Vietnam: What is the definition of equity? Is the equity of an enterprise required to be specified in its financial statements?
What is the definition of equity in Vietnam?
Under Clause 1, Article 66 of Circular 200/2014/TT-BTC on equity accounting principles:
Equity is the remaining net assets of enterprises owned by shareholders, and contributing members (owners).
Equity is recorded by each form source such as:
- Capital contributed by the owners;
- Profit from operations;
- Differences upon asset revaluation.
Some notes on accounting principles of equity (Article 66 Circular 200/2014/TT-BTC):
(1) Accountants do not record contributed capital under charter capital on business registration certificate.
The equity mobilized, received from owners shall always be recorded at the amount actually contributed, absolutely shall be not recorded at the amount pledged contribution of owners.
In case of receiving contributed capital by non-monetary assets, accountants must record according to the fair value of non-monetary assets at the date of contribution.
(2) Receiving contributed capital by the kind of intangible assets, such as copyright, right to develop and use property, trademarks, brands, etc.... shall only be carried out under provisions of law or permission of competent bodies.
When the law does not have specific regulations on this issue, the capital contribution by trademarks, brand shall be accounted as asset lease or franchising, in which:
- For the side contributing capital by brand, trademark, trade name: Record sum received from using the trademark, trade name of the other side as revenue from lease of intangible asset, franchising, do not record an increase in the value of investments into other units and income of equity corresponding to the investment value;
- For the side receiving capital contribution by brand, trademark, trade name: Do not record the value of brand, trademark, trade name and record an increase of equity corresponding to the value of the brand, trademark, trade name received the contributed capital. Payments for the use of brand, trademark, trade name are recorded the asset rental costs, the franchise cost.
(3) The use of owner’s capital, differences upon asset revaluation, development investment funds to subsidize business shall comply with the decision of the owners; enterprises must fully carry out procedures as prescribed by law.
(4) The distribution of profit is only made when the enterprises have undistributed post-tax profits.
All cases of payment of dividends, profits for the owners exceeding the undistributed post-tax profits shall be essentially decrease of contributed capital, enterprises must fully comply with the procedures prescribed by law and adjust the Business registration certificate.
Is the equity of an enterprise in Vietnam required to be specified in its financial statements?
Under Article 97 of Circular 200/2014/TT-BTC on the purposes of financial statements:
Purposes of financial statement
1. Financial statements are used to provide information about financial situations, trading performance and cash flows of enterprises, meet the requirements for management of employers, regulatory agencies and useful demands of users in making economic decisions. Financial statements must provide information about an enterprise about :
a) Assets;
b) Liabilities;
c) Equity;
d) Revenue, other income, production and business costs and other expenses;
dd) Profit, loss and allocation of income ;
e) The cash flows.
2. In addition to this information, an enterprise must also provide other information in the "Notes to the Financial Statements" for further explanation of standards recorded in general financial statements and accounting policies applied to record the economic transactions arising, preparation and presentation of financial statements.
Thus, financial statements must include information on the enterprise's equity according to regulations.
What are the requirements for the information shown in the financial statements to ensure honesty in Vietnam?
According to the provisions of Clause 1, Article 101 of Circular 200/2014/TT-BTC on requirements for the information shown in the financial statements:
Information shown in the financial statements must be recorded honestly and reasonably the financial situation, trading situation, and income of enterprises. To ensure honesty, the information must be complete, objective, and unmistaken.
- Information is only complete when including all the necessary information to help users of financial statements to understand the nature, forms and risks of transactions and events. For some items, the full presentation must also describe more information about the quality, the factors and circumstances that may affect the quality and nature of the items.
- Objective presentation is unbiased selection or description on financial information. Objective presentation must ensure neutrality which do not focus, emphasize, or reduce as well as perform other acts to alter the impact of the financial information to become beneficial or unbeneficial for users of financial statements.
- No errors mean no omissions in the description of the phenomenon and no errors in the process of providing reporting information selected and applied. No errors do not mean complete accuracy in all respects, for example, estimating unobservable cost and value is difficult to determine to be correct or incorrect. The presentation of an estimate is considered to be honest, if the estimated value is described clearly, and the nature and limitation of the estimating process are explained and there is no error in the selection of appropriate figures in the estimate.
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