) the reason for the change in reporting date is disclosed.

Timeliness

56. The usefulness of financial statements is impaired if they are not made available to users within a reasonable period after the reporting date. An entity should be in a position to issue its financial statements within six months of the reporting date.

More specific deadlines are dealt with regulations on issue of financial statements in the Accounting Law, accounting regulations that the entity applies and guiding documents on preparation of consolidated financial statements for superior accounting entities (economic entities). This Standard does not preclude the practice for preparation and submission of financial statements behind the deadlines.

Statement of Financial Position

Current/Non-current Distinction

57. An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications on the face of its statement of financial position in accordance with paragraphs 63–74, except when a presentation based on liquidity provides information that is faithfully representative and is more relevant. When that exception applies, all assets and liabilities shall be presented broadly in order of liquidity.

58. Whichever method of presentation is adopted, for each asset and liability line item that combines amounts expected to be recovered or settled (a) no more than twelve months after the reporting date, and (b) more than twelve months after the reporting date, an entity shall disclose the amount expected to be recovered or settled after more than twelve months.

59. When an entity supplies goods or services within a clearly identifiable operating cycle, separate classification of current and non-current assets and liabilities on the face of the statement of financial position provides useful information by distinguishing the net assets that are continuously circulating as working capital from those used in the entity’s long-term operations. It also highlights assets that are expected to be realized within the current operating cycle, and liabilities that are due for settlement within the same period.

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61. In applying paragraph 57, an entity is permitted to present some of its assets and liabilities using a current/non-current classification, and others in order of liquidity, when this provides information that is faithfully representative and is more relevant. The need for a mixed basis of presentation might arise when an entity has diverse operations.

62. Information about expected dates of realization of assets and liabilities is useful in assessing the liquidity and solvency of an entity. Information on the expected date of recovery and settlement of non-monetary assets and liabilities such as inventories and provisions is also useful, whether or not assets and liabilities are classified as current or non-current.

Current Assets, Non-current Assets

63. An asset shall be classified as current when it satisfies any of the following criteria:

(a) It is expected to be realized in, or is held for sale or consumption in, the entity’s normal operating cycle;

(b) It is held primarily for the purpose of being traded;

(c) It is expected to be realized within twelve months after the reporting date; or

(d) It is cash or a cash equivalent (as defined in VPSAS 2), unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

All other assets shall be classified as non-current.

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65. The operating cycle of an entity is the time taken to convert inputs or resources into outputs. When the entity’s normal operating cycle is not clearly identifiable, its duration is assumed to be twelve months.

66. Current assets include assets (such as taxes receivable, user charges receivable, fines and regulatory fees receivable, inventories, etc.) that are either realized, consumed or sold, as part of the normal operating cycle even when they are not expected to be realized within twelve months after the reporting date. Current assets also include assets held primarily for the purpose of trading (examples include some financial assets classified as held for trading in accordance with the relevant VPSAS).

Current Liabilities, Non-Current Liabilities

67. A liability shall be classified as current when it satisfies any of the following criteria:

(a) It is expected to be settled in the entity’s normal operating cycle;

(b) It is held primarily for the purpose of being traded;

(c) It is due to be settled within twelve months after the reporting date; or

(d) The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date (see paragraph 71). Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

All other liabilities shall be classified as non-current.

...

69. Other current liabilities are not settled as part of the normal operating cycle, but are due for settlement within twelve months after the reporting date or held primarily for the purpose of being traded. Examples are some financial liabilities classified as held for trading, bank overdrafts, and the current portion of non-current financial liabilities, dividends or similar distributions payable, income taxes and other non-trade payables. Financial liabilities that provide financing on a long-term basis (i.e., are not part of the working capital used in the entity’s normal operating cycle) and are not due for settlement within twelve months after the reporting date are non-current liabilities, subject to paragraphs 72 and 73.

70. An entity classifies its financial liabilities as current when they are due to be settled within twelve months after the reporting date, even if:

(a) The original term was for a period longer than twelve months; and

(b) An agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting date and before the financial statements are authorized for issue.

71. If an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the reporting date under an existing loan facility, it classifies the obligation as non-current, even if it would otherwise be due within a shorter period. However, when refinancing or rolling over the obligation is not at the discretion of the entity (for example, there is no agreement to refinance), the potential to refinance is not considered and the obligation is classified as current.

72. When an entity breaches an undertaking under a long-term loan agreement on or before the reporting date, with the effect that the liability becomes payable on demand, the liability is classified as current, even if the lender has agreed, after the reporting date and before the authorization of the financial statements for issue, not to demand payment as a consequence of the breach. The liability is classified as current because, at the reporting date, the entity does not have an unconditional right to defer its settlement for at least twelve months after that date.

73. However, the liability is classified as non-current if the lender agreed by the reporting date to provide a period of grace ending at least twelve months after the reporting date, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment.

74. In respect of loans classified as current liabilities, if the following events occur between the reporting date and the date the financial statements are authorized for issue, those events qualify for disclosure as non-adjusting events in accordance with VPSAS regarding events after the reporting date:

(a) Refinancing on a long-term basis;

...

(c) The receipt from the lender of a period of grace to rectify a breach of a long-term loan agreement ending at least twelve months after the reporting date.

Information to be Presented on the Face of the Statement of Financial Position

75. As a minimum, the face of the statement of financial position shall include line items that present the following amounts:

(a) Property, plant, and equipment;

(b) Investment property;

(c) Intangible assets;

(d) Financial assets (excluding amounts shown under (e), (g), (h) and (i));

(e) Investments accounted for using the equity method;

(f) Inventories;

...

(h) Receivables from exchange transactions;

(i) Cash and cash equivalents;

(j) Taxes and transfers payable;

(k) Payables under exchange transactions;

(l) Provisions

(m) Financial liabilities (excluding amounts shown under (j), (k) and (l));

(n) Non-controlling interest, presented within net assets/equity; and

(o) Net assets/equity attributable to owners of the controlling entity.

76. Additional line items, headings, and sub-totals shall be presented on the face of the statement of financial position when such presentation is relevant to an understanding of the entity’s financial position.

...

(a) Line items are included when the size, nature, or function of an item or aggregation of similar items is such that separate presentation is relevant to an understanding of the entity’s financial position; and

(b) The descriptions used and the ordering of items or aggregation of similar items may be amended according to the nature of the entity and its transactions, to provide information that is relevant to an understanding of the entity’s financial position.

78. The judgment on whether additional items are presented separately is based on an assessment of:

(a) The nature and liquidity of assets;

(b) The function of assets within the entity; and

79. The use of different measurement bases for different classes of assets suggests that their nature or function differs and, therefore, that they should be presented as separate line items. For example, different classes of property, plant, and equipment can be carried at cost or revalued amounts in accordance with VPSAS 17, Property, Plant, and Equipment.

Information to be Presented either on the Face of the Statement of Financial Position or in the Notes

80. An entity shall disclose, either on the face of the statement of financial position or in the notes, further subclassifications of the line items presented, classified in a manner appropriate to the entity’s operations.

...

(a) Items of property, plant and equipment are disaggregated into classes in accordance with VPSAS 17;

(b) Receivables are disaggregated into amounts receivable from user charges, taxes and other non-exchange revenues, receivables from related parties, prepayments, and other amounts;

(c) Inventories are subclassified in accordance with VPSAS 12, Inventories, into classifications such as merchandise, production supplies, materials, work in progress, and finished goods;

(d) Taxes and transfers payable are disaggregated into tax refunds payable, transfers payable, and amounts payable to other members of the economic entity;

(e) Provisions are disaggregated into provisions for employee benefits and other items; and

(f) Components of net assets/equity are disaggregated into contributed capital, accumulated surpluses and deficits, and any reserves.

82. When an entity has no share capital, it shall disclose net assets/equity, either on the face of the statement of financial position or in the notes, showing separately:

(a) Contributed capital, being the cumulative total at the reporting date of contributions from owners, less distributions to owners;

(b) Accumulated surpluses or deficits;

...

(d) Non-controlling interests.

83. Many public sector entities will not have share capital, but the entity will be controlled exclusively by another public sector entity (also known as superior entity). The nature of the government’s interest in the net assets/equity of the entity is likely to be a combination of contributed capital and the aggregate of the entity’s accumulated surpluses or deficits and reserves that reflect the net assets/ equity attributable to the entity’s operations.

84. In some cases, there may be a non-controlling interest in the net assets/equity of the entity. For example, at the whole-of-government level, the economic entity may include a commercial public sector entity that has been partly privatized. Accordingly, there may be private shareholders who have a financial interest in the net assets/equity of the entity.

Statement of Financial Performance

Surplus or Deficit for the Period

85. All items of revenue and expense recognized in a period shall be included in surplus or deficit, unless an VPSAS requires otherwise.

86. Normally, all items of revenue and expense recognized in a period are included in surplus or deficit. This includes the effects of changes in accounting estimates. However, circumstances may exist when particular items may be excluded from surplus or deficit for the current period. VPSAS regarding accounting policies, changes in accounting estimates and errors deals with two such circumstances: the correction of errors and the effect of changes in accounting policies.

87. Other VPSASs deal with items that may meet definitions of revenue or expense set out in this Standard, but are usually excluded from surplus or deficit.

Information to be Presented on the Face of the Statement of Financial Performance

...

(a) Revenue;

(b) Finance costs;

(c) Share of the surplus or deficit of associates and joint ventures accounted for using the equity method;

(d) Pre-tax gain or loss recognized on the disposal of assets or settlement of liabilities attributable to discontinuing operations; and

(e) Surplus or deficit.

89. The following items shall be disclosed on the face of the statement of financial performance as allocations of surplus or deficit for the period:

(a) Surplus or deficit attributable to non-controlling interest; and

(b) Surplus or deficit attributable to owners of the controlling entity.

90. Additional line items, headings, and subtotals shall be presented on the face of the statement of financial performance when such presentation is relevant to an understanding of the entity’s financial performance.

...

Information to be Presented either on the Face of the Statement of Financial Performance or in the Notes

92. When items of revenue and expense are material, their nature and amount shall be disclosed separately.

93. Circumstances that would give rise to the separate disclosure of items of revenue and expense include:

(a) Write-downs of inventories to net realizable value or of property, plant, and equipment to recoverable amount or recoverable service amount as appropriate, as well as reversals of such write-downs;

(b) Restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring;

(d) Privatizations or other disposals of investments;

(e) Discontinuing operations;

(f) Litigation settlements; and

...

94. An entity shall present, either on the face of the statement of financial performance or in the notes, a subclassification of total revenue, classified in a manner appropriate to the entity’s operations.

95. An entity shall present, either on the face of the statement of financial performance or in the notes, an analysis of expenses using a classification based on either the nature of expenses or their function within the entity, whichever provides information that is faithfully representative and more relevant.

96. Entities are encouraged to present the analysis in paragraph 95 on the face of the statement of financial performance.

97. Expenses are subclassified to highlight the costs and cost recoveries of particular programs, activities, or other relevant segments of the reporting entity. This analysis is provided in one of two ways in paragraph 99 and 100.

98. The first form of analysis is the nature of expense method. Expenses are aggregated in the statement of financial performance according to their nature (for example, depreciation, purchases of materials, transport costs, employee benefits, and advertising costs), and are not reallocated among various functions within the entity. This method may be simple to apply because no allocations of expenses to functional classifications are necessary.

An example of a classification using the nature of expense method is as follows:

Revenue

...

Depreciation and amortization expense

Other expenses

...

Total expenses

(X)

Surplus

99. The second form of analysis is the function of expense method and classifies expenses according to the program or purpose for which they were made. This method can provide more relevant information to users than the classification of expenses by nature, but allocating costs to functions may require arbitrary allocations and involves considerable judgment.

An example of a classification using the function of expense method is as follows:

...

Health expenses

(X)

Education expenses

(X)

Other expenses

(X)

Total expenses

(X)

...

100. The expenses associated with the main functions undertaken by the entity are shown separately. In this example, the entity has functions relating to the provision of health and education services. The entity would present expense line items for each of these functions.

101. Entities classifying expenses by function shall disclose additional information on the nature of expenses, including depreciation and amortization expense and employee benefits expense.

102. The choice between the function of expense method and the nature of expense method depends on historical and regulatory factors and the nature of the entity. Because each method of presentation has its merits for different types of entities, this Standard requires management to select the most relevant and faithfully representative presentation. However, because information on the nature of expenses is useful in predicting future cash flows, additional disclosure is required when the function of expense classification is used. In paragraph 101, employee benefits has the same meaning as in VPSAS regarding employee benefits.

103. When an entity provides a dividend or similar distribution to its owners and has share capital, it shall disclose, either on the face of the statement of financial performance or the statement of changes in net assets/ equity, or in the notes, the amount of dividends or similar distributions recognized as distributions to owners during the period, and the related amount per share.

Statement of Changes in Net Assets/Equity

104. An entity shall present a statement of changes in net assets/equity showing on the face of the statement:

(a) Surplus or deficit for the period;

(b) Each item of revenue and expense for the period that, as required by other Standards, is recognized directly in net assets/equity, and the total of these items;

...

(d) For each component of net assets/equity separately disclosed, the effects of changes in accounting policies and corrections of errors recognized in accordance with VPSAS regarding accounting policies, changes in accounting estimates and errors.

105. An entity shall also present, either on the face of the statement of changes in net assets/equity or in the notes:

(a) The amounts of transactions with owners acting in their capacity as owners, showing separately distributions to owners;

(b) The balance of accumulated surpluses or deficits at the beginning of the period and at the reporting date, and the changes during the period; and

(c) To the extent that components of net assets/equity are separately disclosed, reconciliation between the carrying amount of each component of net assets/equity at the beginning and the end of the period, separately disclosing each change.

106. Changes in an entity’s net assets/equity between two reporting dates reflect the increase or decrease in its net assets during the period.

107. The overall change in net assets/equity during a period represents the total amount of surplus or deficit for the period, other revenues and expenses recognized directly as changes in net assets/equity, together with any contributions by, and distributions to, owners in their capacity as owners.

108. Contributions by, and distributions to, owners include transfers between two entities within an economic entity (for example, a transfer of state budget to an inferior entity). Contributions by owners, in their capacity as owners, to controlled entities are recognized as a direct adjustment to net assets/equity only where they explicitly give rise to residual interests in the entity in the form of rights to net assets/equity.

109. This Standard requires all items of revenue and expense recognized in a period to be included in surplus or deficit, unless another VPSAS requires otherwise. Other VPSASs require some items (such as revaluation increases and decreases, particular foreign exchange differences) to be recognized directly as changes in net assets/equity. Because it is important to consider all items of revenue and expense in assessing changes in an entity’s financial position between two reporting dates, this Standard requires the presentation of a statement of changes in net assets/equity that highlights an entity’s total revenue and expenses, including those that are recognized directly in net assets/equity.

...

