Readiness of IFRS Adoption by Multinational Corporations in Vietnam: A Comparative Case Study

Readiness of IFRS Adoption by Multinational Corporations in Vietnam: A Comparative Case Study Ha Nguyen Duc Phan RMIT University Vietnam, Vietnam Nguyen Thi Phuoc University of Economics Ho Chi Minh City, Vietnam Abstract Purpose – The study aims to document and highlight the benefits and challenges of adopting International Financial Reporting Standards (IFRS) by multinational corporations (MNC) in Vietnam Design/methodology/approach – A case study methodology was used to describe the process of IFRS preparation on the voluntary basis by two MNC in Vietnam, one originates from Europe (where IFRS is fully adopted since 2005) and the other is from the United States (where complies with US GAAP) We employ a theoretical framework that incorporates some elements of the 7P model proposed by Carnegie and Napier (2002) This framework analyses the issues under study in terms of seven dimensions: period, places, people, practices, propagation, products and profession Findings – Although IFRS is not required for foreign owned enterprises in Vietnam, it is recognised as a valuable tool to improve the comparability, transparency, and reliability of financial statements Additionally, many of the problems that hinder the adoption of IFRS are related to institutional factors rather than the technical aspects of the standards itself Several factors are pertinent to ensure the success of IFRS adoption: top management support, simplifying the IFRS implementation process, sourcing suitable IFRS complied accounting software, and finally, ensuring that all affected employees understand and actively support the adoption process Originality/value – The findings have significant implications for Vietnamese accounting standard setters and companies that want to early adopt IFRS The problems highlighted may help companies planning to adopt IFRS by 2020 to better address these issues Keywords IFRS, 7P model, Vietnam, Case studies, MNC Introduction According to Ifrs.org (2017), 125 jurisdictions (83 per cent of 149 countries profiled) require IFRS issued by the International Accounting Standards Board (IASB) for all or most domestic publicly accountable entities (listed companies and financial institutions) in their capital markets Among them are not only industrialised countries but also emerging countries in the ASEAN region with Vietnam such as Cambodia, Laos, Thailand, Malaysia Yet at this stage, Vietnam is one of only nine countries surveyed to be still currently relying on national or regional accounting standards (ifrs.org, 2017) 592 The last decade shows significant developments of accounting in Vietnam During this period, Vietnam has become a member of ASEAN and World Trade Organizations To qualify these membership requirements, the Ministry of Finance (MoF) introduced a series of Vietnamese accounting standards between 2001 and 2005 The development of the Vietnamese accounting standards results from the technical and financial assistance of the World Bank, the Asian Development Bank and the Euro-Tap Viet project (Sarikas, Vu & Djatej, 2009) The objective of this phase was to harmonise the Vietnamese generally accepted accounting practices (GAAP) with the best international accounting practices that are available (Narayan & Godden, 2000) Key milestones during the last decade include:  In 2006, the MoF replaced the old accounting system 1988 with the new accounting system 2006 The main objective of the accounting system 2006 was to align financial reporting requirements with international accounting standards All business organisations incorporated in Vietnam, despite ownership and listing status, are required to comply with this new accounting system  In 2011, the MoF formed the Vietnamese Accounting Standards Board (VASB) and a project team of 44 members were organised to assist the VASB to revise the existing VAS and publish new standards to align with IFRS  In 2013, the VASB proposed six new accounting standards for capital markets and amendments for eight existing accounting standards  In 2014, the MoF replaced the accounting system 2006 with the new accounting system 20014 that brings Vietnamese generally accepted accounting practices closer to IFRS  In 2016, the MoF organised a series of IFRS workshop to obtain feedbacks from Vietnamese accounting academic and practitioners on IFRS adoption approach and roadmap by 2020 The question remains why has Vietnam been so slow to adopt IFRS when compared to the vast majority of developed and developing countries? The participants in a series of IFRS organised by MoF and Stock exchanges in Hanoi and Hochiminh city (Phan, Nguyen & Nguyen, 2016) raised concerns about the familiarity and readiness to adopt IFRS in Vietnam Familiarity is understood in terms of the entity’s knowledge and competence in using IFRS and readiness is defined as the capability for full IFRS implementation This article employs case study method to reflect the state of IFRS familiarity and readiness in reporting practices of MNC in Vietnam for the financial year ended 31 December 2016 Specifically, the study examines the following research questions: What are the factors that drive MNC in Vietnam to adopt IFRS? What are the challenges of IFRS implementation by MNC in Vietnam? What are the potential benefits gained from of IFRS implementation by MNC in Vietnam? The article adopts and builds on 7P framework developed by Carnegie and Napier (2002), based on seven factors of analysis (period, place, professionals, practice, propagation, products and profession) to present a grid of comparative analysis of two MNC presented