Circular No. 210/2009/TT-BTC guiding the application of International Accounting Standards on the presentation of financial statements and the disclosure of information for financial instruments.

CIRCULAR

Guidelines for the Application of International Financial Reporting Standards on

Presentation of Financial Statements and Disclosures of Information Regarding Financial Instruments

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- Pursuant to the Accounting Law dated June 17, 2007;

- Pursuant to Decree No. 129/2004/NĐ-CP dated December 31, 2004 of the Government detailing and guiding the implementation of certain provisions of the Accounting Law in business activities;

- Pursuant to Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

The Ministry of Finance hereby issues guidelines for the application of international financial reporting standards on the presentation of financial statements and disclosures of information regarding financial instruments in Vietnam as follows:

PART I - GENERAL PROVISIONS

Article 1. Scope of Application

These Circulars guide the application of international financial reporting standards on the presentation of financial statements and disclosures of information regarding financial instruments and shall be applied to all units in all sectors and economic components in Vietnam that have transactions related to financial instruments.

Article 2. Basis for Application

The contents guided for application in these Circulars are based on International Accounting Standards and International Financial Reporting Standards issued and published by the International Accounting Standards Board in 2007.

Article 3. Terms Used

The terms used in International Accounting Standard 32 - Financial Instruments: Presentation (IAS 32) and International Financial Reporting Standard 07 - Financial Instruments: Disclosures (IFRS 07) in these Circulars are as follows:

1. Financial Instrument: A contract that creates a financial asset of an entity and a financial liability or equity instrument of another entity.

2. Financial Asset: Includes the following types of assets:

a) Cash;

b) Equity instruments of another entity;

c) Rights under a contract to:

(i) Receive cash or another financial asset from another entity; or

(ii) Exchange financial assets or financial liabilities with another entity under conditions that may be favorable to the entity;

d) Contracts that will or may be settled in equity instruments of the entity.

3. Financial Liability : Includes the following obligations:

a) That obligate the entity to:

(i) Pay cash or another financial asset to another entity;

(ii) Exchange financial assets or financial liabilities with another entity under conditions that may not be favorable to the entity; or

b) Contracts that will or may be settled in equity instruments of the entity.

4. Equity Instrument (CSH) : A contract that evidences residual interests in the assets of the entity after deducting all of its liabilities.

5. Derivative Financial Instrument: A financial instrument or a contract that simultaneously satisfies all three of the following characteristics:

a) Its value changes in response to changes in interest rates, prices of financial instruments, commodity prices, foreign exchange rates, price indices, interest rate indices, credit ratings, or other indices, provided that if such other indices are non-financial variables, they must not be specific to the parties to the contract (also referred to as underlying variables);

b) It does not require an initial net investment or requires a smaller initial net investment than other contracts that respond similarly to changes in market factors; and

c) Is settled at a future date.

6. Financial Assets or Financial Liabilities Measured at Fair Value Through Profit or Loss : A financial asset or financial liability that meets one of the following conditions:

a) A financial asset or financial liability classified as held for trading. A financial asset or financial liability is classified as held for trading if:

(i) It was acquired or originated primarily for resale within a short period;

(ii) There is evidence of the entity's intention to sell the instrument for short-term profit; or

(iii) A derivative financial instrument (except for derivative financial instruments that are designated as a financial guarantee contract or an effective hedge instrument).

b) At initial recognition, the entity classifies the financial asset or financial liability as measured at fair value through profit or loss.

7. Held-to-Maturity Investments: Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the entity has both the positive intent and ability to hold to maturity, except:

a) Financial assets that were initially recognized and classified as measured at fair value through profit or loss;

b) Financial assets classified as available-for-sale;

c) Financial assets that meet the definition of loans and receivables.