111. The requirements in paragraphs 104 and 105 may be met by using a columnar format that reconciles the opening and closing balances of each element within net assets/equity. An alternative is to present only the items set out in paragraph 104 in the statement of changes in net assets/equity. Under this approach, the items described in paragraph 105 are shown in the notes.

Cash Flow Statement

112. Cash flow information provides users of financial statements with a basis to assess (a) the ability of the entity to generate cash and cash equivalents, and (b) the needs of the entity to utilize those cash flows. VPSAS 2 sets out requirements for the presentation of the cash flow statement and related disclosures.

Notes

Structure

113. The notes shall:

(a) Present information about the basis of preparation of the financial statements and the specific accounting policies used, in accordance with paragraphs 120−127;

(b) Disclose the information required by VPSASs that is not presented on the face of the statement of financial position, statement of financial performance, statement of changes in net assets/equity, or cash flow statement; and

(c) Provide additional information that is not presented on the face of the statement of financial position, statement of financial performance, statement of changes in net assets/equity, or cash flow statement, but that is relevant to an understanding of any of them.

...

115. Notes are normally presented in the following order, which assists users in understanding the financial statements and comparing them with financial statements of other entities:

(a) A statement of compliance with VPSASs (see paragraph 24);

(b) A summary of significant accounting policies applied (see paragraph 118);

(c) Supporting information for items presented on the face of the statement of financial position, statement of financial performance, statement of changes in net assets/equity, or cash flow statement, in the order in which each statement and each line item is presented; and

(d) Other disclosures, including:

(i) Contingent liabilities, and unrecognized contractual commitments; and

(ii) Non-financial disclosures, e.g., the entity’s financial risk management objectives and policies.

116. In some circumstances, it may be necessary or desirable to vary the ordering of specific items within the notes. Nevertheless, a systematic structure for the notes is retained as far as practicable.

117. Notes providing information about the basis of preparation of the financial statements and specific accounting policies may be presented as a separate component of the financial statements.

...

118. An entity shall disclose in the summary of significant accounting policies:

(a) The measurement basis (or bases) used in preparing the financial statements;

(b) The extent to which the entity has applied any transitional provisions in any VPSAS; and

(c) The other accounting policies used that are relevant to an understanding of the financial statements.

119. It is important for users to be informed of the measurement basis or bases used in the financial statements (for example, historical cost, current cost, net realizable value) because the basis on which the financial statements are prepared significantly affects their analysis. When more than one measurement basis is used in the financial statements, for example when particular classes of assets are revalued, it is sufficient to provide an indication of the categories of assets and liabilities to which each measurement basis is applied.

120. In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure would assist users in understanding how transactions, other events, and conditions are reflected in the reported financial performance and financial position. Disclosure of particular accounting policies is especially useful to users when those policies are selected from alternatives allowed in VPSASs.

121. Each entity considers the nature of its operations and the policies that the users of its financial statements would expect to be disclosed for that type of entity. For example, public sector entities would be expected to disclose an accounting policy for recognition of funds financed by the state budget, donations, and other forms of non-exchange revenue. When an entity has significant foreign operations or transactions in foreign currencies, disclosure of accounting policies for the recognition of foreign exchange gains and losses would be expected. When public sector combinations have occurred, the policies used for measuring goodwill and non-controlling interest are disclosed.

122. An accounting policy may be significant because of the nature of the entity’s operation, even if amounts for current and prior periods are not material. It is also appropriate to disclose each significant accounting policy that is not specifically required by VPSASs, but is selected and applied in accordance with VPSAS regarding accounting policies, changes in accounting estimates and errors.

123. An entity shall disclose, in the summary of significant accounting policies or other notes, the judgments, apart from those involving estimations (see paragraph 140), management has made in the process of applying the entity’s accounting policies that have the most significant effect on the amounts recognized in the financial statements.

...

• Whether assets are investment:

• Whether agreements for the provision of goods and/or services that involve the use of dedicated assets are leases;

• Whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue; and

• Whether the substance of the relationship between the reporting entity and other entities indicates that these other entities are controlled by the reporting entity.

125. Some of the disclosures made in accordance with paragraph 123 are required by other VPSASs. For example, VPSAS regarding disclosure of interests in other entities, requires an entity to disclose the judgments it has made in determining whether it controls another entity. VPSAS regarding investment property requires disclosure of the criteria developed by the entity to distinguish investment

Key Sources of Estimation Uncertainty

126. An entity shall disclose in the notes information about (a) the key assumptions concerning the future, and (b) other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:

(a) Their nature; and

(b) Their carrying amount as at the reporting date.

...

128. The key assumptions and other key sources of estimation uncertainty disclosed in accordance with paragraph 126 relate to the estimates that require management’s most difficult, subjective, or complex judgments. As the number of variables and assumptions affecting the possible future resolution of the uncertainties increases, those judgments become more subjective and complex, and the potential for a consequential material adjustment to the carrying amounts of assets and liabilities normally increases accordingly.

129. The disclosures in paragraph 140 are presented in a manner that helps users of financial statements to understand the judgments management makes about the future and about other key sources of estimation uncertainty. The nature and extent of the information provided vary according to the nature of the assumption and other circumstances. Examples of the types of disclosures made are:

(a) The nature of the assumption or other estimation uncertainty;

(b) The sensitivity of carrying amounts to the methods, assumptions, and estimates underlying their calculation, including the reasons for the sensitivity;

(c) The expected resolution of an uncertainty and the range of reasonably possible outcomes within the next financial year in respect of the carrying amounts of the assets and liabilities affected; and

(d) An explanation of changes made to past assumptions concerning those assets and liabilities, if the uncertainty remains unresolved.

130. It is not necessary to disclose budget information or forecasts in making the disclosures in paragraph 126.

131. When it is impracticable to disclose the extent of the possible effects of a key assumption or another key source of estimation uncertainty at the reporting date, the entity discloses that it is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the asset or liability affected. In all cases, the entity discloses the nature and carrying amount of the specific asset or liability (or class of assets or liabilities) affected by the assumption.

132. The disclosures in paragraph 123 of particular judgments management made in the process of applying the entity’s accounting policies do not relate to the disclosures of key sources of estimation uncertainty in paragraph 126.

...

Capital

134. An entity shall disclose information that enables users of its financial statements to evaluate the entity’s objectives, policies, and processes for managing capital.

135. To comply with paragraph 134 the entity discloses the following:

(a) Qualitative information about its objectives, policies, and processes for managing capital, including (but not limited to):

(i) A description of what it manages as capital;

(ii) When an entity is subject to externally imposed capital requirements, the nature of those requirements and how those requirements are incorporated into the management of capital; and

(iii) How it is meeting its objectives for managing capital.

(b) Summary quantitative data about what it manages as capital.

...

(e) When the entity has not complied with such externally imposed capital requirements, the consequences of such non-compliance.

These disclosures shall be based on the information provided internally to the entity’s key management personnel.

Other Disclosures

136. An entity shall disclose in the notes:

(a) The amount of dividends, or similar distributions, proposed or declared before the financial statements were authorized for issue, but not recognized as a distribution to owners during the period, and the related amount per share; and

(b) The amount of any cumulative preference dividends, or similar distributions, not recognized.

137. An entity shall disclose the following, if not disclosed elsewhere in information published with the financial statements:

(a) The domicile and legal form of the entity, and the jurisdiction within which it operates (if any);

(b) A description of the nature of the entity’s operations and principal activities;

...

(d) The name of the controlling entity and the ultimate controlling entity of the economic entity (where applicable); and

(e) If it is a limited life entity, information regarding the length of its life.

Reference of paragraphs in VPSASs equivalent to paragraphs in IPSASs

Paragraph of VPSAS 01

Paragraph of IPSAS1

Paragraph of VPSAS 01

Paragraph of IPSAS 1

...

Paragraph of VPSAS 01

Paragraph of IPSAS1

Paragraph of VPSAS 01

Paragraph of IPSAS 1

...

106

120

...

107

121

...

108

122

...

109

123

...

110

...

125

53A

...

112

126

...

113

127

...

114

128

...

115

129

...

116

130

...

117

131

...

118

132

...

119

133

...

120

...

100

...

135

101

...

122

136

...

123

137

...

103

124

138

...

104

125

139

...

105

126

140

...

106

127

141

...

107

128

142

...

108

129

144

...

109

130

...

110

...

146

111

...

132

147

...

133

148

...

113

134

148A

...

100

114

135

148B

...

101

115

136

149

...

102

116

137

150

...

103

117

...

104

118

...

105

119

...

APPENDIX 02

VIETNAM PUBLIC SECTOR ACCOUNTING STANDARD 2
CASH FLOW STATEMENT
(Issued together with Decision No. 1676/QD-BTC dated September 1, 2021 of the Ministry of Finance)

INTRODUCTION

VPSAS 2 “Cash Flow Statement” is compiled based on IPSAS 2 “Cash Flow Statement” and current regulations on financial regime and budgets of Vietnam. VPSAS 2 sets out provisions in accordance with applicable legislation of Vietnam and regulations to be amended in the coming time. VPSAS 2 does not set out any provision of IPSAS 2 not conformity with the finance and budget regime in a long term, any addition shall be made in line with actual circumstances from time to time.

The IPSAS 2 that prevails is the version issued in 2000, amended in accordance with other international public sector accounting standards up December 31, 2018, issued by International Public Sector Accounting Standards Board (IPSASB).

VPSAS 2 reorganizes the number order of paragraphs compared to the IPSAS. For comparison purpose, a table of reference of paragraphs in VPSAS and paragraphs in IPSAS is issued together with this Standard. In respect of contents relevant to other issued VPSASs, VPSAS 2 recites their reference numbers and names. In respect of contents of VPSASs that have not been issued, this Standard only recites the name or relevant content to be referred to, not the reference number, of these VPSASs as in VPSAS 2. The specific recitation of the reference number and name of these VPSASs shall be done later when they have been issued.

Until the issue date of VPSAS 2 (2021), the relevant standards below have been not issued:

...

Name of public sector accounting standard

Paragraph referred to

The Effects of Changes in Foreign Exchange Rates

Borrowing Costs

...

VPSAS 2 - CASH FLOW STATEMENT

Process of issue, amendments to VPSAS 2
(hereinafter referred to as Standard)

The first version of VPSAS 2 is issued together with Decision No. 1676/QD-BTC dated September 1, 2021 of the Minister of Finance.

This Standard comes into force as of September 1, 2021 and applies from September 1, 2021.

Standards with the same effect, include:

- VPSAS 1: Presentation of Financial Statements;

- VPSAS 12: Inventories;

...

- VPSAS 31: Intangible Assets.

VPSAS 2 - CASH FLOW STATEMENT

CONTENTS

Contents of VPSAS 2 “Cash Flow Statement” are presented from paragraphs 1 through 54. Every paragraph have the same validity.

Paragraph

I. GENERAL PROVISIONS

1-15

...

Scope

2-3

Benefits of Cash Flow Information

4-6

Definitions

7-15

Cash and Cash Equivalents

8-10

...

11-13

Future Economic Benefits or Service Potential

Net Assets/Equity

II. SPECIFIC PROVISIONS

16-54

Presentation of a Cash Flow Statement

16-23

...

19-21

Investing Activities

Financing Activities

Reporting Cash Flows from Operating Activities

24-27

Reporting Cash Flows from Investing and Financing Activities

...

29-32

Foreign Currency Cash Flows

33-36

Interest and Dividend or Similar Distributions

37-40

Taxes on Net Surplus

41-43

Investments in Controlled Entities, Associates and Joint Ventures

44-45

...

46-47

Components of Cash and Cash Equivalents

48-50

Other Disclosures

51-54

Reference of paragraphs in VPSASs equivalent to paragraphs in IPSASs

I. GENERAL PROVISIONS

...

1. The objective of this Standard is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a cash flow statement that classifies cash flows during the period from operating, investing, and financing activities. The cash flow statement identifies: the sources of cash inflows, the items on which cash was expended during the reporting period, and the cash balance as at the reporting date. Information about the cash flows of an entity is useful in providing users of financial statements with information for both accountability and decision-making purposes. Cash flow information allows users to ascertain how a public sector entity raised the cash it required to fund its activities, and the manner in which that cash was used. In making and evaluating decisions about the allocation of resources, such as the sustainability of the entity’s activities, users require an understanding of the timing and certainty of cash flows.

Scope

2. An entity that prepares and presents financial statements under the accrual basis of accounting shall prepare a cash flow statement in accordance with the requirements of this Standard, and shall present it as an integral part of its financial statements for each period for which financial statements are presented.

3. Information about cash flows may be useful to users of an entity’s financial statements in: assessing the entity’s cash flows; assessing the entity’s compliance with legislation and regulations (including authorized budgets where appropriate); and making decisions about whether to provide resources to, or enter into transactions with, an entity. They are generally interested in how the entity generates and uses cash and cash equivalents. This is the case regardless of the nature of the entity’s activities. This is the case irrespective of whether cash can be viewed as the product of the entity, as may be the case with a public financial institution. Entities need cash to pay for the goods and services they consume, to meet ongoing debt servicing costs, and, in some cases, to reduce levels of debt. Accordingly, this Standard requires all entities to present a cash flow statement.

Benefits of Cash Flow Information

4. Information about the cash flows of an entity is useful in assisting users to predict: the future cash requirements of the entity, its ability to generate cash flows in the future, and its ability to fund changes in the scope and nature of its activities. A cash flow statement also provides a means by which an entity can discharge its accountability for cash inflows and cash outflows during the reporting period.

5. A cash flow statement, when used in conjunction with other financial statements, provides information that enables users to evaluate the changes in net assets/equity of an entity, its financial structure (including its liquidity and solvency), and its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities. It also enhances the comparability of the reporting of operating performance by different entities, because it eliminates the effects of using different accounting treatments for the same transactions and other events (if any).

6. Historical cash flow information is often used as an indicator of the amount, timing, and certainty of future cash flows. It is also useful in checking the accuracy of past assessments of future cash flows.

Definitions

...

Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.

Financing activities are activities that result in changes in the size and composition of the contributed capital and borrowings of the entity.

Operating activities are the activities of the entity that are not investing or financing activities.

Control: An entity controls another entity when the entity is exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability to affect the nature and amount of those benefits through its power over the other entity.

Cash flows are inflows and outflows of cash and cash equivalents.

Reporting date means the date of the last day of the reporting period to which the financial statements relate.

Cash comprises cash on hand and demand deposits.

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Terms defined in other Vietnam Public Sector Accounting Standards (VPSASs) are used in this Standard with the same meaning as in those other Standards.

...

8. Cash equivalents are held for the purpose of meeting short term cash commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent, it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents.

9. Bank borrowings are generally considered to be financing activities. However, in some countries, bank overdrafts that are repayable on demand form an integral part of an entity’s cash management.