in the article The research is informed by findings from a series of semi-structured interviews conducted with two Vietnamese accounting managers of two MNC which originated from two different geographic locations and at different IFRS adoption stages This study makes three major contributions to the international accounting literature First, it responds to the call devoted to accounting issues in transitional and emerging market economies for more studies into accounting development in emerging market economies Vietnam, despite being one of the fastest growing economies in the world over the past 15 years and possessing the 14th largest population globally, has largely been neglected in the IFRS literature This nation provides a unique and interesting setting to examine IFRS development given its radical transformation since 1986 from a highly centralised planned economy toward a market economy and it being geographically located amongst many countries that have previously adopted IFRS Second, it builds on Carnegie and Napier (2002) by examining the influence of seven dimensions (i.e periods, places, people, practices, propagation, products and profession) towards widespread of IFRS that can 593 apply in developing countries, especially those with a communist tradition The Carnegie and Napier (2002)’s model emphasizes a developed nation perspective where the role of capital markets and external investor relations are pre-eminent Third, it builds on a gap in the literature by providing evidence sourced directly from senior accounting participants into the factors driving and impeding IFRS adoption Most studies in the area to date, for example, Nguyen & Richard (2011) and Nguyen (2016) are analytical and not utilise primary data in developing their conclusions The remainder of the article is organised as follows The next section provides a summary of prior related research into IFRS adoption, relevant literature of English-language studies on accounting in Vietnam It is shown that in this respect, Vietnam can be regarded as one of the relatively under-researched countries An overview and justification of our theoretical framework and research design for analysing the three research questions is discussed The following section then applies the 7P framework to examine the readiness and familiarity of IFRS adoption of foreign owned companies in Vietnam by comparing the reporting practices of two MNC originated from two different geographically holding companies, one from the United States and the other one from the Europe The article concludes with a discussion of key findings together with study limitations and avenues for future research Literature Review Over the last two decades a considerable amount of literature has been published on the topic of IFRS harmonisation, convergence and the feasibility of a single set of globally accepted accounting standards For the purpose of this article, we highlight the more recent literature that addresses both desirable and undesirable characteristics of IFRS convergence as well as the potential challenges of a smooth IFRS convergence process 2.1 Advantages and Benefits of IFRS By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparison easier Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide Companies also may need to know convert to IFRS if they are a subsidiary of a foreign company that must use IFRS, or if they have a foreign investor that must use IFRS (Ifrs.org, 2017) Proponents of IFRS claim that IFRS possess many advantages over the domestic accounting standards of individual countries The most powerful factor favouring IFRS adoption comes from its effects on capital markets and investors as it offers external investors a common lens to view the market Scholars point out that IFRS perform a much better function of financial reporting and disclosures as compared to the national standards As a result, an investor is able to gain comprehensive and relevant information (Daske & Gebhardt, 2006; Ding et al 2007) thus, facilitating cross-border investment (Lee & Fargher, 2010) and integration of capital markets (Saudagaran, 2008) In light of the IFRS effects on the capital market, the promoters of IFRS often argue that companies could access the international capital market more easily (Christensen, Hail & Leuz , 2011), especially the ones with high levels of internationalization such as trading or raising funds in overseas markets (Daske et al 2013) Besides, other several studies report improvements in accounting quality following voluntary IFRS adoption (Barth, Landsman & Lang, 2008) as well as mandatory IFRS adoption (Daske et al 2008) For example, Barth, Landsman & Lang (2008) provide evidence from 21 countries showing that firms applying international accounting standards generally had less earnings, more timely loss recognition and more value relevance of accounting amounts than others Prior researchers provided many reasons for a higher accounting quality in financial statements under IFRS; they were originally designed for developed capital markets and, therefore, more relevant to investors (Ball, 2006), they reduce the alternative 594 accounting methods, leading to lower earnings management (Jeanjean & Stolowy, 2008), they require higher quality measurement and recognition rules (De Franco, Kothari & Verdi ,2011) that better reflect a firm’s underlying economic position, hence, more transparent than local GAAP (Ding et al 2007), they require standardization of accounting principles around the world, so it will result in greater comparability of financial performance (Joshi, Bremser & AL-Ajmi, 2008), they require higher disclosure levels, thereby