fair value in the case of vietnam

i FAIR VALUE IN THE CASE OF VIETNAM BY LE MAI TRANG Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfilment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons OCTOBER 2011 ii DECLARATION OF ORIGINALITY AND WORD COUNT I hereby declare that the graduation project is based on my original work except for quotations and citations which have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other course/degree at Help University College or other institutions. The word count is 10,723 words. ______________________ LE MAI TRANG 17 October, 2011 iii ACKNOWLEDGEMENT This project would not have been made possible without the assistance, support and encouragement of many people. I wish to take this opportunity to thank all the people who have helped me during the time of completing the dissertation. Firstly, I would like to express my deep gratitude to my supervisor Dr. Pham Duc Hieu, International School, Vietnam National University Hanoi. He has kindly helped me and supported me all the way through. For that, I am very grateful. I also would like to extend my special thanks to managers, accountants, my friends, and other people who have help me to carry out the survey. I want to thank them for all their support, interest and valuable hints. iv FAIR VALUE IN THE CASE OF VIETNAM By LE MAI TRANG October 2011 Supervisor: Dr. Pham Duc Hieu ABSTRACT The recent financial crisis has led to various arguments for and against fair-value accounting. These arguments focus on the possibility of applying this accounting method, at the same time challenge the accounting setters to extend the application of FVA in other areas. The financial crisis is the first, and also the biggest, challenge for fair-value accounting ; it also lays the foundation for experimental research on fair- accounting in the coming years, helping researchers and accountants better their understanding on the pros and cons of this method. This paper studies fair-value accounting and investigates the application of fair value in Vietnam companies, from which brings the appropriateness of accounting valuation between Vietnam and international to narrow the gap in the integration process. v TABLE OF CONTENTS DECLARATION OF ORIGINALITY AND WORD COUNT i ACKNOWLEDGEMENT iii ABSTRACT iv TABLE OF CONTENTS v LIST OF FINGURES & CHARTS viii LIST OF ABBREVIATIONS ix CHAPTER 1: INTRODUCTION 1 1.1. Background 2 1.2. Problem statement 3 1.3. Structure of Study 4 CHAPTER 2: LITERATURE REVIEW 6 2.1 Definition and conceptualization of Fair value 6 2.2 Fair value vs. historical cost 6 2.2.1 Argument for and against HC 6 2.2.1.1 Argument for HC 6 2.2.1.2 Argument against HC 6 2.2.2 The argument for and against FVA 6 2.2.2.1 Argument for FVA 6 2.2.2.2 Arguments against FVA 6 2.3 Method to determine the FV 6 2.3.1 Valuation premise 6 2.3.2 Fair Value Hierarchy 6 2.3.3 Valuation Techniques 6 2.4 Practical application of FV in the world 6 vi 2.4.1 FVA in the USA 6 2.4.2 Application of fair value as required in the international accounting standards. 6 2.5 The formation and development of FVA in Vietnam 6 2.5.1 History form 6 2.5.2 In common standard - model theory 6 2.5.3 Comparison between IAS and VAS on FVA 6 2.1. Definition and conceptualization of Fair value 7 2.2.1. Argument for and against HC 9 2.2.1.1. Argument for HC 9 2.2.1.2. Argument against HC 10 2.2.2. The argument for and against FVA 11 2.2.2.1. Argument for FVA 11 2.2.2.2. Arguments against FVA 13 2.3. Method to determine the FV 15 2.3.1. Valuation premise 15 2.3.2. Fair Value Hierarchy 15 2.3.3. Valuation Techniques 17 2.4. Practical application of FV in the world 18 2.4.1. FVA in the USA 18 2.4.2. Application of fair value as required in the international accounting standards 20 2.5. The formation and development of FVA in Vietnam 22 2.5.1. History form 22 2.5.2.1. In common standard - model theory 24 vii 2.5.3. Comparison between IAS and VAS on FVA 26 CHAPTER 3: RESEARCH METHODOLOGY 28 3.1. Research objective 29 3.2. Research Methodology 29 3.3. Data source 29 3.3.1. Secondary data 29 3.3.2. Primary data 30 3.4. Research method 30 3.5. Research tool 31 3.6. Data collection 31 3.7. Limitations 31 4.1. Finding from accountants’ survey questionnaires 34 4.1.1. Description of Respondents’ information 34 4.1.2. Description and Analysis of respondents’ understanding about FV concept 35 4.1.3. Description and Analysis of respondents about FV recognition 36 4.2. Findings from managers & accountants interview 39 4.2.1. Disadvantages and challenge of FV in VN 39 4.2.2. Future of FV in Vietnam 40 CHAPTER 5: CONCLUSION 42 REFERENCES 44 APPENDICES: QUESTIONNAIRE 49 viii LIST OF FINGURES & CHARTS Figure 2.1 List of standards require the use of fair value 22 Figure 2.2 The comparison between IAS and VAS on FVA 26 Figure 4.1 Accountant category 34 Chart 4.1 Description of Result – Question 1 35 Chart 4.2 Description of Result – Question 2 36 Chart 4.3 Description of Result – Question 3 36 Chart 4.4 Description of Result – Question 4 37 Chart 4.5 Description of Result – Question 5 38 Chart 4.6 Description of Result – Question 6 38 ix LIST OF ABBREVIATIONS GAAP Generally Accepted Accounting Principles FASB Financial Accounting Standards Board IASB International Accounting Standards Board IAS International Accounting Standard VAS Vietnam Accounting Standard IFRS International Financial Reporting Standards SFAS Statement of Financial Accounting Standards SEC Securities and Exchange Commission NASDAQ National Association of Securities Dealers Automated Quotations FVA Fair Value Accounting FV Fair Value HCA Historical Cost Accounting HC Historical Cost 1 CHAPTER 1: INTRODUCTION 1.1 Background 1.2 Problem statement 1.3 Structure of study [...]