Theoretical and Practical Basis of Applying Accounting Standards in Small and Medium Enterprises

Enterprises in Vietnam are preparing a roadmap to apply international accounting standards in the coming time.

The research results show 6 factors affecting the application of accounting standards in small and medium enterprises in Gia Lai province. The thesis also reveals the order of the impact of the factors in decreasing order. The impact factors are: Enterprise size, Debt ratio, Business owner awareness, Accountant qualifications, Tax auditor advice and Benefits of applying accounting standards.

In practice :

Firstly, the thesis provides further evidence of a picture of the application of Vietnamese accounting standards after nearly 20 years of implementing the first accounting standards in a province in the Central Highlands. At a time when Vietnam is preparing to change and apply international accounting standards, this research has practical significance, helping strategic planners to have more synchronous preparations and more specific plans so that the implementation and application of accounting standards in the new context are more effective.

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Second: the thesis has built a model of factors affecting the application of accounting standards in small and medium enterprises. In which, the awareness of business owners, the capacity of accountants and the benefits of applying standards are the factors that greatly affect the application of standards. Thereby, policy makers, accounting associations, universities and enterprises have orientations in organizing, implementing and appropriately applying Vietnamese accounting standards, moving towards applying international accounting standards.

6. Thesis layout

The thesis includes:

- The introduction briefly introduces the topic including the reason for choosing the topic, objectives, research questions, objects, scope of the research as well as the scientific and practical significance of the topic.

- Chapter 1: Theoretical and practical basis for applying accounting standards in small and medium enterprises. In this chapter, the author systematizes and analyzes previous studies in the world as well as in Vietnam related to the topic; states

The role of accounting standards in economic development; systematization of Vietnamese accounting standards; characteristics of small and medium enterprises; presentation and comparison of some general aspects between the regime and operating standards in enterprises. On that basis, it points out the research gap that the thesis will focus on solving.

- Chapter 2: Research methods

In this chapter, the author has built a research model and developed hypotheses. Design to measure research variables, methods of data collection and processing.

- Chapter 3: Research results

This chapter focuses on presenting the empirical survey and results of applying accounting standards in SMEs in Gia Lai province. Thereby, analyzing the factors affecting the application of accounting standards in enterprises as well as presenting the limitations and causes.

- Chapter 4: Conclusion and policy implications

Based on the analysis results in chapter 3, the thesis has concluded many related issues in the process of applying accounting standards in small and medium enterprises. From there, it provides some viewpoints and orientations on the application of accounting standards in general, small and medium enterprises in Gia Lai in particular, to achieve efficiency and timeliness with the country's economic development in the new period.

- The conclusion section summarizes the research results and conclusions drawn.

CHAPTER 1: THEORETICAL AND PRACTICAL BASIS OF APPLYING ACCOUNTING STANDARDS IN SMALL AND MEDIUM ENTERPRISES

1.1. Accounting standards and their role in economic development for small and medium enterprises

1.1.1. International accounting standards

International Accounting Standards (IAS/IFRS) are established general principles that regulate issues of measurement and disclosure to users. The first International Accounting Standards (IAS) were issued in 1973 by the International Accounting Standards Committee (IAFC) with 10 member countries. Thanks to the creation of a theoretical framework that ensures comparability, reliability and transparency in the context of increasing globalization, the position and recognition of international accounting standards are increasing. Through a process of continuous updating, supplementation and improvement, the early years of the 21st century witnessed a change with the issuance of International Financial Reporting Standards (IFRS) to replace IAS. Since 2005, many countries in the world have used IAS/IFRS, starting with the European Union, followed by Australia. To date, more than 100 countries in the world have used IAS/IFRS. However, some countries have been slower to integrate with IAS/IFRS, and the benefits of applying IAS/IFRS are still unclear. The globalization of capital markets has had a strong impact on the international integration process of accounting standards. In order to promote the process of accounting integration - in 2001, the International Accounting Standards Board (IASB) was established on the basis of the International Accounting Standards Committee (IASC) but with a tighter and more independent organizational structure. The goal of the IASB is to "form a system of accounting standards that serves the common interest, is high quality, easy to understand and can be applied worldwide; and requires information in financial statements to be clear and comparable to help participants in different capital markets around the world as well as other information users make economic decisions" and "bring about the integration between national standards systems and IFRS".

