3-1

Objectives
Chapter 2

Identify legal regulations for financial

statements
THE STATEMENT OF
Explain contents and purposes of the
FINANCIAL POSITION AND Statement of financial position
FINANCIAL DISCLOSURES Distinguish btw current and noncurrent
items
Practice to prepare a Statement of
financial position (in simple form)
Explain purposes of financial 2
disclosures
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References Contents

 VAS 21- Presentation of financial 2.1 General Issues

statements
 Circular 200/2014/TT-BTC. 2.2 The Statement of Financial Position
 Textbook
2.3 The Financial Disclosures

3
 3-2

2.1 GENERAL ISSUES 2.1 GENERAL ISSUES

(Applicable for all financial statements)
Legal regulations:
 Vietnamese accounting standard (VAS) 21-
Presentation of financial statements
 Vietnamese accounting Regime - Part 3 -
Financial statements– Circular 200/2014/TT-
BTC/ or Circular 133/2016/TT-BTC / or Circular
132/2018/TT-BTC
(Applicable for all financial statements)
Vietnamese financial statements include:
 Statement of financial position.
 Income Statement (Statement of Profit or Loss)
 Statement of Cash flows
 Disclosure Notes (Notes to the Accounts)

2.1 GENERAL ISSUES 2.1 GENERAL ISSUES

(Applicable for all financial statements) (Applicable for all financial statements)
Clasification of financial statements Limitation for financial statements’ submission,
since the year-end date
 Based on reporting period: Types of business
◦ Year-end FS Quarterly Report Yearly Report
◦ Interim FS Stated-owned
enterprise which is a
45 days 90 days
◦ FS in special cases
parent company
 Based on reporting scale
◦ Separate FS Other Stated-owned
20 days 30 days
◦ FS that synthesize financial statements of branch enteprises
offices (which have no legal status) and financial Sole-trader,
statements of the head office. partnership
30 days
◦ Consolidated FS
Other entities
90 days
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2.1 GENERAL ISSUES 2.1 GENERAL ISSUES

(Applicable for all financial statements) (Applicable for all financial statements)
Type of Places to submit reports  FS may be publicized in the following forms:
business
Financial Tax Bureau Statistics Head Business publication, written publication, Pulic posting,
Bureau Bureau office registration posting on business’ website...
Bureau
 FS are parts of Annual Report that a public
Stated-owned x x x x x company must publicized.
enterprise
 Types of business (other than public company)
Foreign x x x x x only have to publicized their financial
invested statements.
enterprise

Other type of x x x x
business

Slide 12

2.1 GENERAL ISSUES

(Applicable for all financial statements) 2.2 Statement of Financial Position
Reports a company’s financial position on a particular date.
 Financial Statements requirements
◦ Faithful Representation Limitations:
◦ Relevance  The Statement of Financial
Position does not portray the
◦ Verifiable, Understandable, Timeliness market value of the entity as
◦ Consistency, Comparable a going concern nor its
liquidation value.
 Resources such as
employee skills and
reputation are not recorded
in the Statement of Financial
Position.
Usefulness:
 The Statement of Financial
Position describes many of
the resources a company
has for generating future
cash flows.
 It provides liquidity
information useful in
assessing a company’s
ability to pay its current
obligations.
 It provides long-term
solvency information relating
to the riskiness of a
company with regard to the
amount of liabilities in its
capital structure.
 3-4

Slide 13

2.2 The Statement of Financial Position

Elements

Claims against
resources (Liabilities)

Remaining claims
Resources accruing to owners
(Assets) (Owners’ Equity)

Assets are resources controlled by the entity as a result of

past events and from which future economic benefits are
expected to flow to the entity.

Slide 15 Slide 16

Current Assets Operating Cycle of a Typical Manufacturing Company

Cash
Cash Equivalents
Current Short-term Investments 1 Use cash to acquire raw materials
Assets Receivables
Inventories
Prepaid Expenses
2 Convert raw materials to finished
product
Cash equivalents
Will be converted
to cash or -Highly liquid
consumed within
one year or the
investments that can
be quickly converted
3 Deliver product to customer

operating cycle, into cash.

whichever is
longer. 4 Collect cash from customer
 3-5

Slide 17 Slide 18

Noncurrent Assets (Long-term assets) Noncurrent Assets Intangible Assets

Investments
1.
Investments
Not used in the operations of the
©
1. Used in the operations of the
business but have no physical
Property, Plant, & substance.
Noncurrent business.
Equipment 2. Include patents, copyrights, and
Assets 2. Include both debt and equity securities of
Intangibles other corporations, noncurrent franchises.
Other Assets receivables, and cash set aside for 3. Reported net of accumulated
special purposes. amortization.
Not expected to (cost less accumulated
Property, Plant, and Equipment amortization)
be converted to (Tangible fixed asset)
cash or 1. Are tangible, long-lived, and used in the Other Assets
consumed within operations of the business.
1. Include long-term prepaid
one year or the 2. Include land, buildings, equipment, expenses and any noncurrent
operating cycle, machinery, and furniture. assets not falling in one of the
other classifications.
whichever is 3. Reported at original cost less
longer. accumulated depreciation.