An entity shall not classify any financial asset as held-to-maturity if during the current fiscal year or the two preceding fiscal years it sold or reclassified a significant amount before maturity unless the sale or reclassification satisfies the following conditions:

(i) Near maturity (no more than three months prior to maturity) to the extent that changes in market interest rates do not significantly affect the fair value of the financial asset;

(ii) After the entity has received substantially all of the principal of the financial asset according to the payment schedule or has prepaid the financial asset;

(iii) Due to a specific event beyond the control of the entity, which is not recurring and which the entity could not reasonably have predicted.

8. Loans and Receivables: Non-derivative financial assets with fixed or determinable payments and not quoted in an active market, except:

a) Those that the entity intends to sell immediately or will sell in the near future and are classified as held for trading, and those that were initially recognized and classified as measured at fair value through profit or loss.

b) The amounts that the unit categorizes as ready for sale at the initial recognition time; or

c) The amounts that the holder may not recover most of the initial investment value, not due to credit quality deterioration, and classified as ready for sale.

9 - Financial assets held for sale: Are financial non-derivative assets determined to be held for sale or not classified as:

a) loans and receivables;

b) debt investments held to maturity;

c) financial assets measured at fair value through profit or loss.

10 - Financial guarantee contract: Is a contract stipulating that the issuer has an obligation to compensate the holder for any losses incurred if the debtor cannot fulfill their payment obligations on the due date according to the original terms or amended terms of a debt instrument.

11 - Amortized cost of financial assets or financial liabilities: Is determined by subtracting the initial recognition amount of the financial asset or financial liability from the principal repayments, adding or subtracting the cumulative amortization calculated using the effective interest rate method of the difference between the initial recognition amount and the maturity amount, and deducting any write-downs (directly or through the use of a provision account) due to impairment or uncollectibility.

12 - Effective interest rate method: Is a method of calculating the amortized cost of one or a group of financial assets or financial liabilities and allocating interest income or expense related to the period. The effective interest rate is the discount rate that equates the present value of estimated cash flows to be paid or received over the expected life of the financial instrument or shorter, if necessary, to the carrying amount of the financial asset or financial liability.

13 - Derecognition: Is the removal of previously recognized financial assets or financial liabilities from the balance sheet.

14 - Fair value: Is the price at which an asset would be exchanged, or a liability would be settled, between parties with full knowledge, willing to transact, in an arm's length transaction.

15 - A normal purchase or sale transaction: Is the purchase or sale of a financial asset under a contract that specifies the transfer of the asset within a clearly defined period according to legal provisions or market practice.

16 - Transaction costs: Are direct costs arising from the purchase, issuance, or settlement of a financial asset or financial liability. These costs would not arise if the entity did not purchase, issue, or settle the financial instrument.

17 - Firm commitment: Is a binding agreement to exchange a specific quantity of resources at a specified price at a particular future date.

18 - Anticipated transaction: Is a transaction that is not a firm commitment but is expected to occur in the future.

19 - Hedging instrument: Is a derivative instrument or a non-derivative financial asset or financial liability (only for hedging foreign currency risks) whose fair value or expected cash flows offset changes in the fair value or cash flows of the hedged item.

20 - Hedged item: Is an asset, liability, firm commitment, anticipated transaction likely to occur in the future, or a net investment in a foreign operation that (a) the entity is exposed to risk of changes in fair value or future cash flows and (b) has been identified as being hedged.

21 - Effectiveness of hedge: Is the extent to which changes in the fair value or cash flows (due to the hedged risks) of the hedged item are offset by changes in the fair value or cash flows of the hedging instrument.

CHAPTER II - PROVISIONS ON APPLICATION
INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS) 32

"FINANCIAL INSTRUMENTS: PRESENTATION"

Article 4. Purpose of Application

The application of International Financial Reporting Standard (IFRS) 32 is to guide principles for the presentation of financial instruments in financial statements.

