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Measurement After Initial Recognition of Financial Liabilities


Post-initial measurement of financial liabilities

When presenting the Financial Statements, financial liabilities are presented at fair value through profit or loss or presented at amortized cost.

A survey of 82 businesses shows that the measurement status after initial recognition of financial liabilities is as follows:

For short-term and long-term loans, survey data shows that 100% of businesses use the original cost basis.

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During the in-depth interview, 10 experts all said that there is currently no requirement to re-determine the value of financial liabilities, so businesses do not perform this operation. However, in order for accountants to provide more useful information, it is necessary to re-measure financial liabilities.

The survey results of 82 enterprises show that issued bonds are measured after initial recognition as follows: 77/82, accounting for 94% of enterprises, choose the original cost measurement basis; 5/82, accounting for 6%, choose the allocated value measurement basis.

Measurement After Initial Recognition of Financial Liabilities

The survey shows that 100% of businesses use the original cost measurement basis to calculate the initial recorded value of payables to sellers, advances from customers, internal payables, and other payables.

Regarding deposits and collateral, the investigation showed that 80/82, accounting for 98% of enterprises, chose to use the original price measurement basis after the initial recording time; 2/82 enterprises did not give a choice, accounting for 2%.

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100

80

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20

0


Bonds


Advance payment


Receive bets, deposits


Original price Reasonable price

Allocation value Other way

Short term and long term loans

Payable to seller

Internal payables


Figure 3.16 Measurement after initial recognition of financial liabilities


Measuring equity instruments

To study the current status of measuring equity instruments, the author conducted a survey and investigation of 82 enterprises with the following results:

Initial measurement of equity instruments

For common stock, 82/82 accounts for 100% of businesses choosing the initial measurement basis as the issue price.

Of the 82 surveyed enterprises, 81/82, accounting for 99% of enterprises, used the issue price as the basis for initial measurement of preferred shares; 1/82, accounting for 1% of enterprises, used initial measurement of preferred shares at par value.

Among the surveyed enterprises, 100% of enterprises used the initial measurement basis for treasury stock as original price.

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60

40

20

0


Common stock Preferred stock Treasury stock


Issue price Face value

Reasonable price


Figure 3.17: Initial Measurement of Equity Instruments

Post-initial measurement of equity instruments

100% of surveyed enterprises choose the cost method to measure after initial recognition of common stock, preferred stock and treasury stock.

3.2.2.2 Measurement of derivative financial instruments

Initial measurement of derivative financial instruments

According to the survey results of 82 enterprises, for forward contracts, futures contracts, and swap contracts, 100% of enterprises do not measure and record these contracts.

For option contracts in particular, 100% of businesses use the original price to reflect the cost incurred to purchase the option contract.


Post-initial measurement of derivative financial instruments

At the time of reporting, 100% of businesses did not measure the initial position for forward contracts, futures contracts, and swap contracts.

Particularly for option contracts, if the enterprise has to pay the option premium, the value of the option contract is measured at original price.

Derivative financial instruments at surveyed enterprises are mostly not measured, if measured (buying option contracts), then using original price. This does not fully reflect the risks that enterprises are facing when the obligations under derivative contracts have been signed and payment commitments must be made. This violates the principle of prudence.

This needs to be promptly remedied by both policy makers and businesses, who must also actively seek information and raise awareness about measuring derivative financial instruments.

3.2.3 Current status of financial instrument recognition


3.2.3.1 Current status of recording underlying financial instruments

Initial recognition status of underlying financial instruments Time of recognition of underlying financial instruments

Through a survey and study of the current status of recording underlying financial instruments in 82 non-financial enterprises in Vietnam, it was found that: 90% of enterprises responded that underlying financial instruments were recorded at the time the Contract took effect; 10% of enterprises responded that underlying financial instruments were recorded at the time of payment; (Chart 3.19).


Contract effective date: 89%

Payment time: 10%


0 10 20 30 40 50 60 70 80 90 100


Figure 3.18 Timing of recognition of underlying financial instruments


Initial recognition of financial assets

According to data compiled from 10 in-depth interviews: Currently, in enterprises, financial assets are initially recorded according to short-term or long-term circulation periods. 100% of enterprises have not yet recorded financial assets into 4 groups with different purposes of use and different measurement methods. This is very difficult for enterprises when synthesizing data and preparing financial statements because there is no information related to the 4 groups of financial assets.

Initial recognition of financial liabilities

Through in-depth interviews with businesses, it was found that at the initial time, financial liabilities were recorded at the original price stated on contracts, receipts, invoices, etc., classified according to the payment object and the short-term or long-term payment period. Financial liabilities were not recorded according to the measurement method (not divided into financial liabilities measured at fair value and financial liabilities recorded at amortized value).

In the enterprises that the author conducted the investigation, when issuing convertible bonds into shares, the value of the convertible bonds will be recorded in: Liabilities 69/82, accounting for 84%; Recorded in 2 items Liabilities and Equity: 13/82, accounting for 16% of enterprises; (Chart 3.20)


Liabilities and Equity:16%


Equity: 0%


Liabilities: 84%


0 10 20 30 40 50 60 70 80 90


Chart 3.19 Current status of recording Convertible bonds

Thus, in the surveyed enterprises, 84% recorded all convertible bonds in the payables section - this is not true to the nature of the business, distorts the self-financing coefficient index, debt ratio on the Balance Sheet and is not consistent with international practice.