10. Cash flows exclude movements between items that constitute cash or cash equivalents, because these components are part of the cash management of an entity rather than part of its operating, investing, and financing activities. Cash management includes the investment of excess cash in cash equivalents.

Economic Entity

11. The term “economic entity” is used in this Standard to define, for financial reporting purposes, a group of entities comprising the controlling entity and any controlled entities.

12. Other terms sometimes used to refer to an economic entity include “consolidated entity”, “superior accounting entity” and “budget estimate unit level I”.

13. An economic entity may include entities with both social policy and commercial objectives. For example, a Ministry may include administrative entities that are funded by the state budget to perform assigned tasks and duties, as well as public sector entities that both perform assigned tasks and provide services as per the law.

Future Economic Benefits or Service Potential

14. Assets provide a means for entities to achieve their objectives. Assets that are used to generate net cash inflows are often described as embodying “future economic benefits”. Assets that are used to deliver goods and services in accordance with an entity’s objectives but which do not directly generate net cash inflows are often described as embodying “service potential.” To encompass all the purposes to which assets may be put, this Standard uses the term “future economic benefits or service potential” to describe the essential characteristic of assets.

...

15. Net assets/equity is the term used in this Standard to refer to the residual measure in the statement of financial position (assets less liabilities). Net assets/equity may be positive or negative. Other terms may be used in place of net assets/equity, provided that their meaning is clear.

II. SPECIFIC PROVISIONS

Presentation of a Cash Flow Statement

16. The cash flow statement shall report cash flows during the period classified by operating, investing, and financing activities.

17. An entity presents its cash flows from operating, investing, and financing activities in a manner that is most appropriate to its activities. Classification by activity provides information that allows users to assess the impact of those activities on the financial position of the entity, and the amount of its cash and cash equivalents. This information may also be used to evaluate the relationships among those activities.

18. A single transaction may include cash flows that are classified differently. For example, when the cash repayment of a loan includes both interest and capital, the interest element may be classified as an operating activity and the capital element classified as a financing activity.

Operating Activities

19. The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the entity are funded:

(a) By way of taxes (directly and indirectly); or

...

The amount of the net cash flows also assists in showing the ability of the entity to maintain its operating capability, repay obligations, pay a dividend or similar distribution to its owner, and make new investments, without recourse to external sources of financing.

The consolidated whole-of-government operating cash flows provide an indication of the extent to which a government (or local government) has financed its current activities through taxation and charges.

Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows.

20. Cash flows from operating activities are primarily derived from the principal cash-generating activities of the entity. Examples of cash flows from operating activities are:

(a) Cash receipts from taxes, levies, and fines;

(b) Cash receipts from charges for goods and services provided by the entity;

(c) Cash receipts from grants or transfers and other appropriations or other budget authority made by central government or other public sector entities;

(d) Cash receipts from royalties, fees, commissions, and other revenue;

(e) Cash payments to other public sector entities to finance their operations (not including loans);

...

(g) Cash payments to and on behalf of employees;

(h) Cash receipts and cash payments of an insurance entity for premiums and claims, annuities, and other policy benefits;

(i) Cash payments of local property taxes or income taxes (where appropriate) in relation to operating activities;

(j) Cash receipts and payments from contracts held for dealing or trading purposes;

(k) Cash receipts or payments from discontinuing operations; and

(l) Cash receipts or payments in relation to litigation settlements.

Some transactions, such as the sale of an item of plant, may give rise to a gain or loss that is included in surplus or deficit. The cash flows relating to such transactions are cash flows from investing activities. However, cash payments to construct or acquire assets held for rental to others and subsequently held for sale as described in VPSAS 17, Property, Plant, and Equipment are cash flows from operating activities. The cash receipts from rents and subsequent sales of such assets are also cash flows from operating activities.

21. An entity may hold securities and loans for dealing or trading purposes, in which case they are similar to inventory acquired specifically for resale. Therefore, cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities. Similarly, cash advances and loans made by public financial institutions are usually classified as operating activities, since they relate to the main cash-generating activity of that entity.

Investing Activities

...

(a) Cash payments to acquire property, plant, and equipment, intangibles, and other long-term assets. These payments include those relating to capitalized development costs and self-constructed property, plant, and equipment;

(b) Cash receipts from sales of property, plant, and equipment, intangibles, and other long-term assets;

(c) Cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (other than payments for those instruments considered to be cash equivalents or those held for dealing or trading purposes);

(d) Cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures (other than receipts for those instruments considered to be cash equivalents and those held for dealing or trading purposes);

(e) Cash advances and loans made to other parties (other than advances and loans made by a public financial institution);

(f) Cash receipts from the repayment of advances and loans made to other parties (other than advances and loans of a public financial institution);

(g) Cash payments to equity participation in other entities;

(h) Cash receipts from equity participation in other entities.

Financing Activities

...

(a) Cash proceeds from issuing debentures, loans, notes, bonds, mortgages, and other short or long-term borrowings;

(b) Cash repayments of amounts borrowed; and

Reporting Cash Flows from Operating Activities

24. An entity shall report cash flows from operating activities using either:

(a) The direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or

(b) The indirect method, whereby surplus or deficit is adjusted for the effects of transactions of a noncash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of revenue or expense associated with investing or financing cash flows.

25. Entities are encouraged to report cash flows from operating activities using the direct method. The direct method provides information that may be useful in estimating future cash flows, and not available under the indirect method. Under the direct method, information about major classes of gross cash receipts and gross cash payments may be obtained either:

(a) From the accounting records of the entity; or

...

(i) Changes during the period in inventories and operating receivables and payables;

(ii) Other noncash items; and

(iii) Other items for which the cash effects are investing or financing cash flows.

26. Entities reporting cash flows from operating activities using the direct method are also encouraged to provide a reconciliation of the surplus/deficit from ordinary activities with the net cash flow from operating activities. This reconciliation may be provided as part of the cash flow statement or in the notes to the financial statements.

27. Under the indirect method, the net cash flow from operating activities is determined by adjusting surplus or deficit from ordinary activities for the effects of:

(a) Changes during the period in inventories and operating receivables and payables;

(b) Non-cash items such as depreciation, provisions, deferred taxes, unrealized foreign currency gains and losses, undistributed surpluses of associates, and minority interests; and

Reporting Cash Flows from Investing and Financing Activities

...

Reporting Cash Flows on a Net Basis

29. Cash flows arising from the following operating, investing, or financing activities may be reported on a net basis:

(a) Cash receipts collected and payments made on behalf of customers, taxpayers, or beneficiaries when the cash flows reflect the activities of the other party rather than those of the entity; and

(b) Cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short.

30. Paragraph 29(a) refers only to transactions where the resulting cash balances are controlled by the reporting entity. Examples of such cash receipts and payments include:

(a) The collection of taxes by one level of government for another level of government, not including taxes collected by a government for its own use as part of a tax-sharing arrangement;

(b) The acceptance and repayment of demand deposits of a public financial institution;

(d) Rents collected on behalf of, and paid over to, the owners of properties.

...

(a) The purchase and sale of investments; and

(b) Other short-term borrowings, for example, those that have a maturity period of three months or less.

32. Cash flows arising from each of the following activities of a public financial institution may be reported on a net basis:

(a) Cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date;

(b) The placement of deposits with, and withdrawal of deposits from, other financial institutions; and

(c) Cash advances and loans made to customers and the repayment of those advances and loans.

Foreign Currency Cash Flows

33. Cash flows arising from transactions in a foreign currency shall be recorded in an entity’s functional currency by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow.

34. The cash flows of a foreign controlled entity shall be translated at the exchange rates between the Vietnamese dong and the foreign currency at the dates of the cash flows.

...

36. Unrealized gains and losses arising from changes in foreign currency exchange rates are not cash flows. However, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the cash flow statement in order to reconcile cash and cash equivalents at the beginning and the end of the period. This amount is presented separately from cash flows from operating, investing, and financing activities, and includes the differences, if any, if those cash flows had been reported at end of period exchange rates.

Interest and Dividends or Similar Distributions

37. Cash flows from interest and dividends or similar distributions received and paid shall each be disclosed separately. Each shall be classified in a consistent manner from period to period as either operating, investing, or financing activities.

38. The total amount of interest paid during a period is disclosed in the cash flow statement, whether it has been recognized as an expense in the statement of financial performance or capitalized in accordance with the allowed alternative treatment in VPSAS 5, Borrowing Costs.

39. Interest paid and interest and dividends or similar distributions received are usually classified as operating cash flows for a public financial institution. However, there is no consensus on the classification of these cash flows for other entities. Interest paid and interest and dividends or similar distributions received may be classified as operating cash flows because they enter into the determination of surplus or deficit. Alternatively, interest paid and interest and dividends or similar distributions received may be classified as financing cash flows and investing cash flows respectively, because they are costs of obtaining financial resources or returns on investments.

40. Dividends or similar distributions paid may be classified as a financing cash flow because they are a cost of obtaining financial resources. Alternatively, dividends or similar distributions paid may be classified as a component of cash flows from operating activities in order to assist users to determine the ability of an entity to make these payments out of operating cash flows.

Taxes on Net Surplus

41. Cash flows arising from taxes on net surplus shall be separately disclosed and shall be classified as cash flows from operating activities, unless they can be specifically identified with financing and investing activities.

42. Some public sector entities may operate under tax-equivalent regimes, where taxes are levied in the same way as they are on private sector entities. For example, some production and businesses of goods and services of public sector entities.

...

Investments in Controlled Entities, Associates and Joint Ventures

44. When accounting for an investment in an associate or a controlled entity accounted for by use of the equity or cost method, an investor restricts its reporting in the cash flow statement to the cash flows between itself and the investee, for example, to dividends or similar distributions and advances.

45. An entity that reports its interest in a jointly controlled entity using proportionate consolidation includes in its consolidated cash flow statement its proportionate share of the jointly controlled entity’s cash flows. An entity that reports such an interest using the equity method includes in its cash flow statement (a) the cash flows in respect of its investments in the jointly controlled entity, and (b) distributions and other payments or receipts between it and the jointly controlled entity.

Noncash Transactions

46. Investing and financing transactions that do not require the use of cash or cash equivalents shall be excluded from a cash flow statement. Such transactions shall be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities.

47. Many investing and financing activities do not have a direct impact on current cash flows, although they do affect the capital and asset structure of an entity. The exclusion of noncash transactions from the cash flow statement is consistent with the objective of a cash flow statement, as these items do not involve cash flows in the current period. Examples of noncash transactions are:

(a) The acquisition of assets through the exchange of assets, the assumption of directly related liabilities, or by means of a finance lease; and

(b) The conversion of debt to equity.

Components of Cash and Cash Equivalents

...

49. In view of the variety of cash management practices and banking arrangements around the world, and in order to comply with VPSAS 1, an entity discloses the policy that it adopts in determining the composition of cash and cash equivalents.

50. The effect of any change in the policy for determining components of cash and cash equivalents, for example, a change in the classification of financial instruments previously considered to be part of an entity’s investment portfolio, is reported in accordance with VPSAS 3, Accounting Policies, Changes in Accounting Estimates and Errors.

Other Disclosures

51. An entity shall disclose, together with a commentary by management in the notes to the financial statements, the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the economic entity.

52. There are various circumstances in which cash and cash equivalent balances held by an entity are not available for use by the economic entity. Examples include cash and cash equivalent balances held by a controlled entity that operates in a country where exchange controls or other legal restrictions apply, when the balances are not available for general use by the controlling entity or other controlled entities.

53. Additional information may be relevant to users in understanding the financial position and liquidity of an entity. Disclosure of this information, together with a description in the notes to the financial statements, is encouraged, and may include:

(a) The amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities;

(b) The amount and nature of restricted cash balances.

54. Where appropriations or budget authorizations are prepared on a cash basis, the cash flow statement may assist users in understanding the relationship between the entity’s activities or programs and the government’s budgetary information. Refer to VPSAS 1 for a brief discussion of the comparison of actual and budgeted figures.

...

Paragraph of

VPSAS 02

Paragraph of

IPSAS 2

...

APPENDIX 03

VPSAS 12 - INVENTORIES
(Issued together with Decision No. 1676/QD-BTC dated September 1, 2021 of the Ministry of Finance)

INTRODUCTION

VPSAS 12 “Inventories” is compiled based on IPSAS 12 “Inventories” and current regulations on financial regime and budgets of Vietnam. VPSAS 12 sets out provisions in accordance with applicable legislation of Vietnam and regulations to be amended in the coming time. VPSAS 12 does not set out any provision of IPSAS 12 not conformity with the finance and budget regime in a long term, any addition shall be made in line with actual circumstances from time to time.

The IPSAS 12 that prevails is the version issued in 2003, amended in accordance with other international public sector accounting standards up December 31, 2018, issued by International Public Sector Accounting Standards Board (IPSASB).

...

Until the issue date of VPSAS 12 (2021), the relevant standards below have been not issued:

No.

Name of public sector accounting standard

Paragraph referred to

Construction Contracts

2(a)

Financial Instruments: Presentation

...

Financial Instruments: Recognition and Measurement

2(b)

Agriculture

2(c); 26

Revenue from Exchange Transactions

...

Borrowing Costs

Provisions, Contingent Liabilities and Contingent Assets

VPSAS 12 - INVENTORIES

Process of issue, amendments to VPSAS 12
(hereinafter referred to as Standard)

The first version of VPSAS 12 is issued together with Decision No. 1676/QD-BTC dated September 1, 2021 of the Minister of Finance.

...

Standards with the same effect, include:

- VPSAS 1: Presentation of Financial Statements;

- VPSAS 2: Cash Flow Statement;

- VPSAS 17: Property, Plant and Equipment;

- VPSAS 31: Intangible Assets.

VPSAS 12 - INVENTORIES

CONTENTS

Contents of VPSAS 12 “Inventories” are presented from paragraphs 1 through 54. Every paragraph have the same validity.

...

Objectives

Scope

Definitions

Net Realizable Value

Inventories

II. SPECIFIC PROVISIONS

Measurement of Inventories

Cost of Inventories

Costs of Purchase

...

Other Costs

Cost of Inventories of a Service Provider

Cost of Agricultural Produce Harvested from Biological Assets

Techniques for the Measurement of Cost

Cost Formulas

Net Realizable Value

Distributing Goods at No Charge or for a Nominal Charge

Recognition as an Expense

Disclosure

...

I. GENERAL PROVISIONS

Objective

1. The objective of this Standard is to prescribe the accounting treatment for inventories. A primary issue in accounting for inventories is the amount of cost to be recognized as an asset and carried forward until the related revenues are recognized. This Standard provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.

Scope

2. An entity that prepares and presents financial statements under the accrual basis of accounting shall apply this Standard in accounting for all inventories except:

(a) Work in progress arising under construction contracts, including directly related service contracts;

(b) Financial instruments;

(c) Biological assets related to agricultural activity and agricultural produce at the point of harvest; and

...