mitigating information asymmetries between firms and their shareholders (Healy & Palepu, 2001) In addition, there are also the intangible advantages that adopting firms might be able to benefit from when they implement additional disclosure policy under IFRS (Florou & Pope, 2012) For example, the firm may more easily access capital markets (Soderstrom & Sun, 2007), charge a higher price for products (Ray 2010), and attract more experienced staff (Naoum, Sykianakis & Tzovas, 2011) thanks to the reputation of more transparency than their competitors (Fox et al 2013) In the same line of argument, previous researchers reported that “serious” IFRS adopters experienced significant declines in their cost of capital and substantial improvements in their market liquidity compared to ”label” adopters (Daske et al 2013) Accordingly, it is predicted that the IFRS related effects for first-time adopters are likely to be greater in countries with higher quality institutions and countries with levels of higher divergence between domestic GAAP and IFRS (Ding et al 2007) 2.2 Disadvantages and Costs of IFRS Despite a belief by some of the inevitability of the global acceptance of IFRS, others believe that U.S GAAP is the gold standard, and that a certain level of quality will be lost with full acceptance of IFRS Further, certain U.S issuer without significant customers or operation outside the United States may resist IFRS because they may not have a market incentive to prepare IFRS financial statements They may believe that the significant costs associated with adopting IFRS outweigh the benefits (ifrs.org, 2017) There are several reasons why the expected benefits of IFRS may not be achieved Reducing accounting alternatives may result in a less true and faithful representation of the firms’ underlying economics (Barth, Landsman & Lang, 2008) As a result of the principle-based nature of IFRS (Hong, 2008), professional judgment may create the opportunities for earnings management (Jeanjean & Stolowy, 2008) Weak enforcement mechanisms of adopting nations can reduce financial reporting quality, even when high quality accounting standards are implemented (Brown & Tarca, 2007) Furthermore, capital market effects of IFRS are more pronounced in countries with stricter enforcement regimes and, therefore, better IFRS implementation (Hail & Leuz, 2006) Wang & Yu (2009) and Leuz (2006) showed that capital market effects were also apparent when stronger reporting incentives and, thus, higher quality financial reporting were evident A higher divergence between IFRS and local GAAP, and therefore, larger change of domestic accounting rules (Byard, Li & Yu, 2010; Daske et al 2008) are also relevant factors Regarding the capital market effects, some scholars suggest that the introduction of IFRS reporting can improve stock market liquidity (Narayan & Zheng, 2010) and reduce cost of capital (Li, 2010) although some others argued that this may not always be the case (Armstrong et al 2010; Hail & Leuz, 2009; Lambert, Leuz & Verrecchia ,2007) In addition to the potential disadvantages, some scholars also expressed concerns regarding the costs of transitioning to IFRS Smith (2009) indicated that transition costs may vary from firm to firm and some may be common to all firms across many countries For example, according to the report “EU implementation of IFRS and the Fair Value Directive” (ICAEW, 2007), the ten common costs of conversion to IFRS include: (1) IFRS project team, (2) software and systems changes, (3) additional external audit costs, 595 (4) external technical advice, (5) training of staff, (6) training other staff (such as IT staff, internal audit and management), (7) communications with third parties, (8) tax advice, (9) additional external data costs, (10) costs arising from changes such as renegotiating debt covenants Surveys of accounting firms (Larson & Street ,2004) unveiled that most companies hire extra staff or use sub-contractors for IFRS project teams, therefore, the real costs of resources could be higher than the reported figures The survey results in ICAEW (2007) also observed that, depending on the size of the company, the ranking of the cost of preparing the first set of IFRS financial statements and recurring costs varies depending on the size of the firm and these costs can represent up to 24 per cent of turnover Additionally, Kim et al (2012) find that the increase in accounting complexity after IFRS adoption leads to higher auditing costs Despite some costs of IFRS implementation being obvious such as those discussed in ICAEW (2007); Fox et al (2013) argued that other costs are less tangible and provided examples of these intangible costs occurring when: disclosures create concern with investors about the abilities or reputation of the reporting firms disclosed information supplies other firms with competitive advantages In summary, the key arguments in favour of IFRS adoption focus on the effects on capital and investors; and the less favourable arguments give emphasis to the costs occurring during and after the transition period Though the evidence of economic consequences of IFRS implementation in the literature is mixed and inconclusive, there is a growing demand for IFRS and potentially a single set of global accounting standards 2.3 Challenges of IFRS Implementation The move to a new reporting system (like IFRS) brings many challenges for different stakeholders involved in the process such as regulators, preparers, auditors and users In particular, the challenge for regulators is to identify to what extent the national GAAP will be similar or distant from IFRS (Heidhues & Patel, 2008) This, in turn, requires the