Slide 20

Liabilities Current Liabilities

Liabilities are Accounts Payable
present Notes Payable
obligations of
the entity Accrued Liabilities
Current
arising form Unearned Revenues
Liabilities
past events, Current Maturities
the settlement of Long-Term Debt
of which is
expected to
result in Obligations expected to be
outflow from satisfied through current
the entity of assets or creation of other
resources
embodying
current liabilities within one
economic year or the operating cycle,
benefits whichever is longer.
 3-6

Slide 21 Slide 22

Long-term Liabilities

Long-term Notes
Long-Term Mortgages
Liabilities Long-term Bonds
Lease Obligations

Obligations that
will not be
satisfied within
one year or
operating cycle,
whichever is Shareholders’ Equity is residual interest in the assets
longer. of the entity after deducting all its liabilities.

Slide 23

Shareholders’ Equity Practice

Issued
Capital

Retained
Earnings

Treasury shares, capital reserve, translation

reserve and other reserves, and other
comprehensive income items
 3-7

2.2 Statement of Financial Position

2.2 Statement of financial position Assets (Form B-01)
I. Cash and Cash equivalents
 According to Vietnamese Accounting Regime,
II. Short-term financial investments;
the Statement of financial position must be
III. Short-term receivables A. Current
prepared follow forms B-01
IV. Inventories;
Assets
V. Other current assets
I. Long-term receivables
II. Fixed assets
III. Investment property B. Non
Current
IV. Non current asset in Progress;
Assets
V. Long-term financial investment
VI. Other long-term assets;

2.2 Statement of Financial Position C.I. Short- 2.2 Statement of Financial Position
Liabilities (Form B-01) term Liabilities (Form B-01)
Liabilities
10. Short-term loans and financial lease
1. Short-term trade payables
liabilities C.I. Short-
2. Short-term advances from customers
11. Provision for short-term payables term
3. Taxes and amount payables to the State budget
12. Reward and welfare fund
Liabilities
4. Payables to employees (continued)
13. Price stabilization fund
5. Short-term accrued expenses
14. Sales and Repurchase of Government Bonds
6. Short-term intercompany payables
7.Payables according to construction contract progress
8.Short-term Unearned Revenue
9. Other short-terms payables

2.2 Statement of Financial Position
Liabilities (Form B-01)
1. Long-term trade payables
2. Long-term advances from customers
3. Long-term accrued expenses
4. Intercompany payables on capital
5. Long-term intercompany payables
…
2.2 Statement of Financial Position
Owner’s Equity (Form B-01)
I. Equity
1. Paid-in capital
2. Share premium
3. Options for convertible bonds
4. Other owner's capital
5.Treasury shares
3-8
2.2 Statement of Financial Position
Liabilities (Form B-01)
...
C. II. Long-
C. II. Long- 6. Long-term unearned revenues
term
term 7. Other long-term payables
Liabilities
Liabilities 8. Short-term loans and financial lease liabilities (continued)
9. Convertible Bonds
10. Preference Shares
11. Deferred tax liabilities
12. Provision for long-term payables
13. Technology and Science Development Fund
2.2 Statement of Financial Position
Owner’s Equity (Form B-01)
…
D. Owner’s
6. Differences upon asset revaluation equity
7. Foreign exchange differences (continued)
D. Owner’s 8. Development investment fund
equity
9. Assistance fund for enterprise restructuring
10. Other equity funds
11.Retained earnings
12. Capital construction fund
II. Other resources and funds
1. Budget resources
2. Resources financing fixed assets
 3-9

2.3 Publishing information: Disclosure Notes

2.2 Statement of financial position
Contents:
 Note: Assets and Liabilities should be presented
 Operating characteristics of entity.
distinctively
 Accounting period, accounting monetary unit.
XYZ lend 100 mil. from Liability: 100  Accounting Standards and Regime applying by
ABC bank for 3 years mil. the entity.
 Summary of significant accounting policies
XYZ has 20 mil. in  Additional information to other financial
Asset:
ABC checking statements
20 mil.
account  Other information
Assets are allowed to offset against liabilities only if those
items are related to the same objectives, have short time of
maturing, have high turnover and occur from the same type
of transactions or events.