3. This Standard does not apply to the measurement of inventories held by:

(a) Producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realizable value in accordance with well-established practices in those industries. When such inventories are measured at net realizable value, changes in that value are recognized in surplus or deficit in the period of the change.

(b) Commodity broker-traders who measure their inventories at fair value less costs to sell. When such inventories are measured at fair value less costs to sell, changes in fair value less costs to sell are recognized in surplus or deficit in the period of the change.

4. The inventories Paragraph referred to 3(a) are measured at net realizable value at certain stages of production. This occurs, for example, when agricultural crops have been harvested or minerals have been extracted and sale is assured under a forward contract or a government guarantee, or when an active market exists and there is a negligible risk of failure to sell. These inventories are excluded from only the measurement requirements of this Standard.

5. Broker-traders are those who buy or sell commodities for others or on their own account. The inventories Paragraph referred to 3(b) are principally acquired with the purpose of selling in the near future and generating a surplus from fluctuations in price or broker-traders’ margin. When these inventories are measured at fair value less costs to sell, they are excluded from only the measurement requirements of this Standard.

Definitions

6. The following terms are used in this Standard with the meanings specified:

Current replacement cost is the cost the entity would incur to acquire the asset on the reporting date.

Net realizable value is the estimated selling price in the ordinary course of operations less the estimated costs of completion and the estimated costs necessary to make the sale, exchange or distribution.

...

(a) In the form of materials or supplies to be consumed in the production process;

(b) In the form of materials or supplies to be consumed or distributed in the rendering of services;

(c) Held for sale or distribution in the ordinary course of operations; or

(d) In the process of production for sale or distribution.

Terms defined in other Vietnam Public Sector Accounting Standards (VPSASs) are used in this Standard with the same meaning as in those other Standards.

Net Realizable Value

7. Net realizable value refers to the net amount that an entity expects to realize from the sale of inventory in the ordinary course of operations. Fair value reflects the amount for which the same inventory could be exchanged between knowledgeable and willing buyers and sellers in the marketplace. The former is an entity-specific value; the latter is not. Net realizable value for inventories may not equal fair value less costs to sell.

Inventories

8. Inventories encompass goods purchased and held for resale including, for example, merchandise purchased by an entity and held for resale, or land and other property held for sale. Inventories also encompass finished goods produced, or work in progress being produced, by the entity. Inventories also include materials and supplies awaiting use in the production process and goods purchased or produced by an entity, which are for distribution to other parties for no charge or for a nominal charge. In many public sector entities inventories will relate to the provision of services rather than goods purchased and held for resale or goods manufactured for sale. In the case of a service provider, inventories include the costs of the service, as described in paragraph 24, for which the entity has not yet recognized the related revenue

...

(a) Consumable stores;

(b) Maintenance materials;

(d) Strategic stockpiles (for example, energy reserves);

(e) Stocks of unissued currency;

(f) Postal service supplies held for sale (for example, stamps);

(g) Work in progress, including:

(i) Educational/training course materials; and

(ii) Client services (for example, auditing services) where those services are sold at arm’s length prices; and

...

10. Where the government controls the rights to create and issue various assets, including postal stamps and currency, these items of inventory are recognized as inventories for the purposes of this Standard. They are not reported at face value, but measured in accordance with paragraph 12, that is at their printing or minting cost.

11. When a government maintains strategic stockpiles of various reserves, such as energy reserves (for example, oil), for use in emergency or other situations (for example, natural disasters or other civil defense emergencies), these stockpiles are recognized as inventories for the purposes of this Standard and treated accordingly.

II. SPECIFIC PROVISIONS

Measurement of Inventories

12. Inventories shall be measured at the lower of cost and net realizable value, except where paragraph 13 or 14 applies.

13. Where inventories are acquired through a non-exchange transaction, their cost shall be measured at their fair value as at the date of acquisition.

14. Inventories shall be measured at the lower of cost and current replacement cost where they are held for:

(a) Distribution at no charge or for a nominal charge; or

(b) Consumption in the production process of goods to be distributed at no charge or for a nominal charge.

...

15. The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Costs of Purchase

16. The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and supplies. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase.

Costs of Conversion

17. The costs of converting work-in-progress inventories into finished goods inventories are incurred primarily in a manufacturing environment. The costs of conversion of inventories include costs directly related to the units of production, such as direct labor. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and equipment, and the cost of factory management and administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labor.

18. The allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities. Normal capacity is the production expected to be achieved on average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production may be used if it approximates normal capacity. The amount of fixed overhead allocated to each unit of production is not increased as a consequence of low production or idle plant. Unallocated overheads are recognized as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above cost. Variable production overheads are allocated to each unit of production on the basis of the actual use of the production facilities.

19. A production process may result in more than one product being produced simultaneously. This is the case, for example, when joint products are produced or when there is a main product and a by-product. When the costs of conversion of each product are not separately identifiable, they are allocated between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production. Most by-products, by their nature, are immaterial. When this is the case, they are often measured at net realizable value and this value is deducted from the cost of the main product. As a result, the carrying amount of the main product is not materially different from its cost.

Other Costs

20. Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. For example, it may be appropriate to include non-production overheads or the costs of designing products for specific customers in the cost of inventories.

...

(a) Abnormal amounts of wasted materials, labor, or other production costs;

(b) Storage costs, unless those costs are necessary in the production process before a further production stage;

(d) Selling costs.

22. VPSAS regarding borrowing costs identifies limited circumstances where borrowing costs are included in the cost of inventories.

23. An entity may purchase inventories on deferred settlement terms. When the arrangement effectively contains a financing element, that element, for example a difference between the purchase price for normal credit terms and the amount paid, is recognized as interest expense over the period of the financing.

Cost of Inventories of a Service Provider

24. To the extent that service providers have inventories except those Paragraph referred to 2(d), they measure them at the costs of their production. These costs consist primarily of the labor and other costs of personnel directly engaged in providing the service, including supervisory personnel, and attributable overheads. The costs of labor not engaged in providing the service are not included. Labor and other costs relating to sales and general administrative personnel are not included but are recognized as expenses in the period in which they are incurred. The cost of inventories of a service provider does not include surplus margins or non-attributable overheads that are often factored into prices charged by service providers.

Cost of Agricultural Produce Harvested from Biological assets

...

Techniques for the Measurement of Cost

26. Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method, may be used for convenience if the results approximate cost. Standard costs take into account normal levels of materials and supplies, labor, efficiency and capacity utilization. They are regularly reviewed and, if necessary, revised in the light of current conditions.

27. Inventories may be transferred to the entity by means of a non-exchange transaction. For example, an international aid agency may donate medical supplies to a public hospital in the aftermath of a natural disaster. Under such circumstances, the cost of inventory is its fair value as at the date it is acquired.

Cost Formulas

28. The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be assigned by using specific identification of their individual costs.

29. Specific identification of costs means that specific costs are attributed to identified items of inventory. This is an appropriate treatment for items that are segregated for a specific project, regardless of whether they have been bought or produced. However, specific identification of costs is inappropriate when there are large numbers of items of inventory which are ordinarily interchangeable. such circumstances, the method of selecting those items that remain in inventories could be used to obtain predetermined effects on the net surplus or deficit for the period.

30. When applying paragraph 29 an entity shall use the same cost formula for all inventories having similar nature and use to the entity. For inventories with different nature or use (for example, certain commodities used in one segment and the same type of commodities used in another segment), different cost formulas may be justified. A difference in geographical location of inventories (and in the respective tax rules), by itself, is not sufficient to justify the use of different cost formulas.

31. The cost of inventories, other than those dealt with in paragraph 28, shall be assigned by using the first-in, first-out (FIFO) or weighted average cost formulas. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified.

32. For example, inventories used in one segment may have a use to the entity different from the same type of inventories used in another segment. However, a difference in geographical location of inventories, by itself, is not sufficient to justify the use of different cost formulas.

...

Net Realizable Value

34. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs of completion or the estimated costs to be incurred to make the sale, exchange or distribution have increased. The practice of writing inventories down below cost to net realizable value is consistent with the view that assets are not to be carried in excess of the future economic benefits or service potential expected to be realized from their sale, exchange, distribution or use.

35. Inventories are usually written down to net realizable value on an item by item basis. In some circumstances, however, it may be appropriate to group similar or related items. This may be the case with items of inventory that have similar purposes or end uses and cannot practicably be evaluated separately from other items in that product line. It is not appropriate to write-down inventories based on a classification of inventory, for example, finished goods, or all the inventories in a particular operation or geographical segment. Service providers generally accumulate costs in respect of each service for which a separate selling price is charged. Therefore, each such service is treated as a separate item.

36. Estimates of net realizable value also take into consideration the purpose for which the inventory is held. For example, the net realizable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. If the sales contracts are for less than the inventory quantities held, the net realizable value of the excess is based on general selling prices. Guidance on the treatment of provisions or contingent liabilities, such as those arising from firm sales contracts in excess of inventory quantities held, and on firm purchase contracts can be found in VPSAS 19 regarding provisions, contingent liabilities and contingent assets.

37. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold, exchanged or distributed at or above cost. However, when a decline in the price of materials indicates that the cost of the finished products exceeds net realizable value, the materials are written down to net realizable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realizable value.

38. A new assessment is made of net realizable value in each subsequent period. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the write-down is reversed (i.e., the reversal is limited to the amount of the original write-down) so that the new carrying amount is the lower of the cost and the revised net realizable value. This occurs, for example, when an item of inventory, that is carried at net realizable value, because its selling price has declined, is still on hand in a subsequent period and its selling price has increased.

Distributing Goods at No Charge or for a Nominal Charge

39. A public sector entity may hold inventories whose future economic benefits or service potential are not directly related to their ability to generate net cash inflows. These types of inventories may arise when a government has determined to distribute certain goods at no charge or for a nominal amount. In these cases, the future economic benefits or service potential of the inventory for financial reporting purposes is reflected by the amount the entity would need to pay to acquire the economic benefits or service potential if this was necessary to achieve the objectives of the entity. Where the economic benefits or service potential cannot be acquired in the market, an estimate of replacement cost will need to be made. If the purpose for which the inventory is held changes, then the inventory is valued using the provisions of paragraph 12.

Recognition as an Expense

...

41. For a service provider, the point when inventories are recognized as expenses normally occurs when services are rendered, or upon billing for chargeable services.

42. Some inventories may be allocated to other asset accounts, for example, inventory used as a component of self-constructed property, plant or equipment. Inventories allocated to another asset in this way are recognized as an expense during the useful life of that asset.

Disclosure

43. The financial statements shall disclose:

(a) The accounting policies adopted in measuring inventories, including the cost formula used;

(b) The total carrying amount of inventories and the carrying amount in classifications appropriate to the entity;

(c) The carrying amount of inventories carried at fair value less costs to sell;

(d) The amount of inventories recognized as an expense during the period;

(e) The amount of any write-down of inventories recognized as an expense in the period in accordance with paragraph 40;

...

(g) The circumstances or events that led to the reversal of a write-down of inventories in accordance with paragraph 40; and

(h) The carrying amount of inventories pledged as security for liabilities.

44. Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories are merchandise, production supplies, materials, work in progress and finished goods. The inventories of a service provider may be described as work in progress.

45. The amount of inventories recognized as an expense during the period consists of those costs previously included in the measurement of inventory that has now been sold, exchanged or distributed, and unallocated production overheads and abnormal amounts of production costs of inventories. The circumstances of the entity may also warrant the inclusion of other costs, such as distribution costs.

46. Some entities adopt a format for surplus or deficit that results in amounts being disclosed other than the cost of inventories recognized as an expense during the period. Under this format, an entity presents an analysis of expenses using a classification based on the nature of expenses. In this case, the entity discloses the costs recognized as an expense for raw materials and consumables, labor costs and other costs together with the amount of the net change in inventories for the period.

Reference of paragraphs in VPSASs equivalent to paragraphs in IPSASs

Paragraph VPSAS 12

Paragraph IPSAS 12

...

APPENDIX 04

VPSAS 17 - PROPERTY, PLANT, AND EQUIPMENT
(Issued together with Decision No. 1676/QD-BTC dated September 1, 2021 of the Minister of Finance)

INTRODUCTION

VPSAS 17 “Inventories” is compiled based on IPSAS 17 “Inventories” and current regulations on financial regime and budgets of Vietnam. VPSAS 17 sets out provisions in accordance with applicable legislation of Vietnam and regulations to be amended in the coming time. VPSAS 17 does not set out any provision of IPSAS 17 not conformity with the finance and budget regime in a long term, any addition shall be made in line with actual circumstances from time to time.

The IPSAS 17 that prevails is the version issued in 2001, amended in accordance with other international public sector accounting standards up December 31, 2018, issued by International Public Sector Accounting Standards Board (IPSASB).

VPSAS 17 reorganizes the number order of paragraphs compared to the IPSAS. For comparison purpose, a table of reference of paragraphs in VPSAS and paragraphs in IPSAS is issued together with this Standard. In respect of contents relevant to other issued VPSASs, VPSAS 17 recites their reference numbers and names. In respect of contents of VPSASs that have not been issued, this Standard only recites the name or relevant content to be referred to, not the reference number, of these VPSASs as in VPSAS 17. The specific recitation of the reference number and name of these VPSASs shall be done later when they have been issued.

Until the issue date of VPSAS 17 (2021), the relevant standards below have been not issued:

...

Name of public sector accounting standard

Paragraph referred to

Leases

5, 36, 59, 61

Investment Property

...

30, 32

Accounting Policies, Changes in Accounting Estimates and Errors

40, 55

Revenue from Exchange Transactions

60, 61, 64

Provisions, Contingent Liabilities and Contingent Assets

...

VPSAS 17 - PROPERTY, PLANT, AND EQUIPMENT

Process of issue, amendments to VPSAS 17
(hereinafter referred to as Standard)

The first version of VPSAS 17 is issued together with Decision No. 1676/QD-BTC dated September 1, 2021 of the Minister of Finance.

This Standard comes into force as of September 1, 2021 and applies from September 1, 2021.

Standards with the same effect, include:

- VPSAS 1: Presentation of Financial Statements;

- VPSAS 2: Cash Flow Statement;

- VPSAS 12: Inventories;

...

VPSAS 17 - PROPERTY, PLANT, AND EQUIPMENT
CONTENTS

Contents of VPSAS 17 “Property, Plant and Equipment” are presented from paragraphs 1 through 70. Every paragraph have the same validity.

Paragraph

I. GENERAL PROVISIONS

Objectives

Scope

Heritage Assets

...

II. SPECIFIC PROVISIONS

Recognition

Infrastructure Assets

Initial Costs

Subsequent Costs

Measurement at Recognition

Elements of Cost

Measurement of cost

Measurement after Recognition

...

Depreciation Amount and Depreciation Period

Depreciation Method

Derecognition

Disclosure

1-11

2-10

7-10

...