practitioners to develop or obtain an in-depth analysis of what changes in hardware, software and reporting processes are required; and what transitional work-load additions to the normal dayto-day activities (AICPA, 2011) Managing public perceptions around the changes in financial statements are another challenge for the management of adopting firms (PWC, 2011) From the perspective of auditors, they need to plan well so that their professional staff have the necessary skills at the time their clients begin the process of conversion but not so early that the knowledge is out of date or forgotten due to lack of use (Iasplus.com, 2008) Furthermore, Jermakowicz (2004) listed some key challenges in the process of adopting IFRS including; (i) the complicated nature of some standards of IFRS (e.g., impairment test in IAS 36), (ii) the lack of guidance of first-time IFRS reporting (e.g., IFRS 1); (iii) the under-development of capital markets, (iv) the weak enforcement of law and regulations Tokar (2005) added that for a country that has a different official language other than English, timely IFRS translation into the national language is another obstacle during the transition period The task of implementing IFRS is further complicated by the fact that IFRS are continually evolving (Fox et al 2013) Besides, Joshi, Bremser and Al-Ajmi (2008) highlighted that there will be challenges in applying the IFRS principles-based accounting standards to specialized accounting transactions and unique organisation, so these challenges make it more difficult for a smooth transition to a status of full compliance under IFRS Additionally, Ball et al (2013) studies that fair value accounting can reduce the verifiability and reliability of accounting numbers, causing financial covenants to be less effective under IFRS André, Filip & Paugam (2015) furthermore reported that there is a decrease in conditional conservatism after the mandatory adoption IFRS 596 Several authors have also expressed their concerns about how IFRS will be taught to students and how professionals will keep up to date with new standards (Heidhues & Patel, 2008) Education for both professional and non-professional resources also then becomes an important barrier for making IFRS convergence with national accounting standards happen Conceptual Framework This section presents the framework for the study We chose a framework derived from the 7P model of Carnegie and Napier (2002) The authors developed seven factors that are useful to comparative international studies including period (1), place (2), people (3), practices (4), propagation (5), products (6), and profession (7) These factors are particularised for the case study of MNC in Vietnam This approach employed by the researchers aim to underline the characteristics of an accounting system in transition from local accounting standards to the more accepted international accounting standards In order to provide an overview of the main features of our comparative analysis, we have summarised the seven dimensions under Carnegie and Napier (2002) framework in Table Table - Seven dimension framework Dimension Meaning US company European company Periods Key turning points to IFRS convergence and/or adoption IFRS convergence since 2002 IFRS full adoption since 2005 Places Selecting location(s) where accounting practices changes significantly over the period of study Vietnam(local office) Malaysia(Asian regional office) US (head office) Vietnam (local office) Germany (head office) (There is no regional office in Asia.) People Accounting personnel and those who involve in preparing financial statement of the group in local subsidiary Accounting personnel in Vietnam (local), Malaysia (regional) and the US (global) Accounting personnel in Vietnam (local) and Germany (global) Practices Evidence of financial reporting and understanding of what they include and exclude; and the processes US GAAP, VAS IFRS, VAS Propagation Preparation process for IFRS adoption Familiarity with; and readiness to IFRS adoption Familiarity with; and readiness to IFRS adoption Products the object of regulation or an outcome that it delivers to its stakeholders Accounting policies, accounting procedures, financial statements Accounting policies, accounting procedures, financial statements Profession The changing role of IFRS towards developing accounting occupational groups IFRS training IFRS training Source: Authors 597 Research Design 4.1 Research motivation The objective of this study is to examine the readiness of IFRS implementation in Vietnam by examining two multinational corporations (MNC) in Vietnam which originate from different geographic regions MNC was listed among the sources of pressure that cause the widespread of IFRS across the globe The MNC represent a variable of the economic environment of each country through foreign direct investment Multinational companies prefer it to get involvement in projects for improving processes, controlling methods and tools, putting visible pressure on the accounting regulators through the voice of these accounting practices For example, the four biggest accounting firms (Deloitte, Ernst & Young, Pricewatercoopers, KPMG) have a client database that largely represents these multinational corporations These are true exponents of international accounting convergence, owing both to significantly savings of training personnel and preparing financial statements costs Our sample select MNC as these companies have most underlying economic reasons to early adopt IFRS From the perspective of MNC, benefit of adopting the IFRS are various such as enhanced comparability, transparency of reporting, potential