Article 5. Scope of Application

1 - This Circular applies to all entities and all types of financial instruments except:

a) Investments in and interests from subsidiaries, associates, and joint ventures in accordance with Vietnam Accounting Standard No. 07 - Investment Accounting in Associates; Vietnam Accounting Standard No. 08 - Financial Information on Joint Ventures' Equity Investments; Vietnam Accounting Standard No. 25 - Consolidated Financial Statements and Investment Accounting in Subsidiaries.

b) Rights and obligations of employees.

c) Agreements regarding contingent items in business combinations for the buyer according to Vietnam Accounting Standard No. 11 - Business Combinations.

d) Insurance contracts according to Vietnam Accounting Standard No. 19 - Insurance Contracts. However, this Circular applies to the service provider if the derivative financial instruments accompanying insurance contracts are accounted for separately from the insurance contracts.

e) Financial instruments within the scope of Vietnam Accounting Standard No. 19 - Insurance Contracts due to the characteristics of these financial instruments being non-guaranteed.

f) Financial instruments, contracts, and obligations of transactions settled in shares.

2 - This Circular applies to contracts for the purchase or sale of non-financial items settled solely in cash or other financial instruments or by exchanging financial instruments.

3 - This Circular applies to option contracts for the purchase or sale of non-financial items that may be settled solely in cash or other financial instruments or by exchanging financial instruments.

Article 6. Presentation of Financial Liabilities and Shareholders' Equity Instruments

1 - Issuers of financial instruments must classify the instrument or parts thereof at initial recognition as financial liabilities or shareholders' equity instruments in accordance with the nature and definition of financial liabilities and shareholders' equity instruments.

2 - Financial instruments are presented by the issuer as shareholders' equity when the financial instrument does not include contractual obligations to pay cash or financial assets to another entity or exchange financial assets, financial liabilities with another entity under conditions that could be unfavorable to the issuer. Financial instruments that are not shareholders' equity instruments are presented by the issuer as financial liabilities.

3 - Preference shares are presented as financial liabilities if there is a provision requiring the issuer to repurchase a certain number of preference shares at a specified future date.

Article 7. Presentation of Potential Payment Provisions

Financial instruments that require an entity to pay cash or financial assets depending on the occurrence or non-occurrence of uncertain events outside the control of both the issuer and the holder are presented as financial liabilities of the issuer of the financial instrument.

Article 8. Presentation of Financial Derivative Instruments as Options

A financial derivative instrument that is an option shall be presented as a financial asset or a financial liability.

Article 9. Presentation of Complex Financial Instruments

1 - An issuer of non-derivative financial instruments must examine the terms of such instruments to determine whether they include both a financial liability component and an equity component. The identification of components of complex financial instruments is based on the obligation to pay (financial liability) created by the financial instrument and the holder's right to convert it into equity. For example, convertible bonds, which can be converted into common shares within a certain period, are complex financial instruments consisting of two parts: financial liability (an obligation to pay cash or financial assets) and equity (the right to convert into shares).

2 - The portion classified as a financial liability in a complex financial instrument shall be presented separately from the portion classified as a financial asset or equity on the Balance Sheet.

3 - The initial carrying amount of a complex financial instrument shall be allocated between the financial liability component and the equity component. The equity component is determined as the residual value of the financial instrument after deducting the fair value of the financial liability component. The value of the derivative instrument (such as a put option contract) accompanying the complex financial instrument does not belong to the equity component (such as an equity conversion option) and shall be presented in the financial liability section. The total initial carrying amount for the financial liability and equity components always equals the fair value of the financial instrument.

Article 10. Presentation of Treasury Shares

Treasury shares shall be presented as a separate deduction from equity. The entity does not recognize gains or losses upon the purchase, sale, issuance, or cancellation of treasury shares. The amounts received or paid are directly recorded in equity.

Article 11. Presentation of Interest, Dividends, Losses, and Profits

1 - Interest, dividends, profits, and related gains or losses associated with a financial instrument or its component that is a financial liability shall be recognized as income or expense in the Income Statement. Dividends and profits paid to shareholders are directly reduced from equity. In cases where preferred shares are classified as liabilities, the dividend payable to preferred shareholders shall be recognized as an expense in the period.