The international accounting standards system does not have formal mandatory

Formal knowledge, such as: unified reporting forms, unified accounting system, accounting book forms, unified voucher templates. Although providing very detailed definitions, measurement principles, presentation methods and mandatory information to be presented in financial statements, IAS/IFRS does not require the use of common financial reporting forms and accounting systems. IAS/IFRS has a conceptual framework and high consistency among standards. Thus, it can be seen that the promulgation of international accounting standards (IAS/IFRS) creates a unified legal framework for measurement and information disclosure so that enterprises in countries can process and disclose information according to the same standards. That is the way to make accounting information comparable and is the foundation for increasing benefits for users. It is also the basis for facilitating investment capital flows and trade flows between countries in the context of international integration [37].

1.1.2. International financial reporting standards for small and medium enterprises

Currently, countries in the world have great differences in terms of development level and speed, business environment, legal environment, cultural characteristics... These differences cause many difficulties for the process of international trade and investment. Therefore, it is inevitable that the accounting systems of countries are not the same. The accounting systems of countries differ mainly in some points such as the organizations that establish regulations on accounting, accounting principles and methods, the level of detail in accounting regulations, consistency and flexibility in accounting, the issue of recording, presenting and disclosing information in financial statements... Accounting regulations for SMEs are no exception. In recent years, the globalization of economic activities and the rapid development of capital markets have given rise to the need for a set of globally accepted financial reporting standards [111]. Therefore, to shorten the difference in accounting regulations between countries to create a common language for accounting information, the International Accounting Standards Board has issued international accounting standards applicable to enterprises in general (IAS/IFRS) and accounting standards applicable to SMEs (IFRS for SMEs).

The International Financial Reporting Standards (IFRS 1 ) for SMEs was drafted and officially issued by the International Accounting Standards Board (IASB) on July 7, 2009 and took effect in 2010 after a thorough preparation process. However, for this set of standards to come into practice is a process in which professional accountants and professional associations debate to come to the conclusion: is it necessary to issue a separate set of standards? Or should we base on the full set of standards for large enterprises and apply it to SMEs? Recognizing the difficulties that SMEs encounter when building financial statements according to the International Financial Reporting Standards (IFRS), as well as the different users of financial information of SMEs, the International Accounting Standards Board has researched and developed a set of accounting standards for SMEs. To get to the current set of standards, we can review the important milestones in the standards development process.

2000: IASB issued a report on the need for standards development for SMEs;

In June 2004, the International Accounting Standards Board (IASB) published a discussion paper entitled “Key Views on Accounting Standards for Small and Medium-Sized Enterprises” to solicit comments from accounting organizations and experts worldwide. As of September 2004, there had been 121 written comments from major financial, accounting, and auditing organizations regarding the issue of researching and issuing accounting standards for small and medium-sized enterprises. Most of the responses indicated the need to issue a separate accounting standard for small and medium-sized enterprises. However, specific issues have not been proposed. The discussions were primarily concerned with two major questions:

+ Which areas need simplification in measurement and presentation in SMEs?

+ What topics in the IFRS system can be omitted when developing standards for SMEs if they do not occur frequently. If they do occur, can appropriate accounting policies be applied when referring to IFRS?

2005 and 2006: IASB developed a questionnaire to collect opinions on issues of simplification in recognition, measurement and presentation of financial statements in the

1 International Financial Reporting Standards

SMEs;

In February 2007, the draft international financial reporting standards applicable to small and medium-sized entities were published for public comment. In June 2007, the draft standards were piloted with the participation of 116 small and medium-sized enterprises in 20 countries around the world. As of November 30, 2007, there were 162 written responses from financial, accounting and auditing organizations worldwide to the draft standards. This draft provides principles for simplification in accounting work, taking into account the needs of users of financial statements of small and medium-sized enterprises as well as the concern between costs and benefits of accounting information. There are 5 simplification issues as follows:

Firstly, many topics in IFRS will not be reflected in the SME standards because they are not relevant to the operations of SMEs, such as basic earnings per share, interim financial statements, segment reporting. However, in the event that such economic events arise, the provisions in the large enterprise standards set are required to be used.