capital raising cost savings However, before MNC can realise cost savings, transition costs from the current reporting practices toward new IFRS reporting practice may be significant The transition costs include preparation, certification, dissemination of reports and opportunity costs Businesses are expected to change their accounting software, revise accounting processes, update documenting system, provide technical training to current staff, recruit new staff or hire consultants with IFRS expertise to assist during the transition period We engage the case study approach which the MNC companies take to conversion, the impact of adopting IFRS on the financial statements, and the perceived benefits and challenges of implementing IFRS The topic is timely because the trend of IFRS adoption is growing In addition to mandatory reporting, voluntary reporting under IFRS is expected to increase significantly for companies from emerging economy seeking to raise capital in international markets 4.2 Research methods Choice of research method is important and subject to the research aims, the environment and conditions to conduct research Case study research method was defined as an empirical research investigating a contemporary phenomenon within its real-life context (Yin, 2002) Given the aim of this study is to describe the readiness of IFRS implementation in Vietnamese businesses, case study method was chosen to directly provide evidence for the research questions We gathered data from two MNC in Vietnam with different geographical background One is a company originates from Europe where IFRS has been fully adopted since 2005 (hereinafter being referred as the EC) The other is a company originates from the United States which complies with the US GAAP (hereinafter being referred as the UC) Data were collected through a subset of the questions included in an electronic mail survey, following by semi-structured interviews with key personnel involved in the financial report preparing The face-to-face interviews lasted on average about one hour per visit Altogether, two visits per company were made The information collected from the interviews was validated and supplemented with public documents such as annual reports, company websites and news from or press releases Additionally, the company’s internal documents such as VAS-based and IFRS-based accounting figures and/or financial reports were viewed during the visits to the companies Our study investigates the approaches that companies take in the conversion process The MNC, subject to the regulation of the headquarters, can prepare financial 598 statements under the national accounting standards of each subsidiary and then convert them all to IFRS Alternatively, the MNC can implement IFRS in the accounting process across the entire organization Findings 5.1 FRS readiness in US company (UC) 5.1.1 Company background The UC, being a subsidiary of a major US corporation, has had the license to operate in Vietnam since 2006 The factory which was built in 2007 is called ATM – Assembly, Test, Manufacturing Its main operating activities include assembling and evaluating electrical products The UC is considered one of the large size foreign invested companies in Vietnam with capital contribution of approximately one billion US dollars The UC is located in the high-tech park of Vietnam and employs about 1,000 employees, most of those are technician, with very limited personnel for supporting functions such as accounting and office administrations The accounting functions of the UC group include three hierarchies The highest hierarchy is named global financial and accounting service division This division manages all accounting systems of the group and is led by the UC Group Controller The second hierarchy involves two shared service centres operating under centralised accounting procedures in the US All accounting transactions of the UC group are processed by the two shared service centres located in Costa Rica and Malaysia Malaysia centre is account for all transactions from Asia and Europe whereas Costa Rica centre is responsible of North America areas The shared service centres operate as accounting firms to serve only subsidiaries from the UC group Finally, the lowest hierarchy is a local accounting department where the subsidiaries are located There are total eight employees to service the accounting functions of the Vietnamese UC subsidiary, in which four are based in Vietnam and others are based in the regional office in Malaysia The four staff in Vietnam are responsible for local taxation and reporting under VAS The staff in the regional Malaysian office takes care of group consolidation and reporting activities under US GAAP Vietnam accounting department is treated as an internal customer by the Malaysia shared service centre All accounting data from Vietnam are entered into the centralised accounting system named SAP 5.1.2 Motivation factors to adopt IFRS In line with the IFRS convergence project by the Financial Accounting Standards Board (FASB) in the US, the UC holding company set up a new global IFRS accounting office with eight staff taking care of all global IFRS related matters in parallel with the operation of global US GAAP office for consolidation purposes However, since the US has postponed its IFRS adoption plan, the IFRS accounting office has downsized to only two staff with roles changing from reporting to providing advice for accounting department of subsidiaries who are required to report under IFRS Since the UC Group has its head office in the US and report under the US GAAP, it is expected that all subsidiaries of the UC group comply with the US GAAP