2 - Transaction costs related to the issuance of complex financial instruments shall be allocated to the liability and equity components of the instrument in proportion to their relative values. Transaction costs related to multiple transactions shall be allocated among them based on their relative proportions. Transaction costs shall be presented as a reduction from equity in the reporting period.

3 - Gains or losses arising from changes in the carrying amount of financial liabilities shall be recognized as income or expense in the Income Statement.

Article 12. Offsetting Financial Assets and Financial Liabilities on the Balance Sheet

Financial assets and financial liabilities may be offset against each other on the balance sheet only when the entity has both the legal right to offset the recognized amounts and the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

a) Has the legal right to offset the recognized amounts; and

b) Intends to settle on a net basis or to realize the asset and settle the liability at the same time.

Chapter III - APPLICATION GUIDELINES
INTERNATIONAL FINANCIAL REPORTING STANDARD NO. 7

"FINANCIAL INSTRUMENTS: DISCLOSURE"

Article 13. Purpose of Application

The application of International Financial Reporting Standard No. 7 (IFRS 07) in this Circular aims to provide guidance on the disclosure of information about financial instruments to assist users of financial statements in assessing the impact of financial instruments on the entity's financial position and results of operations; evaluating the nature and scope of risks arising from financial instruments and how the entity manages those risks.

Article 14. Scope of Application

This Circular applies to all entities and all types of financial instruments except for:

1 - Investments in and interests from subsidiaries, joint ventures, and associates in accordance with Accounting Standard No. 07 - Investment Accounting for Associates; Accounting Standard No. 08 - Financial Information about Joint Ventures; and Accounting Standard No. 25 - Consolidated Financial Statements and Investment Accounting for Subsidiaries.

2 - Rights and obligations of employees.

3 - Agreements regarding contingent consideration in business combinations for the acquirer in accordance with Accounting Standard No. 11 - Business Combinations.

4 - Insurance contracts in accordance with Accounting Standard No. 19 - Insurance Contracts. However, this Circular applies to the insurer if derivative financial instruments accompanying insurance contracts are accounted for separately from the insurance contracts.

5 - Financial instruments, contracts, and obligations related to share-settled transactions.

Article 15. Classification of Financial Instruments and Level of Disclosure

Financial instruments should be classified in a manner that reflects the nature of the information presented and takes into account the characteristics of the financial instruments. Entities must provide sufficient information to allow cross-referencing with corresponding items presented on the balance sheet.

Article 16. Materiality of Financial Instruments to Financial Position and Operating Results

Entities must disclose information enabling users of financial statements to assess the materiality of financial instruments to the entity's financial position and operating results.

Article 17. Presentation of Types of Financial Assets and Financial Liabilities

The carrying amount of each type of financial asset and financial liability shall be presented in the balance sheet or in the notes to the financial statements as follows:

1 - Financial assets measured at fair value through profit or loss, distinguishing between financial assets initially designated in this category and financial assets held for trading;

2 - Debt investments held to maturity;

3 - Loans and receivables;

4 - Financial assets at fair value through profit or loss that are available-for-sale;

5 - Financial liabilities measured at fair value through profit or loss, distinguishing between financial liabilities initially designated in this category and financial liabilities held for trading;

6 - Financial liabilities measured at amortized cost.

Article 18. Disclosure regarding financial assets and financial liabilities recognized at fair value through profit or loss shall be made through the Statement of Comprehensive Income.

1\. If an entity classifies a loan or receivable (or a group of loans or receivables) as measured at fair value through profit or loss, the entity shall disclose:

a) The maximum credit risk exposure of the loan or receivable (or group of loans or receivables) as of the reporting date;

b) The reduction in credit risk of related credit derivative instruments or similar instruments;

c) The end-of-period fair value of the loan or receivable (or group of loans or receivables), changes in fair value during the period due to changes in credit risk of financial assets;

d) The end-of-period fair value and changes in fair value during the period of related credit derivative financial instruments or similar instruments since the loan or receivable was classified in this category.

