Adjusting Financial Statements Prepared According to Vas to Financial Statements Prepared According to Ifrs

To achieve the highest efficiency, companies first need to implement some of the following general solutions:

Firstly, perfecting revenue and cost accounting and determining business results in accordance with the characteristics of business operations and management requirements of listed pharmaceutical companies in Vietnam: Accounting is one of the effective economic management tools of enterprises. Management must originate from objective reality and must be consistent with the operations of listed pharmaceutical companies, which have many differences from normal commercial business activities; these activities are increasingly complex with expanding customer base and many different needs in transaction relationships. Managers must understand the market situation, diversify and continuously improve the quality of distribution and transaction forms with appropriate policies, and at the same time must monitor different obligations arising in different types of contracts to record revenue appropriately for each customer, each payment method... Always keep statistics of business activity history to have appropriate estimates for types of contracts with performance obligations and values received that are not fixed or subject to additions and changes.

Second, perfecting revenue and cost accounting and determining business results in harmony with international accounting principles, standards and practices: In the current period of integration, openness, economic exchange and extensive investment cooperation, Vietnam's economic interests always go hand in hand with the economic interests of other countries. International business transactions, including the pharmaceutical sector, are governed by treaties, trade practices and trade policies that Vietnam has agreed and signed with countries with bilateral and multilateral trade relations. Trade relations give rise to capital transactions and are governed by accounting principles and standards. Economic integration requires accounting integration. From there, each enterprise also needs to have a plan to move towards applying a system of accounting principles and standards according to international practices, in which a contract-based approach with customers is an important content for listed pharmaceutical companies in Vietnam.

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Third, perfecting the accounting of revenue, expenses and determining business results aims to provide complete, timely, reliable information that is close to the financial situation of the enterprise to the users : For listed pharmaceutical companies, shareholders always require information about the business activities of the enterprise to ensure their investment interests, so the board of directors needs to disclose a lot of information to shareholders to help them grasp the situation of the enterprise and perform the role of monitoring the effectiveness of investments. In addition, there are strict regulations of the stock exchange on full and accurate information disclosure to help protect the interests of investors in particular and the market in general. Meanwhile, information related to revenue and expenses from business transactions is provided by many departments inside and outside the enterprise. Therefore, to complete revenue and cost accounting and determine business results towards providing complete, timely, reliable information that is close to the financial situation of the enterprise, the input information that accountants collect, process and systematize needs to be highly reliable, objective, honest, clear, easy to understand, and fully meet management requirements.

3.2.2. Adjusting financial statements prepared according to VAS to financial statements prepared according to IFRS

Applying IFRS will improve the transparency and reliability of financial information of enterprises, which is a necessary and objective requirement for listed enterprises in general and listed pharmaceutical companies in particular.

However, not all enterprises are ready and qualified to fully apply IFRS. Solutions to improve information systems and human resource quality to ensure the requirements for accounting practice applying IFRS also need a certain amount of time for the unit's accounting apparatus to grasp and master. Therefore, adjusting financial statements prepared according to VAS to IFRS is a useful measure for enterprises to be able to provide more truthful, reasonable and suitable information with international practices, including information on revenue, expenses and business results.

Adjustment method

First, assess the impact of IFRS on corporate financial reporting:

- Overall fundamental differences under the two standard systems VAS and IFRS affect the financial statements of enterprises

- Current status of IFRS application and requirements when adjusting reports from the current VAS system.

- The basic impact of the adjustment on the financial statements on the indicators and items related to revenue, expenses and business results.

Second, identify and quantify transactions that differ between VAS and IFRS.

- Basic similarities and differences in financial statements of the two systems.

- Compare the basic and important standards of the two systems.

- Material issues that differ when adjusting the report.

- Adjusting entries related to revenue, expense and business results items and targets for transactions according to the IFRS standards system.

Note some differences between VAS and IAS/IFRS that affect information on revenue, costs and business results:

- On recording asset value and depreciation

According to VAS and the current accounting regime, the classification of an asset as a fixed asset or a tool or instrument depends on its original cost. According to IAS 16, the classification of an asset as a fixed asset or a tool or instrument depends on the way the enterprise uses the asset.