2.3 Publishing information: Disclosure Notes

2.3 Publishing information: Annual Report
Contents (cont.)
Other information: prescribes other substantial  Entities relating to Stock exchange market
information that help users understand that the should public their Annual Report
financial statements have been properly prepared.  Financial Statements are parts of the Annual
◦ Contingent liabilities Report
◦ Financial agreements and other financial information
(such as lending agreements)
◦ Subsequent events;
◦ Related parties transactions;
◦ Segment reporting;
◦ Information changes in previous financial statements...
 3-10

2.3 Publishing information: Annual Report

Appendix 1: Further explanation
Content
 General information Summary of Conveys valuable information
about the company’s choices from
 Operating situation during the period Significant among various alternative
Accounting Policies accounting methods.
 Board of Directors’ Report and Evaluation
 Evaluation of the Board of Management on A significant development that
operating. Subsequent Events
takes place after the company’s
financial year-end but before the
 Coporate Governance financial statements are issued.

 Financial Statements
Transactions or events that are
 Audit report potentially important to evaluating
Noteworthy Events a company’s financial statements,
and Transactions e.g., related-party transactions,
errors, and fraud.

Slide 42 Slide 43

Appendix 1: Compensation of Directors & Top Appendix 1: Management Discussion and

Executives Analysis
Disclosure
 Directors’ remuneration
 Remuneration policies and Provides a biased but
practices informed perspective of
a company’s operations,
 Auditor’s report on remuneration liquidity, and capital
policies resources.
In the U.S., a proxy statement is sent each year to all shareholders,
usually in the same mailing with the annual report.
In Vietnam, information regarding to compensation of members of
the Board of Management and Directors may be included in the
annual report ( part of Corporate Governance)
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Appendix 1: Management’s Responsibilities Appendix 1: Reporting by Operating Segment

Many companies operate in several business

segments as a strategy to achieve growth and to
 Preparing the financial statements and other reduce operating risk through diversification.
information in the annual report.
Segment reporting facilitates the financial
statement analysis of diversified companies.
 Included in annual reports to assert the
responsibility of management and directors Reportable Operating Segment Characteristics

Engages in business activities Operating results are regularly

from which it may earn revenues
and incur expenses.
Discrete financial information is
available.
reviewed by the entity’s chief
operating decision maker to make
decisions about resources to be
allocated to the segment and
assess its performance.

What Amounts Are Reported By An Operating Segment? Segment Reporting

Segment profit or loss, IFRS No. 8 requires an entity to

General information about segment assets, segment Reporting by report certain geographic
the operating segment. liabilities, and the basis of information unless it is
Geographic Area impracticable to do so
measurement.

Revenues from customers

Information About generating 10% or more of the
revenue of an entity must be
Major Customers disclosed.
Reconciliations of the totals of segment revenues,
reported segment profit or loss, segment assets, segment
liabilities and other material segment items.
 3-12

Appendix 2: Auditors’ Report Appendix 2: Auditors’ Opinions

Issued when the financial statements
present fairly the financial position,

Expresses the auditors’ opinion Unqualified results of operations, and cash flows
are in conformity with accounting
standards.
as to the fairness of
presentation of the financial Issued when there is an exception
to the standard unqualified opinion
statements in conformity with Qualified but is not of sufficient seriousness
to invalidate the financial
accounting standards. statements as a whole.

Issued when the exceptions are so

Must comply with the auditing Adverse serious that a qualified opinion is
not justified.
standards of the specific
jurisdictions over which the
Issued when there is insufficient
company operates. Disclaimer information on which to express an
opinion.

Slide 51

Appendix 3: Using Financial Statement

Information
Allow financial statement users to
Comparative Financial compare year-to-year financial
position, results of operations, and
Statements cash flows.
Expresses each item in the
financial statements as a
Horizontal Analysis percentage of that same item in the
financial statements of another
year (base amount).
Involves expressing each item in
the financial statements as a
Vertical Analysis percentage of an appropriate
corresponding total, or base
amount, within the same year.
Allows analysts to control for size
Ratio Analysis differences over time and among
firms.
Appendix 3: Liquidity Ratios
Current assets
Current ratio =
Current liabilities
Measures a company’s ability to satisfy its
short-term liabilities
Quick assets
Acid-test ratio =
Current liabilities
Provides a more stringent indication of a
company’s ability to pay its current
liabilities
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Slide 52

Appendix 3: Financing Ratios

Debt to equity Total liabilities

=
ratio Shareholders’ equity
Indicates the extent of reliance on
creditors, rather than owners, in providing
resources

Net income + Interest

Times interest expense + Taxes
=
earned ratio Interest expense End of Chapter 2
Indicates the margin of safety provided to
creditors, by comparing interest charges with
the income available to pay those charges