2\. For financial liabilities measured at fair value through profit or loss, the entity shall disclose the following information:

a) The end-of-period fair value, changes in fair value during the period due to changes in credit risk of financial liabilities;

b) The difference between the carrying amount of financial liabilities and the amount the entity must pay upon maturity according to the contract for the owners of those liabilities.

Article 19. Disclosure on reclassification

When reclassifying financial instruments, the entity shall present the value of the financial instrument after reclassification, the reasons for and effects of the reclassification of the financial instrument on the Financial Statements.

Article 20. Disclosure on discontinuing recognition

When transferring financial assets that do not meet the criteria for discontinuing recognition, the entity shall disclose the following information for each type of financial asset:

1\. The nature of the asset;

2\. The nature of the transfer of risks and rewards of ownership;

3\. The carrying amount of the asset and related liabilities if the entity continues to recognize the entire asset; and

4\. The initial carrying amount of the asset, the amount the entity continues to recognize, and the carrying amount of related liabilities if the entity continues to recognize the asset within the scope of its ownership rights.

Article 21. Disclosure on collateral

1\. The entity shall disclose the following information regarding collateral:

a) The carrying amount of financial assets that the entity uses as collateral for financial liabilities or contingent liabilities, including those that have been reclassified; and

b) The terms and conditions of the collateral.

2\. If the entity holds collateral (financial or non-financial assets) and is permitted to sell or pledge it to a third party when the owner of the asset still has the ability to repay, the entity shall disclose the following information:

a) The fair value of the collateral;

b) The fair value of the collateral sold or pledged to a third party and information about the entity's obligation to return the collateral; and

c) The terms and conditions relating to the use of the collateral.

Article 22. Provision for Credit Losses

When financial assets are impaired due to credit losses and the entity recognizes a provision in a separate account (an impairment account used to record the reduction in value for each asset or a similar account to record the reduction in value of a group of assets), instead of directly adjusting the carrying amount of the asset, the entity must reconcile changes in that impairment account for each type of financial asset during the period.

Article 23. Disclosure of Complex Financial Instruments Linked to Multiple Derivative Financial Instruments

If an entity issues a financial instrument comprising both debt components and equity components and this instrument is linked to multiple derivative financial instruments whose values are interdependent (for example, convertible debt that may be repurchased), the entity must disclose in detail the components of the complex financial instrument and the accompanying derivative financial instruments.

Article 24. Disclosure of Loans Unable to Be Repaid and Contractual Breaches

For loans payable recognized at the reporting date, the entity must disclose:

1 - Details of any missed principal and interest payments on those loans;

2 - The carrying amount of the loan that the entity is unable to repay at the reporting date; and

3 - Information on whether the entity has remedied the inability to repay mentioned above or whether there have been negotiations to amend the terms of the loan prior to the approval of the issuance of the financial statements.

Article 25. Presentation of Income, Expenses, Gains, or Losses Items

The entity must disclose the following items of income, expenses, gains, or losses in the Statement of Comprehensive Income or in the Notes to the Financial Statements:

1 - Net gains or losses of:

a) Financial assets or financial liabilities measured at fair value through profit or loss; Separate presentation of net gains or losses of financial assets or financial liabilities classified in this category at initial recognition and held-for-trading financial assets or financial liabilities;

b) Financial assets held for sale; Separate presentation of gains or losses recognized directly in profit or loss and reclassifications from equity to profit or loss;

c) Investments held to maturity;

d) Loans and receivables; and

e) Financial liabilities measured at amortized cost.

2 - Total interest income and total interest expense (using effective interest rates) for financial assets or financial liabilities not included in the category measured at fair value through profit or loss.

3 - Income and expenses from service fees (excluding amounts already considered when determining the effective interest rate) arising from:

a) Financial assets or financial liabilities not included in the category measured at fair value through profit or loss; and

b) Other entrusted activities leading to holding or investing in assets on behalf of individuals, trust funds, pension funds, and other organizations.

4 - Accrued interest income on impaired financial assets.

5 - Losses due to the reduction in value of each type of financial asset.