VAS 03 only allows the revaluation of fixed assets such as real estate, factories and equipment in cases where there is a decision by the State to contribute capital to joint ventures, associations, separations, and mergers of enterprises and the annual asset loss is not recorded. On the contrary, IAS 16 allows enterprises to revalue assets at recoverable value (the higher value between 2 values: Fair value minus selling costs and value in use). Specifically, IAS 16 allows enterprises to revalue fixed assets at the time of reporting and record fixed asset losses as follows: When the valuation increases

Fixed assets, the increased valuation portion is recorded in equity after offsetting all the asset losses recorded as expenses due to the previous decrease in valuation; When valuing fixed assets to record asset losses, the decreased valuation portion is recorded in expenses after offsetting all the amounts recorded in equity due to the previous increase in valuation.

According to IAS 16, when a fixed asset is valued higher, the depreciation corresponding to the increased value will be recorded directly in equity to offset the increased value; when liquidating a fixed asset, the increased value currently recorded in equity will be recorded as an expense. Meanwhile, VAS does not have any regulations on this content.

- On recording property losses

In the context of the widespread epidemic and causing significant damage to the business operations of enterprises, it is difficult to avoid signs of decline in the value of assets recorded in the books of enterprises. IAS 36 aims to ensure that the value of assets reflected in the financial statements of enterprises is not recorded higher than the value that can be recovered through the use or sale of these assets. Once the recoverable value is lower than the book value, these assets are considered to be impaired, at which time the enterprise must calculate and reflect the loss due to this decline in value on the financial statements. The scope of application is to all tangible and intangible fixed assets and financial assets, except for Inventories as prescribed in IAS 02 and some other assets arising in IAS 11, 12, 19, 39, 40, 41, IFRS 04, 05.

Meanwhile, VAS has no regulations related to this issue. The recognition and reflection of long-term assets on the financial statements of Vietnamese enterprises are carried out according to the original cost principle, that is, assets are recorded at original cost minus accumulated depreciation allocated over the useful life of the asset without reflecting any loss from the decline in asset value. This is an important difference to reflect information close to the financial situation.

The business itself, not only with investors but also with business administrators, to build long-term development plans and strategies.

- On recognition of commercial advantages in business consolidation

VAS 11 only requires recognition for the parent company's ownership while IFRS 03 allows the choice of goodwill recognition method for non-controlling shareholders. VAS 11 stipulates that the maximum amortization of goodwill is not more than 10 years, which is inherently inappropriate because the buyer's advantages, such as management level, reputation, and brand of the acquired party may not be lost while IFRS 03 does not allow the amortization of goodwill but instead requires an annual assessment of goodwill impairment.

VAS 11 requires the determination of goodwill as the total value of goodwill arising at each exchange, that is, the net assets of the subsidiary are determined at each exchange and do not require the revaluation of the parent company's previous investments at fair value at the date of control. In a multi-stage business combination, IFRS 3 stipulates that goodwill is only determined once at the date of control, requiring goodwill to be determined on the basis of the net assets of the subsidiary at the date of control and the revaluation of the cost of the parent company's previous investments at fair value at the date of control.

Third, based on the assessment and quantification of the differences between the two systems for the enterprise's financial statements, complete and check and control the newly prepared financial statements according to IFRS standards with the necessary additional information included in the Notes to the financial statements.

3.2.3. Complete revenue accounting for some contracts with customers

3.2.3.1. Contracts with multiple performance obligations

A contract may have multiple performance obligations, each of which will be recognized as revenue separately. Based on determining whether a contract meets the criteria for being a contract accounted for under IFRS 15, an enterprise needs to determine the performance obligations of a signed contract.

with customers as the basis for allocating transaction value and recognising revenue when performance obligations have been performed in accordance with IFRS. At the time of establishing the contract, an enterprise must evaluate the goods or services promised in the contract with the customer and identify each commitment to transfer to the customer:

- A product, good or service (or a bundle of goods or services) that is distinct.