However, the UC subsidiary based in Vietnam actually reports to the UC regional office in Malaysia and complies with IFRS This reporting practice is similar for other subsidiaries in Asia such as Hong Kong and Singapore where IFRS is fully adopted 5.1.3 Preparation process of IFRS adoption Initially, the UC group set up the IFRS accounting office with the anticipation that the US would replace US GAAP with IFRS So, any local subsidiaries, including the one in Vietnam does not have to deal with the transition The shared service centres will take care all the transitioning activities and conversion tasks of the local subsidiaries since they are centralised and possess many IFRS experts If there is a localised requirement 599 for local taxation and reporting purposes, the subsidiaries can leverage the support from the group shared service centres and contribute minimally to the accounting process The step-by-step instruction for the first time conversions from local GAAP to IFRS are written in the ‘IFRS Playbook’ - the UC in-house IFRS guidelines 5.1.4 Challenges of IFRS adoption The manager of UC Vietnam confidently commented that there will be limited challenges for UC to convert from VAS to IFRS If there is any problem at all, that will be the common problems that all the reporting entities in Vietnam need to face including (1) translation issue; (2) training cost, (3) interpretation issue According to the UC Vietnam accounting manager, translation is the biggest challenge for IFRS adoption in Vietnam It is because IFRS was originally issued in English and there is no official IFRS translation version to date Accounting department of the UC has to translate IFRS to Vietnamese for internal use It is no doubt that this in-house translation may not be totally accurate and truly express the meaning and intention of the standards In addition, IFRS is principle-based so it can be interpreted differently To ensure the consistent understanding, the UC manager urges the MoF to publish the official translated version of IFRS into Vietnamese and provide the guidance how to convert from VAS-complied reports to IFRS-complied reports The second challenge, interpretation, is also related to the translation issue above There is no exact equivalent correspondence of concept between different language-culture For example, there is no one-to-one Vietnamese term for the accounting concepts such as ‘fair value’, ‘share-based compensation’ and so on In addition, the Vietnamese accountants get used with rules-based concepts in VAS and are not so familiar with the principle-based concepts which require professional judgements in IFRS The UC Vietnam manager concluded “it will take years to change DNA, a generation to switch the mindset of Vietnamese accountants” The least challenge of IFRS implementation, according to the UC Vietnam accounting manager, is training cost for accounting personnel This training are critical and will cost UC Vietnam significantly because none of its current Vietnamese accounting staff possess the required IFRS knowledge and skills except one Vietnamese staff who learned IFRS through ACCA program However, all the staff in the shared service centres in Malaysia are well-equipped with IFRS knowledge and extensive IFRS complied reporting experience The Malaysian staff, at any time, can support the Vietnamese staff for IFRS-based reporting requirements Therefore, from the viewpoint of the UC accounting manager, training cost is not a major issue for UC Vietnam as the corporation will be willing to invest in their human resources since the UC group already have guidance and compliance procedures in place 5.1.5 Benefits of IFRS adoption The UC Vietnam accounting manager strongly believes that there are only benefits and no disadvantages at all for the company if Vietnam moves towards a full IFRS adoption Actually, the adoption will create benefits for UC Vietnam including saving cost of reporting; improving the transparency and comparability of its financial statements The UC Vietnam accounting manager expressed “the lesser the rules, the lesser the problem IT will be more centralized and it is easier to manage the tasks.” Furthermore, the UC Vietnam does not any influence to the Vietnamese standard setters if Vietnam continues with VAS However, if Vietnam fully adopts IFRS, the UC Vietnam accounting manager believes that, the UC Group “join the voice with the globe to ask for standard amendments” if the standards are of disadvantages to them 5.2 IFRS readiness in European company (EC) 5.2.1 Company background 600 The EC Vietnam is fully foreign-owned by German investors The company’s field is precision engineering in textile industry, specialising in manufacturing mechanical parts for textile machines and sewing machines, such as industrial weaving needles or sewing needles The factory in Vietnam is one of seven factories around the world of the corporation and only focuses on producing and exporting, with no domestic consumption On 31 December 2016 the group of companies had nearly 7,700 employees, of which 2,010 worked at the headquarters in Germany The EC Vietnam is using SAP, software for both accounting and management purpose Currently the accounting department is small with four employers, a manager who takes charge and the other three the booking account Because the SAP software is quite advanced so accountants not have to carry out the traditional booking meaning not all accrual transactions are returned to accounting department for booking The internal reporting system of the EC Vietnam is divided into two types of report One type of financial reporting is prepared for the corporation parent based