Article 26. Presentation of accounting policies

The entity shall present in the summary section the accounting policies applied to the bases for determining the fair value of financial instruments used in the preparation of Financial Statements and other related accounting policies.

Article 27. Disclosure on risk management activities

1 - The entity shall disclose separately for each type of risk management activity: Fair value risk management; Cash flow risk management; Risk management of net investments in foreign operations, with the following contents:

a) Description of each type of risk management activity;

b) Description of the financial instruments used as risk management tools and their fair values as of the reporting date; and

c) Nature of the risks being managed.

2 - For cash flow risk management, the entity shall disclose additional information on:

a) The expected period during which the cash flows will arise and the period during which these cash flows are expected to affect the entity's profit or loss;

b) Description of future transactions that have been hedged but are now not expected to occur;

c) Amount recognized in equity during the period;

d) Amount reclassified from equity to the Statement of Profit or Loss during the period, specifying the amount reclassified for each item in the Statement of Profit or Loss; and

đ) Amount separated from equity during the period and included in the carrying amount or book value of a non-financial asset or liability arising from a transaction that was anticipated to be probable and was hedged.

3 - Additionally, the entity shall separately disclose:

a) For fair value risk management: Gains or losses of the risk management instrument and of the hedged item related to the risks being managed;

b) The ineffective portion of cash flow risk management recognized in the Statement of Profit or Loss; and

c) The ineffective portion of risk management for net investments in foreign operations recognized in the Statement of Profit or Loss.

Article 28. Disclosure on fair value

The entity shall disclose the following information about fair value:

1 - Fair value of financial assets and liabilities to enable comparison between fair value and book value.

2 - Methods of determining fair value for each type of financial asset or liability.

Article 29. Qualitative disclosures

The entity shall disclose the following information for each type of risk arising from financial instruments:

1 - Level of risk and manner of occurrence of risk;

2 - Objectives, risk management policies, procedures, and methods used to measure risk; and

3 - Changes in the level of risk, manner of occurrence of risk, objectives, risk management policies, procedures, and methods used to measure risk compared to the previous period.

Article 30. Quantitative disclosures

The entity shall disclose summarized data on the level of risk at the reporting date for each type of risk arising from financial instruments.

Article 31. Disclosure on Credit Risk

1 - The entity shall disclose the following information for each type of financial instrument:

a) The most accurate figures representing the maximum credit risk level at the reporting date, excluding collateral or credit support;

b) A description of the collateral held as security and types of credit support;

c) Information on the quality of financial assets that have not yet matured or been impaired; and

d) The carrying amount of financial assets that should have matured or been impaired but were renegotiated.

2 - For financial assets that have matured or been impaired, the entity shall disclose the following information:

a) An analysis of the age of overdue financial assets that have not been impaired as of the reporting date;

b) An analysis of financial assets individually assessed as impaired as of the reporting date, including factors considered by the entity when assessing impairment; and

c) A description and estimate of the fair value of collateral held by the entity.

3 - For Collateral and forms of credit support received, the entity shall disclose the following information:

a) The nature and carrying amount of the assets received; and

b) If the assets are not ready to be converted into cash, the entity's policy regarding the disposal of those assets or their use in the entity's operations.

Article 32. Disclosure on Liquidity Risk

The entity shall disclose the following information:

1 - An analysis of remaining contractual maturity periods of financial liabilities; and

2 - A description of the methods for managing potential liquidity risk.

Article 33. Disclosure on Market Risk

The entity shall disclose and analyze sensitivity to each type of market risk at the reporting date, specifying the impact on profit or loss and equity due to changes in relevant risk factors that could exist at the reporting date; Methods and assumptions used in the sensitivity analysis and changes in methods and assumptions compared to the previous period, along with reasons for such changes.

Chapter IV - IMPLEMENTATION

Article 34. Effective Date

This Circular shall take effect 45 days from the date of signature and shall apply to the presentation and disclosure of financial instruments in Financial Statements starting from 2011.