... enhances the role of fair value Lastly, orientation on the use of FV in Vietnam and international practices in the short term as well as long term 1.3 Structure of Study This paper describes a framework of the FV in the case of Vietnam and the effects of using the FVA alter for the historical one Therefore, the research questions will be as the following: 4 - Defined the fair value accounting - What is the. .. way to determine the cost, for initial recognition In the specific accounting standards, fair value is also deal with this feature 2.5.2.2 In the specific standards (1) Definition of fair value in the standards required use of FV are made to define fair value, but the full definition is defined in Accounting Standard No 14 - Revenue and other income, other definition just make mention of assets, but... How to determine FV It does not make mention of how to determine the fair value, except paragraph 24 of Accounting Standard No 4-Intangible Fixed Assets in accounting standards and other documents of the Ministry of Finance: "Fair value could be: - posted price in activity market - Selling and buying price of similar intangible assets If there is no active market for the assets, the cost of intangible... FV in a company‟s financial statements depends in part on what type of institution owns the instrument and the intended use of that instrument For example, in the case of a broker-dealer, a high percentage of its assets typically are traded and must therefore be accounted for at FV Other institutions record financial instruments at FV depending on what their intent is for holding the instrument or the. .. the nature of the business activity 2 In addition to using FV measures to comply with public reporting requirements, business determine their financial instruments at FV for a number of internal processes, including: making investing and trading decisions, managing and measuring risks, determining how much capital to devote to various lines of business, and to calculate compensation The use of FV measurements... financial reporting may not really close to its recoverable, although there are many factors leading to the decline of property values, especially in economic crisis So the direction on determining the fair value accounting in Vietnam enterprises is an essential issue in the current period to clarify the nature of fair value and confirm a new valuation tool for accounting in Vietnam Beside, bring the appropriateness... (NASDAQ) Disclosure of FV - Require disclosure of FV of all financial instruments, the information description of the financial instruments also should be disclosed - Information on fair value should be presented along with its book value - The fair value can be disclosed in the notes or longer present - including a summary of fair value, book value and a table cross-references to other explanations... ownership of units of capital - Fixed assets of finance leasing - Intangible fixed assets formation during the merger business (2) Initial recognition for revenue and other income (3) Initial recognition and reporting monetary items denominated in a foreign currency, or other non-monetary items denominated in foreign currency which was recognized at fair value 23 2.5.2 Fair value accounting standards in Vietnam. .. certain aspects were unique and 17 developed using proprietary information The income approach yielded a value of $15 million In this case the entity should use the income approach (para A19) In another example, an asset group is impaired One of the machines in the group was bought outside but underwent some minor customizations by the entity The best and highest use is determined to be in- use with the. .. determine the FV The following issues should be considered when determining fair value 2.3.1 Valuation premise The valuation premise used to measure the fair value of an asset depends on the highest and best use of the asset by market participants The valuation premise include: Valuation premise of continuous operation or in- use: apply to measure the FV of assets and liabilities such as: continuous business . studies fair- value accounting and investigates the application of fair value in Vietnam companies, from which brings the appropriateness of accounting valuation. FV. Other institutions record financial instruments at FV depending on what their intent is for holding the instrument or the nature of the business