Second, with respect to accounting policy options, the draft only includes a simpler standard option, but opens up the proposal that SMEs be allowed to choose more complex policies than those reflected in IFRS.

Third, simplify many principles in recording and measuring basic elements such as: assets, liabilities, income and expenses.

Fourth, the problem of information disclosure is significantly less.

Fifth, the standards are written more clearly and are easier to translate into other languages.

other.

Thus, the establishment of financial statement presentation standards for SMEs is important.

marks a milestone in the development of accounting science. The 230-page set of standards is organized by topic, each topic is presented separately in a separate part and divided into 35 sections like that, different from the set of standards for large-scale enterprises which is a combination of both IAS and IFRS. In terms of content, IFRS for SEMs is basically drafted on the basis of international standards (IAS/IFRS), however, there are shortened, reduced or simplified regulations to suit the operating characteristics of SMEs, designed for small companies, focusing on

the needs of lenders, creditors and other users whose main concern is information on cash flows, liquidity and solvency, and at the same time helps to balance benefits and costs in the process of issuance as well as application. Some ways to simplify the provisions of IAS/IFRS when drafting IFRS for SMEs were introduced by the Standard Drafting Committee such as: removing complex contents not related to the operations of SMEs, reducing the choice of accounting policies, simplifying some principles of recognition and evaluation, simplifying the requirements for presentation and disclosure of information, simplifying the language and way of expression. The parts of this set of standards are divided into the following major topic groups:

- Scope of application of the set of standards

- General principles for presentation and measurement

- Basic parts related to financial statement presentation

- Sections related to assets, liabilities, and debts

- Sections relating to investment and business consolidation

- Sections relating to special cases

Although there is much debate about “whether or not” there should be a set of standards for SMEs, the formation of such standards stems from the following basic reasons:

- Increase the comparability of information from financial statements in the decision-making process of investors, lenders and other parties.

- Increase the efficiency of resource allocation and currency valuation

capital

- The benefits of compliance are not only for lenders and contributors

capital that the enterprise itself also has the opportunity to seek capital because it contributes to reducing costs and risk situations related to the enterprise's cost of capital.

- Increase consistency of audit quality, promote accounting training and education.

To build the above set of standards, the information needs of users of financial statements in SMEs are of primary concern along with the consideration of costs and benefits in the process of processing accounting information. The following characteristics can be reviewed in

Standards for SMEs:

- Little attention to information presented in financial statements;

- Pays more attention to short-term cash flow, liquidity, financial statement strengths and interest payment ability. Does not pay attention to long-term forecast information about cash flow and enterprise value;

- The balance between the costs and benefits of information is often considered in relation to the information needs of users.

IFRS for SMEs has had a certain impact on the process of researching and promulgating accounting legal frameworks in countries. Currently, more than 80 countries have applied or announced plans to apply this standard (IASB updated to July 2013), some Southeast Asian countries such as Malaysia, Myanmar, Philippines, Singapore, Cambodia are also among them.

Through the process of applying and clarifying international accounting standards for SMEs, it helps improve comparability, transparency and quality of financial reporting [47][116]. Regarding the application of national accounting standards, most viewpoints agree that the higher the level of application, implementation and compliance with accounting standards, the more reliable the quality of accounting information will be [53], thereby supporting investors' decision making [69][54]. In addition to accounting standards, documents governing accounting work have also been shown to create a legal framework requiring increased disclosure of information, which can help increase the quality of accounting information [113].

Regarding the application of IFRS for SMEs, the impact on SMEs is not consistent. Many studies have noted the positive impact of compliance with IFRS for SMEs. The application of a common set of accounting standards also brings many benefits to users of accounting information. The improved quality of financial statements will help SMEs easily participate in the capital market [69] [51]. The application of accounting standards for SMEs will expand the ability to compare financial information at the international level, expected to promote international trade, enhance the ability to negotiate foreign cooperation agreements, develop partnerships to help SMEs access international markets in the most convenient way, and positively impact credit ratings [61][118].

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