on German GAAP accounting standards, which are almost identical with the standards of international financial reporting (IFRS) The other type of financial reporting is prepared for the Ministry of Finance based on the Vietnamese Accounting Standards (VAS) The interview was conducted with the accounting manager of EC, who is in charge of a small team of four members 5.2.2 Motivation factors to adopt IFRS As a member state of the European Union, Germany is subject to the IFRSs Regulation adopted by the European Union in 2002 Hence EC company is required to prepare consolidated financial statements at its headquarter in Germany The subsidiary in Vietnam use SAP software to prepare financial reports which are consistent with those of the parent in Germany 5.2.3 Preparation process of IFRS adoption According to the accounting manager of the EC Vietnam, there is not a necessary preparation process to adopt IFRS as the infrastructure from the parent company has existed for IFRS The accounting department is compact and willing to fully comply with IFRS 5.2.4 Challenges of IFRS adoption The EC Vietnam seems quite ready to adopt IFRS There is only one problem which is training cost Accounting employees should be trained about IFRS In terms of HR, they also need to update a bit because currently when handling daily vouchers, the operation is still based on Vietnam accounting and tax basis Also they need have to attend some training courses to keep update with the change in IFRS on a daily basis because the software is available but booking operation is still done manually 5.2.5 Benefits of IFRS adoption During the interview, the accounting manager of the EC Vietnam discussed in length the inconveniences of having to prepare two types of financial reporting at the same time The accountants at EC enter every data to SAP because of the consistency However they are not allowed to use Excel or assert manually because they have to change the whole technical system When they describe that this report is prepared according to the Vietnamese standards, the German accountants are confused because they are not able to understand the differences For example, although it is the same transaction but if they use the German GAAP, they would have a different value from the one with VAS And at the end of a year, they have to convert them into local reports manually although they had the SAP software In addition, the accounting manager elaborates “I'm having quite as much trouble when exporting accounting reports or bookings based on VAS Fortunately, thanks to Circular 200, it is much more open for us but anyways, the difficulties are still there For instance, on the SAP system, we are using German accounts but not Vietnamese ones Hence, when following the VAS, 601 we have to merge one German account into a Vietnamese one but usually, the ratio is not 1:1 To be more clarified, German accountants often have only account when this is to accounts for us” German accountants usually use cost centres for managing costs instead of dividing to several accounts like management costs, business costs or production costs or sale costs They only use cost centre, and their accounts are just about the nature of the costs only, for example the salary accounts can be divided into two groups: direct employees and indirect employees In contrast, Vietnamese accounts are divided into direct labour costs, general manager costs, management department costs, and sales department costs Hence, Vietnam has four accounts but Germany only has two accounts However, they use their cost centres to split up to departments So when they build up P&L reports based on VAS, there are plenty of difficulties for the accountants in Vietnam as this can make tax officers or auditors impatient However it is impossible for them to transfer all data from German GAAP to VAS because it is very time-consuming and even meaningless for their business So the only solution for them is to make footnotes to German accounts as it is equivalent to what in Vietnam Sometimes, the tax officers are not satisfied as they think companies in Vietnam should follow the Vietnamese laws As a result, accountants at EC Vietnam had to make reports based on VAS As the accounting manager of the EC Vietnam put it, “I think the biggest factor also the biggest target for our company is to report in one language using one software My company already had everything available Our original system is based on German GAAP and when it is granted, I will use it for making a local report” The manager of the EC also mentioned that if the company can change to IFRS, the entire infrastructure is ready for it, because the enterprise platform is on IFRS Obviously, it will be more cost saving for the company and more transparent for the investors if the subsidiary in Vietnam adopts IFRS Discussion This section presents the status of IFRS adoption by MNC in Vietnam It describes how two MNCs from the US and Europe are familiar with and ready to adopt IFRS we employed the 7P framework developed by Carnegie and Napier (2002) as discussed above (1) Periods The first factor periods represent the financial year ended 31 December 2016 The periods also imply the year of 2002 when the US started the IFRS- US GAAP convergence project and the year of 2005 when IFRS was fully adopted by all members of the European Union (2) Places The second factor places include Vietnam, Malaysia, Germany and the US Vietnam is where the two MNC subsidiaries are geographically located in South East Asia (SEA); Malaysia is the regional office for all the subsidiaries located based in SEA; and Germany and the US are the locations of the global head offices (3)People The third factor people represent different personnel involved in the accounting functions which mainly include the local, regional and global accounting departments The people factor also includes the MoF (Vietnamese accounting regulators) and the IASB (IFRS setting bodies) (4)Practices The fourth factor practices refer to the application of accounting principles by the accountants in financial reporting In this study, we distinguish between the two sides of practices, on the one hand, VAS (the local accounting standards) and on the other hand, US GAAP and IFRS (the global accounting standards) (5) Propagation The fifth factor propagation implies to what extent IFRS are applied by the accountants As a key analysis factor, the propagation highlight in our study the familiarity and readiness of the two MNC in Vietnam in 602 implementing IFRS Under current conditions, IFRS are perceived as a single set of global accounting standards possessing high quality reporting characteristics such as comparability, transparency and reliability (6) Products The sixth factor products may be seen as the object of regulation or an outcome that it delivers to its stakeholders However in this article, we consider products include accounting policies, accounting procedures, accounting systems, financial statements and all other instruments that are relevant to the reporting practices (7) Profession The seventh factor profession describes to what extent does IFRS adoption influence on the development of the accounting occupational groups through technical training and updates On the basis of the above, one may conclude that both UC and EC are ready to adopt IFRS For example, at the UC Vietnam, its holding company has already set up an IFRS office which creates IFRS guide book to record all steps and best practices taking places from the process of converting financial statements from local GAAP to IFRS by its subsidiaries around the world The IFRS office is centralised to support and provide guidance to first time adopter such as the UC Vietnam The UC group also has the shared service centre located in Malaysia to look after the financial reporting requirement under IFRS of the UC Vietnam if the Vietnam subsidiaries not have sufficient human resources Moreover, the UC Group has more 200 subsidiaries over the world and most of subsidiaries already complied with IFRS under their own jurisdictions Therefore, both the UC Group and the UC Vietnam strongly support the plan to convert from VAS towards IFRS On the other hand, as a German subsidiary based in Vietnam, the EC Vietnam is already ready for a full IFRS adoption although it may incur some training cost for its accounting staff The benefits will outweigh the cost because the parent company in Germany have fully adopted IFRS under its own jurisdiction Conclusion From the two case studies of the UC Vietnam and the EC Vietnam, it appears that IFRS adoption will create benefits outweighing the cost of IFRS conversion Overall, both companies believe IFRS adoption reduces their cost of preparing two different sets of financial reports (one complied with VAS for taxation purpose and the other complied with IFRS for consolidation purpose with their parent companies) Thus the accounting managers perceive IFRS will provide substantial reliability, comparability, transparency benefits to the companies Given the benefits that they may gain, the UC Vietnam and the EC Vietnam provide their full support the intention of Vietnamese regulators to fully adopt IFRS The implications of this study appear to be not only relevant solely to MNC in Vietnam but also to other emerging economies The findings of this article provides meaningful insights on the strong support of foreign owned companies, hence contributing to the literature of IFRS adoption in country with similar institutional setting as Vietnam It is hoped that the experiences shared by these two MNC could provide some valuable lessons for other companies to prepare for IFRS conversion One limitation of our study is that the data collected was primarily provided by managers We were not able to perform a crosscheck by interviewing other accounting personnel However, we manage to validate the information obtained, to some extent, through various other sources such as the annual reports, press releases as well as materials from other public channels Additionally, The 7P dimensions in the Vietnam context was used to explain the preparation and readiness of applying IFRS in the MNC in Vietnam The scope of this article covers the transition period from the local VAS towards IFRS; therefore, we focus on periods, places, people, and practices as explanatory dimensions However, we have also briefly discussed the other three dimensions in the Vietnamese context It is believed that these three 603 dimensions can be further explored by researchers who are primarily interested in studying the emergence of the accounting profession in Vietnam Finally, our article examined IFRS familiarity and readiness of two MNC The experience of these two foreign owned companies may not be similar to publicly listed companies, state or private-owned entities Studies of companies that have not adopted and have no intention of adopting IFRS would also be other potential research areas Such a study may help to reveal the reasons why domestic companies are not so supportive to transition to IFRS The findings of the study contribute significant implications for Vietnamese accounting standard setters and companies that want to early adopt IFRS The problems highlighted may help companies planning to adopt IFRS by 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