12-20

18-20

21-36

24-31

32-36

37-58

38-58

...

54-57

58-64

65-69

Reference of paragraphs in VPSASs equivalent to paragraphs in IPSASs

I. GENERAL PROVISIONS

Objective

1. The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users of financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognized in relation to them.

Scope

...

(a) When a different accounting treatment has been adopted in accordance with another International Public Sector Accounting Standard; and

(b) In respect of heritage assets. However, the disclosure requirements of paragraphs 66, 67 apply to those heritage assets that are recognized.

3. This Standard applies to property, plant and equipment including:

(a) Infrastructure assets; and

(b) Service concession arrangement assets after initial recognition and measurement in accordance with IPSAS 32, Service Concession Arrangements: Grantor.

4. This Standard does not apply to:

(a) Biological assets related to agricultural activity other than bearer plants. This Standard applies to bearer plants but does not apply to the produce on bearer plants;

(b) Mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

However, this Standard applies to property, plant and equipment used to develop or maintain the assets described in 4(a) or 4(b).

...

6. An entity using the cost model for investment property in accordance with IPSAS 16, Investment Property shall use the cost model in this Standard.

Heritage Assets

7. This Standard does not require an entity to recognize heritage assets that would otherwise meet the definition of, and recognition criteria for, property, plant and equipment. If an entity does recognize heritage assets, it must apply the disclosure requirements of this Standard and may, but is not required to, apply the measurement requirements of this Standard.

8. Some assets are described as heritage assets because of their cultural, environmental or historical significance. Examples of heritage assets include historical buildings and monuments, archaeological sites, antiques, national treasures, work displays in museums, relics, conservation areas and nature reserves, and works of art. Certain characteristics, including the following, are often displayed by heritage assets (although these characteristics are not exclusive to such assets):

(a) Their value in cultural, environmental, educational and historical terms is unlikely to be fully reflected in a financial value based purely on a market price;

(b) Legal and/or statutory obligations may impose prohibitions or severe restrictions on disposal by sale;

(c) They are often irreplaceable and their value may increase over time even if their physical condition deteriorates; and

(d) It may be difficult to estimate their useful lives, which in some cases could be several hundred years.

Public sector entities may have large holdings of heritage assets that have been acquired over many years and by various means, including purchase, donation, bequest and sequestration. These assets are rarely held for their ability to generate cash inflows, and there may be legal or social obstacles to using them for such purposes.

...

10. The disclosure requirements in paragraphs 66 to 70 require entities to make disclosures about recognized assets. Therefore, entities that recognize heritage assets are required to disclose in respect of those assets such matters as, for example:

(a) The measurement basis used;

(b) The depreciation method used, if any;

(d) The accumulated depreciation at the end of the period, if any; and

(e) A reconciliation of the carrying amount at the beginning and end of the period showing certain components thereof.

Definitions

11. The following terms are used in this Standard with the meanings specified:

Property, plant and equipment are tangible items that:

...

(b) Are expected to be used during more than one reporting period.

A bearer plant is a living plant that:

(a) Is used in the production or supply of agricultural produce;

(b) Is expected to bear produce for more than one period; and

(c) Has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.

Carrying amount (for the purpose of this Standard) is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses.

Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.

The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

...

A service concession asset: is an asset used to provide public services in a service concession arrangement that:

(a) Is provided by the operator which:

(i) The operator constructs, develops, or acquires from a third party; or

(ii) Is an existing asset of the operator.

(b) Is provided by the grantor which:

(i) Is an existing asset of the grantor; or

(ii) Is an upgrade to an existing asset of the grantor.

A service concession arrangement is a binding arrangement between a grantor and an operator in which:

(a) The operator uses the service concession asset to provide a public service on behalf of the grantor for a specified period of time; and

...

Useful life is:

(a) The period over which an asset is expected to be available for use by an entity; or

(b) The number of production or similar units expected to be obtained from the asset by an entity.

Terms defined in other Vietnamese Public Sector Accounting Standards are used in this Standard with the same meaning as in those other Standards.

II. SPECIFIC PROVISIONS

Recognition

12. The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if:

(a) It is probable that future economic benefits or service potential associated with the item will flow to the entity; and

(b) The cost or fair value of the item can be measured reliably.

...

14. This standard does not prescribe the unit of measure for recognition, i.e., what constitutes an item of property, plant and equipment. Thus, judgment is required in applying the recognition criteria to an entity’s specific circumstances. It may be appropriate to aggregate individually insignificant items, such as library books, computer peripherals and small items of equipment, and to apply the criteria to the aggregate value.

15. An entity evaluates under this recognition principle all its property, plant and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it.

Infrastructure Assets

16. Some assets are commonly described as infrastructure assets. These assets usually display some or all of the following characteristics:

(a) They are part of a system or network;

(b) They are specialized in nature and do not have alternative uses;

(d) They may be subject to constraints on disposal.

Although ownership of infrastructure assets is not confined to entities in the public sector, significant infrastructure assets are frequently found in the public sector. Infrastructure assets meet the definition of property, plant and equipment and should be accounted for in accordance with this Standard. Examples of infrastructure assets include: road system, airport and airfield system, railway system, maritime system, inland waterway system, irrigation works system, industrial zone infrastructure, export-processing zones, commerce infrastructure, sewer systems, water and power supply systems and communication networks.

...

17. Items of property, plant and equipment may be required for safety or environmental reasons. The acquisition of such property, plant and equipment, although not directly increasing the future economic benefits or service potential of any particular existing item of property, plant and equipment, may be necessary for an entity to obtain the future economic benefits or service potential from its other assets.

Such items of property, plant and equipment qualify for recognition as assets because they enable an entity to derive future economic benefits or service potential from related assets in excess of what could be derived had those items not been acquired. For example, fire safety regulations may require a hospital to retro-fit new sprinkler systems. These enhancements are recognized as an asset because without them the entity is unable to operate the hospital in accordance with the regulations.

Subsequent Costs

18. Under the recognition principle in paragraph 12, an entity does not recognize in the carrying amount of an item of property, plant and equipment the costs of the day-to-day servicing of the item. Rather, these costs are recognized in surplus or deficit as incurred. Costs of day-to-day servicing are primarily the costs of labor and consumables, and may include the cost of small parts. The purpose of these expenditures is often described as for the “repairs and maintenance” of the item of property, plant and equipment.

19. Parts of some items of property, plant and equipment may require replacement at regular intervals. For example, a road may need resurfacing every few years. Items of property, plant and equipment may also be required to make a less frequently recurring replacement, such as replacing the interior walls of a building, or to make a non-recurring replacement. Under the recognition principle in paragraph 12, an entity recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if the recognition criteria are met. The carrying amount of those parts that are replaced is derecognized in accordance with the derecognition provisions of this Standard (see paragraphs 59-65).

20. A condition of continuing to operate an item of property, plant and equipment may be performing regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of previous inspection (as distinct from physical parts) is derecognized. This occurs regardless of whether the cost of the previous inspection was identified in the transaction in which the item was acquired or constructed. If necessary, the estimated cost of a future similar inspection may be used as an indication of what the cost of the existing inspection component was when the item was acquired or constructed.

Measurement at Recognition

21. An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.

22. Where an asset is acquired through a non-exchange transaction, its cost shall be measured at its fair value as at the date of acquisition.

...

Elements of Cost

24. The cost of an item of property, plant and equipment comprises:

(a) Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

(b) Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

(c) The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

25. Examples of directly attributable costs are:

(a) Costs of employee benefits (as defined in the relevant international or national accounting standard dealing with employee benefits) arising directly from the construction or acquisition of the item of property, plant and equipment;

(b) Costs of site preparation;

...

(e) Costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment); and

(f) Professional fees.

26. An entity applies VPSAS 12, “Inventories,” to the costs of obligations for dismantling, removing and restoring the site on which an item is located that are incurred during a particular period as a consequence of having used the item to produce inventories during that period. The obligations for costs accounted for in accordance with VPSAS 12 and VPSAS 17 are recognized and measured in accordance with VPSAS 19, “Provisions, Contingent Liabilities and Contingent Assets.”

27. Examples of costs that are not costs of an item of property, plant and equipment are:

(a) Costs of opening a new facility;

(b) Costs of introducing a new product or service (including costs of advertising and promotional activities);

(c) Costs of conducting business in a new location or with a new class of customers (including costs of staff training); and

(d) Administration and other general overhead costs.

28. Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying an item are not included in the carrying amount of that item. For example, the following costs are not included in the carrying amount of an item of property, plant and equipment:

...

(b) Initial operating losses, such as those incurred while demand for the item’s output builds up; and

29. Some operations occur in connection with the construction or development of an item of property, plant and equipment, but are not necessary to bring the item to the location and condition necessary for it to be capable of operating in the manner intended by management. These incidental operations may occur before or during the construction or development activities. For example, revenue may be earned through using a building site as a car park until construction starts. Because incidental operations are not necessary to bring an item to the location and condition necessary for it to be capable of operating in the manner intended by management, the revenue and related expenses of incidental operations are recognized in surplus or deficit, and included in their respective classifications of revenue and expense.

30. The cost of a self-constructed asset is determined using the same principles as for an acquired asset. If an entity makes similar assets for sale in the normal course of operations, the cost of the asset is usually the same as the cost of constructing an asset for sale (see VPSAS 12, “Inventories”). Therefore, any internal surpluses are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of wasted material, labor, or other resources incurred in self-constructing an asset is not included in the cost of the asset. VPSAS 5, “Borrowing Costs” establishes criteria for the recognition of interest as a component of the carrying amount of a self-constructed item of property, plant and equipment.

31. Bearer plants are accounted for in the same way as self-constructed items of property, plant, and equipment before they are in the location and condition necessary to be capable of operating in the manner intended by management. Consequently, references to ‘construction’ in this Standard should be read as covering activities that are necessary to cultivate bearer plants before they are in the location and condition necessary to be capable of operating in the manner intended by management.

Measurement of cost

32. The cost of an item of property, plant and equipment is the cash price equivalent or, for an item Paragraph referred to 22, its fair value at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognized as interest over the period of credit unless such interest is recognized in the carrying amount of the item in accordance with the allowed alternative treatment in VPSAS 5.

33. One or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an item of property, plant and equipment is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired item is measured in this way even if an entity cannot immediately derecognize the asset given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up.

34. An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows or service potential is expected to change as a result of the transaction. An exchange transaction has commercial substance if:

...

(b) The difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

35. The fair value of an asset for which comparable market transactions do not exist is reliably measurable if a) the variability in the range of reasonable fair value estimates is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used in estimating fair value. If an entity is able to determine reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident.

The cost of an item of property, plant and equipment held by a lessee under a finance lease is determined in accordance with VPSAS 13, “Leases.”

Measurement after Recognition

37. After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Depreciation

38. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

39. An entity allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. For example, in most cases, it would be required to depreciate separately the pavements, formation, curbs and channels, footpaths, bridges and lighting within a road system. Similarly, if an entity acquires property, plant and equipment subject to an operating lease in which it is the lessor, it may also be appropriate to depreciate separately amounts reflected in the cost of that item that are attributable to favorable or unfavorable lease terms relative to market terms.

40. A significant part of an item of property, plant and equipment may have a useful life and a depreciation method that are the same as the useful life and the depreciation method of another significant part of that same item.

...

42. An entity may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item.

43. The depreciation charge for each period shall be recognized in surplus or deficit unless it is included in the carrying amount of another asset.

44. The depreciation charge for a period is usually recognized in surplus or deficit. However, sometimes, the future economic benefits or service potential embodied in an asset is absorbed in producing other assets. In this case, the depreciation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the depreciation of manufacturing plant and equipment is included in the costs of conversion of inventories (see VPSAS 12). Similarly, depreciation of property, plant and equipment used for development activities may be included in the cost of an intangible asset recognized in accordance with the VPSAS 31 “Intangible Assets”

Depreciation Amount and Depreciation Period

45. The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.

46. The residual value and the useful life of an asset shall be reviewed at least at each annual reporting date and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate in accordance with VPSAS 3, “Accounting Policies, Changes in Accounting Estimates and Errors.”

47. Depreciation is recognized even if the fair value of the assets exceeds its carrying amount, as long as the asset’s residual value does not exceed its carrying amount. Repair and maintenance of an asset does not negate the need to depreciate it. Conversely, some assets may be poorly maintained or maintenance may be deferred indefinitely because of budgetary constraints. Where asset management policies exacerbate the wear and tear of an asset, its useful life should be reassessed and adjusted accordingly.

48. The depreciable amount of an asset is determined after deducting its residual value. In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount.

49. The residual value of an asset may increase to an amount equal to or greater than the asset’s carrying amount. If it does, the asset’s depreciation charge is zero unless and until its residual value subsequently decreases to an amount below the asset’s carrying amount.

...

51. The future economic benefits or service potential embodied in an item of property, plant and equipment are consumed by the entity principally through the use of the asset. However, other factors such as technical or commercial obsolescence and wear and tear while an asset remains idle often result in the diminution of the economic benefits or service potential that might have been obtained from the asset. Consequently, all the following factors are considered in determining the useful life of an asset:

(a) Expected usage of the asset. Usage is assessed by reference to the asset’s expected capacity or physical output.

(b) Expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used and the repair and maintenance program, and the care and maintenance of the asset while idle.

(c) Technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset. Expected future reductions in the selling price of an item that was produced using an asset could indicate the expectation of technical or commercial obsolescence of the asset, which, in turn, might reflect a reduction of the future economic benefits or service potential embodied in the asset.

(d) Legal or similar limits on the use of the asset, such as the expiry dates of related leases.

52. The useful life of an asset is defined in terms of the asset’s expected utility to the entity. The asset management policy of an entity may involve the disposal of assets after a specified time or after consumption of a specified proportion of the future economic benefits or service potential embodied in the asset. Therefore, the useful life of an asset may be shorter than its economic life. The estimation of the useful life of the asset is a matter of judgment based on the experience of the entity with similar assets.

53. Land and buildings are separable assets and are accounted for separately, even when they are acquired together. Buildings have a limited useful life and therefore are depreciable assets. An increase in the value of the land on which a building stands does not affect the determination of the depreciable amount of the building.

Depreciation Method

54. The depreciation method shall reflect the pattern in which the asset’s future economic benefits or service potential is expected to be consumed by the entity.

...

A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method and the units of production method. Straight-line depreciation results in a constant charge over the useful life if the asset’s residual value does not change. The diminishing balance method results in a decreasing charge over the useful life. The units of production method results in a charge based on the expected use or output.

The entity selects the method that most closely reflects the expected pattern of consumption of the future economic benefits or service potential embodied in the asset. That method is applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic benefits or service potential.

57. A depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. The revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits or service potential of the asset. For example, revenue is affected by other inputs and processes, selling activities and changes in sales volumes and prices. The price component of revenue may be affected by inflation, which has no bearing upon the way in which an asset is consumed.