- A series of goods or services that are distinct in nature, that have essentially the same characteristics and are delivered to customers in the same way.

In determining how many obligations to perform in a contract, the enterprise must base on the terms of the contract and the method of transferring products, goods or services. In the case of a contract committing to transfer a series of goods or services with many similarities and the same method of transfer, it is necessary to determine whether it is an obligation to be completed within a period of time (in many periods) or an obligation to be completed at a time. Determining the separate obligations to be performed in the contract and considering whether the obligation is completed at a time or in many periods is the basis for allocating the value of the contract, determining and recognizing revenue from the contract with the appropriate customer.

Next, the enterprise needs to allocate the transaction price to the performance obligations according to the following principles:

- The objective in allocating the transaction price is for the entity to allocate the transaction price to each performance obligation (or distinct good or service) an amount that reflects the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised asset or service to the customer.

- To achieve the transaction price allocation objective, the entity must allocate the transaction price to each performance obligation identified in the contract on the basis of relative individual selling prices.

- To allocate the transaction price to each performance obligation on a relative stand-alone selling price basis, an entity shall determine at contract inception the stand-alone selling price of the distinct good or service of each performance obligation in the contract and allocate the transaction price in proportion to those stand-alone selling prices.

- A stand-alone selling price is the price at which an entity sells a promised good or service separately to a customer. The best evidence of a stand-alone selling price is the observable price of a good or service when the entity sells the good or service separately under similar circumstances to similar customers. The contractual or list price of a good or service may (but must not) be the stand-alone selling price of that good or service.

- If the individual selling price is not directly observable, the entity shall estimate the individual selling price at an amount such that the allocation of the transaction price meets the allocation objective. In estimating the individual selling price, the entity shall consider all information (including information about market conditions, entity-specific factors, and information about the customer or customer group) that is reasonably available to the entity. In making this estimate of the individual selling price, the entity shall make the most of observable inputs and apply the estimation methods consistently in similar situations.

A number of suitable methods for estimating the stand-alone selling price of a good or service are specified in IFRS 15. It may be necessary to use a combination of methods to estimate the stand-alone selling price of the goods or services promised in the contract if two or more goods or services have highly variable or uncertain stand-alone selling prices.

Application to illustration 2.2.1.3.1a

According to the principles of IFRS 15:

- The company's accountants recording the only sales revenue as above is not appropriate, but it is necessary to identify two separate obligations in the contract: providing medicine and warehousing services after the specified time the customer must come to receive.

goods. From there, allocate the value to each obligation on the basis of separate prices, here the selling price of the drug item in the case of normal sales, with the unit price increased by 200 VND/1 day is determined to be the revenue of the warehousing service.

- VAT on the two obligations also needs to be recalculated because these two obligations are subject to different tax rates, specifically 5% for pharmaceutical products and 10% for services.

- Costs for storage obligations will also be recorded as cost of goods sold corresponding to storage service revenue if the accountant has sufficient basis to collect each application, or allocate according to the area of use.

(Details of accounting according to IFRS in the Appendix) Application to illustration number 2.2.1.3.1b:

According to the principles of IFRS 15:

- The company's accounting records the only sales revenue as above, which is not appropriate, but it is necessary to identify two separate obligations in the contract: providing medicine and medicine transportation services to Am Vi Pharmaceutical Company's warehouse. From there, allocate the value for each obligation on the basis of separate prices, here it can be based on separate prices which are the prices of similar medicine sales contracts delivered at the company's warehouse and delivery services calculated separately for transportation of the performed contract.

- VAT on the two obligations also needs to be recalculated because these two obligations are subject to different tax rates, specifically 5% for pharmaceutical products and 10% for services.

- Costs for transportation obligations will also be recorded as cost of goods sold corresponding to transportation service revenue, outsourced transportation costs of VND 2,000,000 will be recorded as cost of goods sold corresponding to transportation service revenue.

(Details of accounting according to IFRS in the Appendix)

3.2.3.2. Contracts with variable payment prices

If the contractually agreed consideration has a variable payment price, the enterprise must estimate the value of the consideration that the enterprise can receive.

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