Initial recognition of equity instruments

Through in-depth interviews with Kinh Do Joint Stock Company, it was found that the initial recording of common shares fully reflected information on the par value of shares, the issue price of shares, and the difference between the issue price and the par value of shares. The additional issuance of common shares at Kinh Do Joint Stock Company is shown in Appendix 3.22. The current status of recording equity instruments at the surveyed enterprise.

Through investigation at Petrolimex Import-Export Joint Stock Company, the Resolution of the 2011 Annual General Meeting of Shareholders dated April 26, 2011 approving the issuance of bonus shares to existing shareholders to increase charter capital from the development investment fund was fully reflected by the company, in accordance with the accounting regime (Appendix 3.22).

Among the enterprises surveyed by the author, 76/82 enterprises, accounting for 93%, recorded the value of preferred shares in the Equity section; 6/82, accounting for 7%, recorded in 2 sections: Liabilities, Equity. 0/82, accounting for 0% of enterprises recorded the value of issued preferred shares in the Liabilities section (Chart 3.20)



Liabilities and Equity: 7%


Equity: 93%

Percentage


Liabilities: 0%


0 20 40 60 80 100


Figure 3.20 Current status of recognition of Preferred shares Current status of recognition after initial recognition of underlying financial instruments Post-initial recognition of financial assets

When choosing fair value to present the value of financial assets on the Financial Statements, the difference due to value changes is reflected by the enterprise in the following items:



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80


No adjustment

CL records TC revenue and expenditure CL records in equity

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40


20


0

Foreign currency, gold and silver


Stock Investment


Other TC Investments


Customer receivable


Advance payment


Internal receivables


Figure 3.21 Current status of financial asset recognition

Thus, at the time of reporting, most financial assets are measured at original cost, there is no difference due to value changes, so there is no need to adjust, only foreign currency and gold and silver must be re-evaluated and 56% choose to record financial income and expenditure, 44% choose to reflect in an account in the equity group.

Post-initial recognition of financial liabilities

After initial recognition, financial liabilities are presented at their original cost on the Balance Sheet, so no differences arise due to changes in the value of financial liabilities.

Post-initial recognition of equity instruments

According to the investigation data, after initial recognition, Equity Instruments are presented at cost on the Balance Sheet.

Derecognition of underlying financial instrument Derecognition time

Survey data on the time to stop recording financial assets in 82 non-financial enterprises in Vietnam shows that: 43/82, accounting for 52% of enterprises responded that financial assets stop being recorded when contractual rights to receive money


from expired financial assets; 28/82, accounting for 34% of enterprises answered that financial assets cease to be recorded when the financial assets have been transferred; 11/82, accounting for 14% of enterprises chose both of the above options.

Survey data on the time to stop recording financial liabilities in 82 non-financial enterprises in Vietnam shows that: 51/82, accounting for 62% of enterprises answered that financial liabilities stop recording when contractual obligations have been fully paid; 28/82, accounting for 34% of enterprises answered that financial liabilities stop recording when all obligations stated in the contract have been eliminated or expired; 3/82, accounting for 4% of enterprises chose both of the above options.

According to the survey results at enterprises on the time to stop recording equity instruments: 51/82 enterprises, accounting for 62%, chose the time to return contributed equity capital to owners. 28/82, accounting for 34% of enterprises chose the time when reissuing treasury shares; 3/82, accounting for 4% of enterprises chose both options above.

3.2.3.2 Recognition of derivative financial instruments


Initial recognition of derivative financial instruments


Through the survey, at the initial time, 100% of enterprises had not recorded forward contracts, swap contracts, future contracts in the accounting books. For option contracts, 16 enterprises used option contracts to select account 331 "Payable to sellers" to reflect the paid option purchase fee (Tuong An Vegetable Oil Company...).

According to 82/82 enterprises, derivative financial instruments are only recorded when cash is paid.

Post-initial recognition of derivative financial instruments


Because the initial value of forward contracts, futures contracts, and swap contracts has not been recorded, at the end of the period when preparing the Financial Statements, 82/82 enterprises did not make entries to adjust the fair value of the above financial instruments.


For option contracts, 100% of businesses record at original cost - the option purchase fee was recorded at the initial time, so there is no value difference that needs to be handled.

Stop recording derivative financial instruments


Among the enterprises surveyed by the author, 48/82 enterprises, accounting for 59%, responded that derivative financial instruments stop being recorded at the time the contract expires; 34/82 enterprises, accounting for 41%, responded that derivative financial instruments stop being recorded at the time the contract is fully paid;

Revenue and expenditure arising from derivative financial instruments are recorded by 100% of enterprises in other operating revenue and expenditure.

The current status of recording derivative financial instruments in surveyed enterprises is presented in Appendix 3.23.

3.2.4 Current status of presentation and disclosure of information on financial instruments in non-financial enterprises in Vietnam

Table 3.5 presents descriptive statistics for dependent and independent variables. Table 3.5 shows that the level of presentation and disclosure of information on financial instruments of non-financial enterprises listed on the Ho Chi Minh City Stock Exchange averages 33.49%, the highest is 81.4%, the minimum is 5.7%. Thus, most non-financial enterprises in Vietnam are not ready to provide high-quality information on financial instruments. Therefore, policy makers must actively guide accounting for financial instruments for accounting practitioners to increase trust and improve the quality of information provided to investors.

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