Derecognition

58. The carrying amount of an item of property, plant and equipment shall be derecognized:

(a) On disposal; or

(b) When no future economic benefits or service potential is expected from its use or disposal.

59. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in surplus or deficit when the item is derecognized (unless VPSAS 13, “Leases” requires otherwise on a sale and leaseback).

60. However, an entity that, in the course of its ordinary activities, routinely sells items of property, plant and equipment that it has held for rental to others shall transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets shall be recognized as revenue in accordance with IPSAS 9, Revenue from Exchange Transactions.

...

62. If, under the recognition principle in paragraph 14, an entity recognizes in the carrying amount of an item of property, plant and equipment the cost of a replacement for part of the item, then it derecognizes the carrying amount of the replaced part regardless of whether the replaced part had been depreciated separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed.

63. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

64. The consideration receivable on disposal of an item of property, plant and equipment is recognized initially at its fair value. If payment for the item is deferred, the consideration received is recognized initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognized as interest revenue in accordance with IPSAS 9 reflecting the effective yield on the receivable.

Disclosure

65. The financial statements shall disclose, for each class of property, plant and equipment recognized in the financial statements:

(a) The measurement bases used for determining the gross carrying amount;

(b) The depreciation methods used;

(c) The useful lives or the depreciation rates used;

(d) The gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; and

...

(i) Additions;

(ii) Acquisitions through entity combinations;

(iii) Disposals;

(iv) Depreciation;

(v) The net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency, including the translation of a foreign operation into the presentation currency of the reporting entity; and

(vi) Other changes.

66. The financial statements shall also disclose for each class of property, plant and equipment recognized in the financial statements:

(a) The existence and amounts of restrictions on title, and property, plant and equipment pledged as securities for liabilities;

(b) The amount of expenditures recognized in the carrying amount of an item of property, plant and equipment in the course of its construction;

...

67. Selection of the depreciation method and the estimation of the useful life of the assets are matters of judgment. Therefore, disclosure of the methods adopted and the estimated useful lives or depreciation rates provides users of financial statements with information that allows them to review the policies selected by management and enables comparisons to be made with other entities. For similar reasons, it is necessary to disclose:

(a) Depreciation, whether recognized in surplus or deficit or as a part of the cost of other assets, during a period; and

(b) Accumulated depreciation at the end of the period.

68. In accordance with VPSAS 3, an entity discloses the nature and effect of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in subsequent periods. For property, plant and equipment, such disclosure may arise from changes in estimates with respect to:

(a) Residual values;

(b) The estimated costs of dismantling, removing or restoring items of property, plant and equipment;

(d) Depreciation methods.

69. Users of financial statements may also find the following information relevant to their needs:

...

(b) The gross carrying amount of any fully depreciated property, plant and equipment that is still in use;

Reference of paragraphs in VPSASs equivalent to paragraphs in IPSASs

Paragraph of VPSAS 17

Paragraph of IPSAS 17

Paragraph of VPSAS 17

Paragraph of IPSAS 17

...

78A

...

83A

...

APPENDIX 05

VPSAS 31 - INTANGIBLE ASSETS
(Issued together with Decision No. 1676/QD-BTC dated September 1, 2021 of the Ministry of Finance)

INTRODUCTION

The Vietnam Public Sector Accounting Standards (VPSASs) are compiled by the Accounting Public Sector Standard Drafting Board affiliated to the Ministry of Finance to ensure compliance with accounting international practices and in conformity with actual circumstances of Vietnam. Vietnam Public Sector Accounting Standards (VPSASs) have the same symbol with equivalent International Public Sector Accounting Standards (IPSASs).

VPSAS 31 “Intangible Assets” is compiled based on IPSAS 31 “Intangible Assets” and current regulations on financial regime and budgets of Vietnam. VPSAS 31 sets out provisions in accordance with applicable legislation of Vietnam and regulations to be amended in the coming time. VPSAS 31 does not set out any provision of IPSAS 31 not conformity with the finance and budget regime in a long term, any addition shall be made in line with actual circumstances from time to time.

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VPSAS 31 reorganizes the number order of paragraphs compared to the IPSAS. For comparison purpose, a table of reference of paragraphs in VPSAS and paragraphs in IPSAS is issued together with this Standard. In respect of contents relevant to other issued VPSASs, VPSAS 31 recites their reference numbers and names. In respect of contents of VPSASs that have not been issued, this Standard only recites the name or relevant content to be referred to, not the reference number, of these VPSASs as in VPSAS 31. The specific recitation of the reference number and name of these VPSASs shall be done later when they have been issued.

Until the issue date of VPSAS 31 (2021), the relevant standards below have been not issued:

No.

Name of public sector accounting standard

Paragraph referred to

Financial Instruments: Presentation

3(b); 4(d)

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4(a)

Leases

4(b); 7; 96; 97

Employee Benefits

4(c); 35(a); 63(b)

Service Concession Assets: Grantor

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Separate Financial Statement

(d)

Consolidated Financial Statement

4(d)

Investments in Associates and Joint Ventures

4(d)

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Borrowing Costs

39; 63

Accounting Policies, Changes in Accounting Estimates and Errors

88; 94; 103

Revenue from Exchange Transactions

97; 99

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Process of issue, amendments to VPSAS 31
(hereinafter referred to as Standard)

The first version of VPSAS 31 is issued together with Decision No. 1676/QD-BTC dated September 1, 2021 of the Minister of Finance.

This Standard comes into force as of September 1, 2021 and applies from September 1, 2021.

Standards with the same effect, include:

- VPSAS 1: Presentation of Financial Statements;

- VPSAS 2: Cash Flow Statement;

- VPSAS 12: Inventories;

- VPSAS 17: Property, Plant and Equipment.

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Contents of VPSAS 31 “Intangible Assets” are presented from paragraphs 1 through 108. Every paragraph have the same validity.

Paragraph

I. GENERAL PROVISIONS

Objective

Scope

Intangible Heritage Assets

Definitions

Intangible Assets

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Control of an Asset

Future Economic Benefits or Service Potential

II. SPECIFIC PROVISIONS

Recognition and Measurement

Separate Acquisition

Subsequent Expenditure on an Acquired In-process Research and Development Project

Intangible Assets Acquired through Non-Exchange Transactions

Exchanges of Assets

Internally Generated Goodwill

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Research Phase

Development Phase

Cost of an Internally Generated Intangible Asset

Recognition as an Expense

Past Expenses not to be Recognized as an Asset

Subsequent Measurement

Useful life

Intangible Assets with Finite Useful Lives

Amortization Period and Amortization Method

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Review of Amortization Period and Amortization Method

Intangible Assets with Indefinite Useful Lives

Review of Useful Life Assessment

Retirements and Disposals

Disclosure

General

Research and Development Expenditure

Other Information

Application Guidance

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2-13

9-13

14-23

15-23

16-18

19-22

24-108

...

32-39

40-41

42-43

44-45

46-48

52-54

55-61

62-64

65-69

...

71-79

80-92

80-85

86-89

90-92

93-94

95-100

...

101-105

106-107

108

Reference of paragraphs in VPSASs equivalent to paragraphs in IPSASs

I. GENERAL PROVISIONS

Objectives

1. The objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Standard. This Standard requires an entity to recognize an intangible asset if, and only if, specified criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets, and requires specified disclosures about intangible assets.

Scope

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3. This Standard shall be applied in accounting for intangible assets, except:

(a) Intangible assets that are within the scope of another Standard;

(b) Financial assets;

(c) The recognition and measurement of exploration and evaluation of mineral resources;

(d) Expenditure on the development and extraction of minerals, oil, natural gas and similar non-regenerative resources;

(e) Powers and rights conferred by legislation, a constitution, or by equivalent means;

(f) Deferred tax assets;

(g) In respect of intangible heritage assets. However, the disclosure requirements of paragraphs 101–108 apply to those heritage assets that are recognized.

4. If another VPSAS prescribes the accounting for a specific type of intangible asset, an entity applies that VPSAS instead of this Standard. For example, this Standard does not apply to:

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(b) Leases that are within the scope of VPSAS 13, Leases;

(d) Financial assets as defined in VPSAS 28 “Financial Instruments: Presentation”. The recognition and measurement of some financial assets are covered by VPSAS 6, Consolidated and Separate Financial Statements, VPSAS 7, Investments in Associates, and VPSAS 8, Interests in Joint Ventures; and

(e) Recognition and initial measurement of service concession assets that are within the scope of VPSAS 32, Service Concession Assets: Grantor. However, this Standard applies to the subsequent measurement and disclosure of such assets.

5. Some intangible assets may be contained in or on a physical substance such as a compact disc (in the case of computer software), legal documentation (in the case of a licence or patent), or film. In determining whether an asset that incorporates both intangible and tangible elements should be treated under VPSAS 17, Property, Plant, and Equipment, or as an intangible asset under this Standard, an entity uses judgement to assess which element is more significant. For example, the navigation software for a fighter aircraft is integral to the aircraft and is treated as property, plant and equipment. The same applies to the operating system of a computer. When the software is not an integral part of the related hardware, computer software is treated as an intangible asset.

6. This Standard applies to, among other things, expenditure on advertising, training, start-up, research, and development activities. Research and development activities are directed to the development of knowledge. Therefore, although these activities may result in an asset with physical substance (e.g., a prototype), the physical element of the asset is secondary to its intangible component, i.e., the knowledge embodied in it.

7. In the case of a finance lease, the underlying asset may be either tangible or intangible. After initial recognition, a lessee accounts for an intangible asset held under a finance lease in accordance with this Standard. Rights under licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents, and copyrights are excluded from the scope of VPSAS 13 and are within the scope of this Standard.

8. Exclusions from the scope of a Standard may occur if activities or transactions are so specialized that they give rise to accounting issues that may need to be dealt with in a different way.

Intangible Heritage Assets

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10. Some intangible assets are described as intangible heritage assets because of their cultural, environmental, or historical significance. Examples of intangible heritage assets include recordings of significant historical events and rights to use the likeness of a significant public person on, for example, postage stamps or collectible coins. Certain characteristics, including the following, are often displayed by intangible heritage assets (although these characteristics are not exclusive to such assets):

(a) Their value in cultural, environmental, and historical terms is unlikely to be fully reflected in a financial value based purely on a market price;

(b) Legal and/or statutory obligations may impose prohibitions or severe restrictions on disposal by sale;

(d) It may be difficult to estimate their useful lives, which in some cases could be several hundred years.

11. Public sector entities may have large holdings of intangible heritage assets that have been acquired over many years and by various means, including purchase, donation, bequest, and sequestration. These assets are rarely held for their ability to generate cash inflows, and there may be legal or social obstacles to using them for such purposes.

12. Some intangible heritage assets have future economic benefits or service potential other than their heritage value, for example, royalties paid to the entity for use of an historical recording. In these cases, an intangible heritage asset may be recognized and measured on the same basis as other items of cash-generating intangible assets. For other intangible heritage assets, their future economic benefit or service potential is limited to their heritage characteristics. The existence of both future economic benefits and service potential can affect the choice of measurement base.

13. The disclosure requirements in paragraphs 101–105 require entities to make disclosures about recognized intangible assets. Therefore, entities that recognize intangible heritage assets are required to disclose in respect of those assets such matters as, for example:

(a) The measurement basis used;

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(d) The accumulated depreciation at the end of the period, if any; and

(e) A reconciliation of the carrying amount at the beginning and end of the period showing certain components thereof.

Definitions

14. The following terms are used in this Standard with the meanings specified:

Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.

An intangible asset is an identifiable non-monetary asset without physical substance.

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Terms defined in other Vietnamese Public Sector Accounting Standards are used in this Standard with the same meaning as in those other Standards.

Intangible Assets

15. Entities frequently expend resources, or incur liabilities, on the acquisition, development, maintenance, or enhancement of intangible resources such as scientific or technical knowledge, design and implementation of new processes, or systems, licenses, intellectual property, and trademarks (including brand names and publishing titles). Common examples of items encompassed by these broad headings are computer software, patents, copyrights, motion picture films, lists of users of a service, acquired fishing licenses, acquired import quotas, and relationships with users of a service.

Identifiability

16. Not all the items described in paragraph 15 meet the definition of an intangible asset, i.e., identifiability, control over a resource, and existence of future economic benefits or service potential. If an item within the scope of this Standard does not meet the definition of an intangible asset, expenditure to acquire it or generate it internally is recognized as an expense when it is incurred.

17. An asset is identifiable if it either:

(a) Is separable, i.e., is capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or

(b) Arises from binding arrangements (including rights from contracts or other legal rights), regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

18. For the purposes of this Standard, a binding arrangement describes an arrangement that confers similar rights and obligations on the parties to it as if it were in the form of a contract.

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19. An entity controls an asset if the entity has the power to obtain the future economic benefits or service potential flowing from the underlying resource and to restrict the access of others to those benefits or that service potential. The capacity of an entity to control the future economic benefits or service potential from an intangible asset would normally stem from legal rights that are enforceable in a court of law. In the absence of legal rights, it is more difficult to demonstrate control. However, legal enforceability of a right is not a necessary condition for control because an entity may be able to control the future economic benefits or service potential in some other way.

20. Scientific or technical knowledge may give rise to future economic benefits or service potential. An entity controls those benefits or that service potential if, for example, the knowledge is protected by legal rights such as copyrights, a restraint of trade agreement (where permitted), or by a legal duty on employees to maintain confidentiality.

21. An entity may have a team of skilled staff and may be able to identify incremental staff skills leading to future economic benefits or service potential from training. The entity may also expect that the staff will continue to make their skills available to the entity. However, an entity usually has insufficient control over the expected future economic benefits or service potential arising from a team of skilled staff and from training for these items to meet the definition of an intangible asset. For a similar reason, specific management or technical talent is unlikely to meet the definition of an intangible asset, unless it is protected by legal rights to use it and to obtain the future economic benefits or service potential expected from it, and it also meets the other parts of the definition.

22. An entity may have a portfolio of users of its services or its success rate in reaching intended users of its services and expect that, because of its efforts in building relationships with users of its services, those users will continue to use its services. However, in the absence of legal rights to protect, or other ways to control the relationships with users of a service or the loyalty of those users, the entity usually has insufficient control over the expected economic benefits or service potential from relationships with users of a service and loyalty for such items (e.g., portfolio of users of a service, market shares or success rates of a service, relationships with, and loyalty of, users of a service) to meet the definition of intangible assets. In the absence of legal rights to protect such relationships, exchange transactions for the same or similar non-contractual customer relationships provide evidence that the entity is nonetheless able to control the expected future economic benefits or service potential flowing from the relationships with the users of a service. Because such exchange transactions also provide evidence that the relationships with users of a service are separable, those relationships meet the definition of an intangible asset.

Future Economic Benefits or Service Potential

23. The future economic benefits or service potential flowing from an intangible asset may include revenue from the sale of products or services, cost savings, or other benefits resulting from the use of the asset by the entity. For example, the use of intellectual property in a production or service process may reduce future production or service costs or improve service delivery rather than increase future revenues (e.g., an on-line system that allows citizens to renew driving licenses more quickly on-line, resulting in a reduction in office staff required to perform this function while increasing the speed of processing).

II. SPECIFIC PROVISIONS

Recognition and Measurement

24. The recognition of an item as an intangible asset requires an entity to demonstrate that the item meets:

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(b) The recognition criteria (see paragraphs 27–29).

This requirement applies to the cost measured at recognition (the cost in an exchange transaction or to internally generate an intangible asset, or the fair value of an intangible asset acquired through a non-exchange transaction) and those incurred subsequently to add to, replace part of, or service it.

25. Paragraphs 32–39 deal with the application of the recognition criteria to separately acquired intangible assets, Paragraphs 42–43 deal with the initial measurement of intangible assets acquired through non-exchange transactions, paragraphs 44–45 with exchanges of intangible assets, and paragraphs 46–48 with the treatment of internally generated goodwill. Paragraphs 49–64 deal with the initial recognition and measurement of internally generated intangible assets.

26. The nature of intangible assets is such that, in many cases, there are no additions to such an asset or replacements of part of it. Accordingly, most subsequent expenditures are likely to maintain the expected future economic benefits or service potential embodied in an existing intangible asset rather than meet the definition of an intangible asset and the recognition criteria in this Standard. addition, it is often difficult to attribute subsequent expenditure directly to a particular intangible asset rather than to the entity’s operations as a whole. Therefore, only rarely will subsequent expenditure incurred after the initial recognition of an acquired intangible asset or after completion of an internally generated intangible asset be recognized in the carrying amount of an asset. Consistent with paragraph 60, subsequent expenditure on brands, mastheads, publishing titles, lists users of a service, and items similar in substance (whether externally acquired or internally generated) is always recognized in surplus or deficit as incurred. This is because such expenditure cannot be distinguished from expenditure to develop the entity’s operations as a whole.

27. An intangible asset shall be recognized if, and only if:

(a) It is probable that future economic benefits or service potential associated with the item will flow to the entity; and

(b) The cost or fair value of the item can be measured reliably.

28. An entity shall assess the probability of expected future economic benefits or service potential using reasonable and supportable assumptions that represent management’s best estimate of the set of economic conditions that will exist over the useful life of the asset.

29. An entity uses judgment to assess the degree of certainty attached to the flow of future economic benefits or service potential that are attributable to the use of the asset on the basis of the evidence available at the time of initial recognition, giving greater weight to external evidence.

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31. Land use right is an intangible asset to be measured in accordance with the state legislation; the recognition and disclosure of information shall comply with this Standard.

Separate Acquisition

32. Normally, the price an entity pays to acquire separately an intangible asset will reflect expectations about the probability that the expected future economic benefits or service potential embodied in the asset will flow to the entity. In other words, the entity expects there to be an inflow of economic benefits or service potential, even if there is uncertainty about the timing or the amount of the inflow. Therefore, the probability recognition criterion in paragraph 27(a) is always considered to be satisfied for separately acquired intangible assets.

33. In addition, the cost of a separately acquired intangible asset can usually be measured reliably. This is particularly so when the purchase consideration is in the form of cash or other monetary assets.

34. The cost of a separately acquired intangible asset comprises:

(a) Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; and

(b) Any directly attributable cost of preparing the asset for its intended use.

35. Examples of directly attributable costs are:

(a) Costs of employee benefits (as defined in VPSAS 25) arising directly from bringing the asset to its working condition;

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36. Examples of expenditures that are not part of the cost of an intangible asset are:

(a) Costs of introducing a new product or service (including costs of advertising and promotional activities);

(b) Costs of conducting operations in a new location or with a new class of users of a service (including costs of staff training); and

37. Recognition of costs in the carrying amount of an intangible asset ceases when the asset is in the condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying an intangible asset are not included in the carrying amount of that asset. For example, the following costs are not included in the carrying amount of an intangible asset:

(a) Costs incurred while an asset capable of operating in the manner intended by management has yet to be brought into use; and

(b) Initial operating deficits, such as those incurred while demand for the asset’s output builds up.

38. Some operations occur in connection with the development of an intangible asset, but are not necessary to bring the asset to the condition necessary for it to be capable of operating in the manner intended by management. These incidental operations may occur before or during the development activities. Because incidental operations are not necessary to bring an asset to the condition necessary for it to be capable of operating in the manner intended by management, the revenue and related expenses of incidental operations are recognized immediately in surplus or deficit, and included in their respective classifications of revenue and expense.

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Subsequent Expenditure on an Acquired In-process Research and Development Project

40. The following research or development expenditure shall be accounted for in accordance with paragraphs 52–59:

(a) Relates to an in-process research or development project acquired separately and recognized as an intangible asset; and

(b) Is incurred after the acquisition of that project;

41. Applying the requirements in paragraphs 52–59 means that subsequent expenditure on an in-process research or development project acquired separately and recognized as an intangible asset is:

(a) Recognized as an expense when incurred if it is research expenditure;

(b) Recognized as an expense when incurred if it is development expenditure that does not satisfy the criteria for recognition as an intangible asset in paragraph 55; and

(c) Added to the carrying amount of the acquired in-process research or development project if it is development expenditure that satisfies the recognition criteria in paragraph 55.

Intangible Assets Acquired through Non-Exchange Transactions

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43. Under these circumstances the cost of the item is its fair value at the date it is acquired.

Exchanges of Assets

44. One or more intangible assets may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an intangible asset is measured at fair value unless the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired asset is measured in this way even if an entity cannot immediately derecognize the asset given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up.

45. Paragraph 27(b) specifies that a condition for the recognition of an intangible asset is that the cost of the asset can be measured reliably. The fair value of an intangible asset for which comparable market transactions do not exist is reliably measurable if:

(a) The variability in the range of reasonable fair value estimates is not significant for that asset: or

(b) The probabilities of the various estimates within the range can be reasonably assessed and used in estimating fair value.

If an entity is able to determine reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident.

Internally Generated Goodwill

46. Internally generated goodwill shall not be recognized as an asset.

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48. Differences between the market value of an entity and the carrying amount of its identifiable net assets at any time may capture a range of factors that affect the value of the entity. However, such differences do not represent the cost of intangible assets controlled by the entity.

Internally Generated Intangible Assets

49. It is sometimes difficult to assess whether an internally generated intangible asset qualifies for recognition because of problems in:

(a) Identifying whether and when there is an identifiable asset that will generate expected future economic benefits or service potential; and

(b) Determining the cost of the asset reliably. In some cases, the cost of generating an intangible asset internally cannot be distinguished from the cost of maintaining or enhancing the entity’s internally generated goodwill or of running day-to-day operations.

Therefore, in addition to complying with the general requirements for the recognition and initial measurement of an intangible asset, an entity applies the requirements and guidance in paragraphs 50–64 to all internally generated intangible assets.

50. To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the generation of the asset into:

(a) A research phase; and

(b) A development phase.

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51. If an entity cannot distinguish the research phase from the development phase of an internal project to create an intangible asset, the entity treats the expenditure on that project as if it were incurred in the research phase only.

Research Phase

52. No intangible asset arising from research (or from the research phase of an internal project) shall be recognized. Expenditure on research (or on the research phase of an internal project) shall be recognized as an expense when it is incurred.

53. In the research phase of an internal project, an entity cannot demonstrate that an intangible asset exists that will generate probable future economic benefits or service potential. Therefore, this expenditure is recognized as an expense when it is incurred.

54. Examples of research activities are:

(a) Activities aimed at obtaining new knowledge;

(b) The search for, evaluation and final selection of, applications of research findings or other knowledge;

(d) The formulation, design, evaluation, and final selection of possible alternatives for new or improved materials, devices, products, processes, systems, or services.

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55. An intangible asset arising from development (or from the development phase of an internal project) shall be recognized if, and only if, an entity can demonstrate all of the following:

(a) The technical feasibility of completing the intangible asset so that it will be available for use or sale;

(b) Its intention to complete the intangible asset and use or sell it;

(c) Its ability to use or sell the intangible asset;

(d) How the intangible asset will generate probable future economic benefits or service potential. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;

(e) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

(f) Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

56. In the development phase of an internal project, an entity can, in some instances, identify an intangible asset and demonstrate that the asset will generate probable future economic benefits or service potential. This is because the development phase of a project is further advanced than the research phase.

57. Examples of development activities are:

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(b) The design of tools, jigs, moulds, and dies involving new technology;

(c) The design, construction, and operation of a pilot plant or operation that is not of a scale economically feasible for commercial production or use in providing services;

(d) The design, construction, and testing of a chosen alternative for new or improved materials, devices, products, processes, systems, or services; and

(e) Website costs and software development costs.

58. Availability of resources to complete, use, and obtain the benefits from an intangible asset can be demonstrated by, for example, an operating plan showing the technical, financial, and other resources needed and the entity’s ability to secure those resources. In some cases, an entity demonstrates the availability of external finance by obtaining a lender’s or funder’s indication of its willingness to fund the plan.

59. An entity’s costing systems can often measure reliably the cost of generating an intangible asset internally, such as salary and other expenditure incurred in securing logos, copyrights or licenses, or developing computer software.

60. Internally generated brands, mastheads, publishing titles, lists of users of a service, and items similar in substance shall not be recognized as intangible assets.

61. Expenditure on internally generated brands, mastheads, publishing titles, lists of users of a service, and items similar in substance cannot be distinguished from the cost of developing the entity’s operations as a whole. Therefore, such items are not recognized as intangible assets.

Cost of an Internally Generated Intangible Asset

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63. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Examples of directly attributable costs are:

(a) Costs of materials and services used or consumed in generating the intangible asset;

(b) Costs of employee benefits arising from the generation of the intangible asset;

(d) Amortization of patents and licenses that are used to generate the intangible asset.

VPSAS regarding borrowing costs specifies criteria for the recognition of interest as an element of the cost of an asset that is a qualifying asset.

64. The following are not components of the cost of an internally generated intangible asset:

(a) Selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to preparing the asset for use;

(b) Identified inefficiencies and initial operating deficits incurred before the asset achieves planned performance; and

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Recognition of an Expense

65. Expenditure on an intangible item shall be recognized as an expense when it is incurred unless it forms part of the cost of an intangible asset that meets the recognition criteria (see paragraphs 26–64).

66. In some cases, expenditure is incurred to provide future economic benefits or service potential to an entity, but no intangible asset or other asset is acquired or created that can be recognized. In the case of the supply of goods, the entity recognizes such expenditure as an expense when it has a right to access those goods. In the case of the supply of services, the entity recognizes the expenditure as an expense when it receives the services. For example, expenditure on research is recognized as an expense when it is incurred (see paragraph 52). Other examples of expenditure that is recognized as an expense when it is incurred include:

(a) Expenditure on start-up activities (i.e., start-up costs), unless this expenditure is included in the cost of an item of property, plant, and equipment in accordance with VPSAS 17. Start-up costs may consist of establishment costs such as legal and secretarial costs incurred in establishing a legal entity, expenditure to open a new facility or operation (i.e., pre-opening costs), or expenditures for starting new operations or launching new products or processes (i.e., pre-operating costs);

(b) Expenditure on training activities;

(c) Expenditure on advertising and promotional activities (including mail order catalogues and information pamphlets); and

(d) Expenditure on relocating or reorganizing part or all of an entity.

67. An entity has a right to access goods when it owns them. Similarly, it has a right to access goods when they have been constructed by a supplier in accordance with the terms of a supply contract and the entity could demand delivery of them in return for payment. Services are received when they are performed by a supplier in accordance with a contract to deliver them to the entity and not when the entity uses them to deliver another service, for example, to deliver information about a service to users of that service.

68. Paragraph 65 does not preclude an entity from recognizing a prepayment as an asset when payment for goods has been made in advance of the entity obtaining a right to access those goods. Similarly, paragraph 65 does not preclude an entity from recognizing a prepayment as an asset when payment for services has been made in advance of the entity receiving those services.

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69. Expenditure on an intangible item that was initially recognized as an expense under this Standard shall not be recognized as part of the cost of an intangible asset at a later date.

Subsequent Measurement

70. After initial recognition, an intangible asset shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated amortization.

Useful life

71. An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of, or number of production or similar units constituting, that useful life. An intangible asset shall be regarded by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for, or provide service potential to, the entity.

72. The accounting for an intangible asset is based on its useful life. An intangible asset with a finite useful life is amortized (see paragraphs 80–92), and an intangible asset with an indefinite useful life is not (see paragraphs 93–94).

73. Many factors are considered in determining the useful life of an intangible asset, including:

(a) The expected usage of the asset by the entity and whether the asset could be managed efficiently by another management team;

(b) Typical product life cycles for the asset and public information on estimates of useful lives of similar assets that are used in a similar way;

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(d) The stability of the industry in which the asset operates and changes in the market demand for the products or services output from the asset;

(e) Expected actions by competitors or potential competitors;

(f) The level of maintenance expenditure required to obtain the expected future economic benefits or service potential from the asset and the entity’s ability and intention to reach such a level;

(g) The period of control over the asset and legal or similar limits on the use of the asset, such as the expiry dates of related leases; and

(h) Whether the useful life of the asset is dependent on the useful life of other assets of the entity.

74. The term “indefinite” does not mean “infinite.” The useful life of an intangible asset reflects only that level of future maintenance expenditure required to maintain the asset at its standard of performance assessed at the time of estimating the asset’s useful life, and the entity’s ability and intention to reach such a level. A conclusion that the useful life of an intangible asset is indefinite should not depend on planned future expenditure in excess of that required to maintain the asset at that standard of performance.

75. Given the history of rapid changes in technology, computer software and many other intangible assets are susceptible to technological obsolescence. Therefore, it is likely that their useful life is short. Expected future reductions in the selling price of an item that was produced using an intangible asset could indicate the expectation of technological or commercial obsolescence of the asset, which, in turn, might reflect a reduction of the future economic benefits or service potential embodied in the asset.

76. The useful life of an intangible asset may be very long or even indefinite. Uncertainty justifies estimating the useful life of an intangible asset on a prudent basis, but it does not justify choosing a life that is unrealistically short.

77. The useful life of an intangible asset that arises from binding arrangements (including rights from contracts or other legal rights) shall not exceed the period of the binding arrangement (including rights from contracts or other legal rights), but may be shorter depending on the period over which the entity expects to use the asset. If the binding arrangements (including rights from contracts or other legal rights) are conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is evidence to support renewal by the entity without significant cost.

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79. Existence of the following factors, among others, indicates that an entity would be able to renew the binding arrangements (including rights from contracts or other legal rights) without significant cost:

(a) There is evidence, possibly based on experience, that the binding arrangements (including rights from contracts or other legal rights) will be renewed. If renewal is contingent upon the consent of a third party, this includes evidence that the third party will give its consent;

(b) There is evidence that any conditions necessary to obtain renewal will be satisfied; and

(c) The cost to the entity of renewal is not significant when compared with the future economic benefits or service potential expected to flow to the entity from renewal.

If the cost of renewal is significant when compared with the future economic benefits or service potential expected to flow to the entity from renewal, the “renewal” cost represents, in substance, the cost to acquire a new intangible asset at the renewal date.

Intangible Assets with Finite Useful Lives

Amortization Period and Amortization Method

80. The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis over its useful life. Amortization shall begin when the asset is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Amortization shall cease on the date that the asset is derecognized. The depreciation method shall reflect the pattern in which the asset’s future economic benefits or service potential is expected to be consumed by the entity. . If that pattern cannot be determined reliably, the straight-line method shall be used. The amortization charge for each period shall be recognized in surplus or deficit unless this or another Standard permits or requires it to be included in the carrying amount of another asset.

81. A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. A variety of amortization methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. The method used is selected on the basis of the expected pattern of consumption of the expected future economic benefits or service potential embodied in the asset and is applied consistently from period to period, unless there is a change in the expected pattern of consumption of those future economic benefits or service potential.

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(a) In which the intangible asset is expressed as a measure of revenue, as described in paragraph 84; or

(b) When it can be demonstrated that revenue and the consumption of the economic benefits or service potential of the intangible asset are highly correlated.

83. In choosing an appropriate amortization method in accordance with paragraph 81, an entity could determine the predominant limiting factor that is inherent in the intangible asset. For example, the contract that sets out the entity’s rights over its use of an intangible asset might specify the entity’s use of the intangible asset as a predetermined number of years (i.e., time), as a number of units produced or as a fixed total amount of revenue to be generated. Identification of such a predominant limiting factor could serve as the starting point for the identification of the appropriate basis of amortization, but another basis may be applied if it more closely reflects the expected pattern of consumption of economic benefits or service potential.

84. In the circumstance in which the predominant limiting factor that is inherent in an intangible asset is the achievement of a revenue threshold, the revenue to be generated can be an appropriate basis for amortization. For example, the right to operate a toll road could be based on a fixed total amount of revenue to be generated from cumulative tolls charged (for example, a contract could allow operation of the toll road until the cumulative amount of tolls generated from operating the road reaches 20,000 billion dong). In the case in which revenue has been established as the predominant limiting factor in the contract for the use of the intangible asset, the revenue that is to be generated might be an appropriate basis for amortizing the intangible asset, provided that the contract specifies a fixed total amount of revenue to be generated on which amortization is to be determined.

85. Amortization is usually recognized in surplus or deficit. However, sometimes, the future economic benefits or service potential embodied in an asset is absorbed in producing other assets. In this case, the amortization charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the amortization of intangible assets used in a production process is included in the carrying amount of inventories (see VPSAS 12).

Residual Value

86. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless:

(a) There is a commitment by a third party to acquire the asset at the end of its useful life; or

(b) There is an active market for the asset, and:

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(ii) It is probable that such a market will exist at the end of the asset’s useful life.

87. The depreciable amount of an asset with a finite useful life is determined after deducting its residual value. A residual value other than zero implies that an entity expects to dispose of the intangible asset before the end of its economic life.

88. An estimate of an asset’s residual value is based on the amount recoverable from disposal using prices prevailing at the date of the estimate for the sale of a similar asset that has reached the end of its useful life and has operated under conditions similar to those in which the asset will be used. The residual value is reviewed at least at each reporting date. A change in the asset’s residual value is accounted for as a change in an accounting estimate in accordance with VPSAS regarding accounting policies, changes in accounting estimates and errors.

89. The residual value of an intangible asset may increase to an amount equal to or greater than the asset’s carrying amount. If it does, the asset’s amortization charge is zero unless and until its residual value subsequently decreases to an amount below the asset’s carrying amount.

Review of Amortization Period and Amortization Method

90. The amortization period and the amortization method for an intangible asset with a finite useful life shall be reviewed at least at each reporting date. If the expected useful life of the asset is different from previous estimates, the amortization period shall be changed accordingly. If there has been a change in the expected pattern of consumption of the future economic benefits or service potential embodied in the asset, the amortization method shall be changed to reflect the changed pattern. Such changes shall be accounted for as changes in accounting estimates in accordance with VPSAS 3.

91. During the life of an intangible asset, it may become apparent that the estimate of its useful life is inappropriate.

92. Over time, the pattern of future economic benefits or service potential expected to flow to an entity from an intangible asset may change. For example, it may become apparent that a diminishing balance method of amortization is appropriate rather than a straight-line method. Another example is if use of the rights represented by a license is deferred pending action on other components of the entity’s strategic plan. . In this case, economic benefits or service potential that flow from the asset may not be received until later periods.

Intangible Assets with Indefinite Useful Lives

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Review of Useful Life Assessment

94. The useful life of an intangible asset that is not being amortized shall be reviewed each reporting period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite shall be accounted for as a change in an accounting estimate in accordance with VPSAS 3.

Retirements and Disposals

95. An intangible asset shall be derecognized:

(a) On disposal (including disposal through a non-exchange transaction); or

(b) When no future economic benefits or service potential is expected from its use or disposal.

96. The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be recognized in surplus or deficit when the asset is derecognized (unless VPSAS 13 requires otherwise on a sale and leaseback).

97. The disposal of an intangible asset may occur in a variety of ways (e.g., by sale, by entering into a finance lease, or through a non-exchange transaction). In determining the date of disposal of such an asset, an entity applies the criteria in VPSAS 9, Revenue from Exchange Transactions for recognizing revenue from the sale of goods. VPSAS 13 applies to disposal by a sale and leaseback.

98. If, in accordance with the recognition principle in paragraph 29, an entity recognizes in the carrying amount of an asset the cost of a replacement for part of an intangible asset, then it derecognizes the carrying amount of the replaced part. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or internally generated.

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100. Amortization of an intangible asset with a finite useful life does not cease when the intangible asset is no longer used, unless the asset has been fully depreciated.

Disclosure

General

101. An entity shall disclose the following for each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets:

(a) Whether the useful lives are indefinite or finite and, if finite, the useful lives or the amortization rates used;

(b) The amortization methods used for intangible assets with finite useful lives;

(c) The gross carrying amount and any accumulated at the beginning and end of the period;

(d) The line item(s) of the statement of financial performance in which any amortization of intangible assets is included;

(e) A reconciliation of the carrying amount at the beginning and end of the period showing:

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(ii) Disposals;

(iii) Any amortization recognized during the period;

(iv) Net exchange differences arising on the translation of the financial statements into the presentation currency, and on the translation of a foreign operation into the presentation currency of the entity; and

(v) Other changes in the carrying amount during the period.

102. A class of intangible assets is a grouping of assets of a similar nature and use in an entity’s operations. Examples of separate classes may include:

(a) Brand names;

(b) Mastheads and publishing titles;

(d) Licenses;

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(f) Recipes, formulae, models, designs, and prototypes; and

(g) Intangible assets under development.

The classes mentioned above are disaggregated (aggregated) into smaller (larger) classes if this results in more relevant information for the users of the financial statements.

103. VPSAS 3 requires an entity to disclose the nature and amount of a change in an accounting estimate that has a material effect in the current period or is expected to have a material effect in subsequent periods. Such disclosure may arise from changes in:

(a) The assessment of an intangible asset’s useful life;

(b) The amortization method; or

104. An entity shall also disclose:

(a) For an intangible asset assessed as having an indefinite useful life, the carrying amount of that asset and the reasons supporting the assessment of an indefinite useful life. In giving these reasons, the entity shall describe the factor(s) that played a significant role in determining that the asset has an indefinite useful life.

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(c) For intangible assets acquired through a non-exchange transaction and initially recognized at fair value (see paragraphs 42–43):

(i) The fair value initially recognized for these assets; and

(ii) Their carrying amount.

(d) The existence and carrying amounts of intangible assets whose title is restricted and the carrying amounts of intangible assets pledged as security for liabilities.

(e) The amount of contractual commitments for the acquisition of intangible assets.

105. When an entity describes the factor(s) that played a significant role in determining that the useful life of an intangible asset is indefinite, the entity considers the list of factors in paragraph 73.

Research and Development Expenditure

106. An entity shall disclose the aggregate amount of research and development expenditure recognized as an expense during the period.

107. Research and development expenditure comprises all expenditure that is directly attributable to research or development activities (see paragraphs 63 and 64 for guidance on the type of expenditure to be included for the purpose of the disclosure requirement in paragraph 106).

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108. An entity is encouraged, but not required, to disclose the following information:

(a) A description of any fully amortized intangible asset that is still in use; and

(b) A brief description of significant intangible assets controlled by the entity but not recognized as assets because they did not meet the recognition criteria in this Standard.

APPLICATION GUIDANCE

This Appendix is an integral part of VPSAS 31

Website Costs

AG1. An entity may incur internal expenditure on the development and operation of its own website for internal or external access. A website designed for external access may be used for various purposes such as to disseminate information, create awareness of services, request comment on draft legislation, promote and advertise an entity’s own services and products, provide electronic services, and sell services and products. A website designed for internal access may be used to store entity policies and details of users of a service, and search relevant information.

AG2. The stages of a website’s development can be described as follows:

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(b) Application and Infrastructure Development - includes obtaining a domain name, purchasing and developing hardware and operating software, installing developed applications, and stress testing;

(d) Content Development - includes creating, purchasing, preparing, and uploading information, either textual or graphical in nature, on the website before the completion of the website’s development. This information may either be stored in separate databases that are integrated into (or accessed from) the website or coded directly into the web pages.

AG3. Once development of a website has been completed, the Operating stage begins. During this stage, an entity maintains and enhances the applications, infrastructure, graphical design, and content of the website.

AG4. When accounting for internal expenditure on the development and operation of an entity’s own website for internal or external access, the issues are:

(a) Whether the website is an internally generated intangible asset that is subject to the requirements of this Standard; and

(b) The appropriate accounting treatment of such expenditure.

AG5. This Application Guidance does not apply to expenditure on purchasing, developing, and operating hardware (e.g., web servers, staging servers, production servers, and Internet connections) of a website. Additionally, when an entity incurs expenditure on an Internet service provider hosting the entity’s website, the expenditure is recognized as an expense when the services are received.

AG6. VPSAS 31 does not apply to intangible assets held by an entity for sale in the ordinary course of operations (see VPSAS 11 and VPSAS 12) or leases that fall within the scope of VPSAS 13. Accordingly, this Application Guidance does not apply to expenditure on the development or operation of a website (or website software) for sale to another entity. When a website is leased under an operating lease, the lessor applies this Application Guidance. When a website is leased under a finance lease, the lessee applies this Application Guidance after initial recognition of the leased asset.

...

AG8. A website arising from development is recognized as an intangible asset if, and only if, in addition to complying with the general requirements described in paragraph 55 of this Standard for recognition and initial measurement, an entity can satisfy the requirements in paragraph 27 of this Standard. In particular, an entity may be able to satisfy the requirement to demonstrate how its website will generate probable future economic benefits or service potential in accordance with paragraph 55(d) of this Standard when, for example, the website is capable of generating revenues, including direct revenues from enabling orders to be placed, or providing services using the website, rather than at a physical location using civil servants. An entity is not able to demonstrate how a website developed solely or primarily for promoting and advertising its own services and products will generate probable future economic benefits or service potential, and consequently all expenditure on developing such a website is recognized as an expense when incurred.

AG9. Any internal expenditure on the development and operation of an entity’s own website is accounted for in accordance with this Standard. The nature of each activity for which expenditure is incurred (e.g., training employees and maintaining the website) and the website’s stage of development or post-development are evaluated to determine the appropriate accounting treatment. For example:

(a) The Planning stage is similar in nature to the research phase in paragraphs 52–54 of this Standard. Expenditure incurred in this stage is recognized as an expense when it is incurred;

(b) The Application and Infrastructure Development stage, the Graphical Design stage, and the Content Development stage, to the extent that content is developed for purposes other than to advertise and promote an entity’s own services and products, are similar in nature to the development phase in paragraphs 55–61 of this Standard. Expenditure incurred in these stages is included in the cost of a website recognized as an intangible asset in accordance with paragraph AG8 when the expenditure can be directly attributed and is necessary to creating, producing or preparing the website for it to be capable of operating in the manner intended by management. For example, expenditure on purchasing or creating content (other than content that advertises and promotes an entity’s own services and products) specifically for a website, or expenditure to enable use of the content (e.g., a fee for acquiring a license to reproduce) on the website, is included in the cost of development when this condition is met.

(c) Expenditure incurred in the Content Development stage, to the extent that content is developed to advertise and promote an entity’s own services and products (e.g., digital photographs of products), is recognized as an expense when incurred in accordance with paragraph 66(c) of this Standard. For example, when accounting for expenditure on professional services for taking digital photographs of an entity’s own products and for enhancing their display, expenditure is recognized as an expense as the professional services are received during the process, not when the digital photographs are displayed on the website; and

(d) The Operating stage begins once development of a website is complete. Expenditure incurred in this stage is recognized as an expense when it is incurred unless it meets the recognition criteria in paragraph 27 of this Standard.

AG10. A website that is recognized as an intangible asset under paragraph AG8 of this Application Guidance is measured after initial recognition by applying the requirements of paragraph 70 of this Standard. The best estimate of a website’s useful life should be short, as described in paragraph 76.

AG11. The guidance in paragraphs AG1–AG10 does not specifically apply to software development costs. However, an entity may apply the principles in these paragraphs.

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Paragraph of VPSAS 31

Paragraph of IPSAS 31

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Từ khóa: Quyết định 1676/QD-BTC, Quyết định số 1676/QD-BTC, Quyết định 1676/QD-BTC của Bộ Tài chính, Quyết định số 1676/QD-BTC của Bộ Tài chính, Quyết định 1676 QD BTC của Bộ Tài chính, 1676/QD-BTC

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Decision No. 1676/QD-BTC dated September 1, 2021 on issue of 5 Vietnam Public Sector Accounting Standards in the first stage

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Cơ quan ban hành	Bộ Tài chính
Số hiệu	1676/QD-BTC
Loại văn bản	Quyết định
Người ký	Tạ Anh Tuấn
Ngày ban hành	2021-09-01
Ngày hiệu lực	2021-09-01
Lĩnh vực	Kế toán - Kiểm toán
Tình trạng	Còn hiệu lực

Văn bản pháp luật lĩnh vực Kế toán - Kiểm toán

Decision No. 1676/QD-BTC dated September 1, 2021 on issue of 5 Vietnam Public Sector Accounting Standards in the first stage

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