Circular No. 44/TC-TCDN guiding the handling of exchange rate differences in state-owned enterprises

CIRCULAR

Guidelines for Handling Foreign Exchange Rate Differences in State-Owned Enterprises

Implementing Decree No. 59/CP dated October 3, 1996 of the Government on the "Regulations on Financial Management and Business Accounting for State-Owned Enterprises." The Ministry of Finance provides guidelines for handling foreign exchange rate differences in state-owned enterprises as follows:

I. GENERAL PROVISIONS

1. In this Circular, the following terms are understood as follows:

1.1. Foreign currency refers to any currency other than the "Vietnamese Dong."

1.2. Foreign currency transactions refer to all income and expenditure transactions conducted in foreign currencies, in current account settlements and pricing.

1.3. Exchange rate refers to the rate at which two types of currency are exchanged (hereinafter referred to as the exchange rate).

1.4. Foreign exchange rate difference (hereinafter referred to as exchange rate difference) is the difference between the recorded accounting exchange rate and the conversion rate at the time of adjustment for the same type of foreign currency.

2. State-owned enterprises with foreign currency transactions shall handle exchange rate differences according to the current accounting regulations.

The exchange rate used to convert the end-of-period foreign currency balance into "Vietnamese Dong" is the official exchange rate published by the State Bank of Vietnam at that time.

3. For foreign currencies for which the State Bank of Vietnam does not publish an exchange rate to convert into "Vietnamese Dong," they shall be uniformly converted through the US dollar.

II. CONTENT OF HANDLING FOREIGN EXCHANGE RATE DIFFERENCES

1. Handling foreign exchange rate differences of foreign currency transactions during the period

Foreign exchange rate differences arising during the period are offset between increases and decreases (except for point 1.4 below). At year-end, they are handled as follows:

1.1. During the preparatory investment and construction period, when the enterprise has not commenced operations or the project has not been completed and handed over, the accumulated foreign exchange rate differences up to the completion and handover date of the project are handled as follows:

In the case of an increase in foreign exchange rate differences (credit balance in account 413), it is evenly allocated to financial income of the enterprise over a period of no less than five years from the date the project commences operation.

In the case of a decrease in foreign exchange rate differences (debit balance in account 413), it is evenly allocated to financial expenses of the enterprise over a period of no less than five years from the date the project commences operation.

1.2 During the period when the enterprise is operating and conducting production and business activities:

An increase in foreign exchange rate differences is included in financial income for the period.

A decrease in foreign exchange rate differences is included in financial expenses for the period.

1.3. During the period of liquidation and dissolution of the enterprise:

An increase in foreign exchange rate differences is included in liquidation income of the enterprise.

A decrease in foreign exchange rate differences is included in liquidation expenses of the enterprise.

1.4. Foreign exchange rate differences arising during the period due to the purchase or sale of foreign currency are directly accounted for in financial costs or income.

2. Handling foreign exchange rate differences resulting from revaluation of the end-of-period foreign currency balance:

At the end of the accounting period, the enterprise must convert cash, deposits, funds in transit, receivables, and payables denominated in foreign currencies into "Vietnamese Dong" according to the exchange rate specified in point 2 of Section 1 of this Circular. The difference between the post-revaluation exchange rate and the exchange rate currently recorded in the accounting books is handled as follows:

2.1. For foreign exchange rate differences arising from the revaluation of the end-of-year balances of cash, deposits, funds in transit, short-term receivables and payables (within one year) denominated in foreign currencies at the time of preparing the financial statements, these differences are not recorded as expenses or income but are carried forward on the financial statements, and reversed by journal entry at the beginning of the next year.

2.2. For foreign exchange rate differences arising from the revaluation of the end-of-year balances of long-term receivables and payables (over one year) denominated in foreign currencies at the time of preparing the financial statements, they are handled as follows:

a. For long-term receivables

If the exchange rate for converting the end-of-period balance is higher than the exchange rate currently recorded in the accounting books, the foreign exchange rate difference is handled as specified in point 2.1 of Section II.

If the exchange rate for converting the end-of-period balance is lower than the exchange rate currently recorded in the accounting books, the foreign exchange rate difference is recorded as financial expense for the year.

b. For long-term payables

If the exchange rate for converting the end-of-period balance is higher than the exchange rate currently recorded in the accounting books, the foreign exchange rate difference is recorded as financial expense for the year.

If the exchange rate for converting the end-of-period balance is lower than the exchange rate currently recorded in the accounting books, the foreign exchange rate difference is handled as specified in point 2.1 of Section II.

When settling individual long-term receivables and payables, if the actual exchange rate at the time of settlement is higher or lower than the exchange rate currently recorded in the books, the resulting foreign exchange rate difference is handled as prescribed in point 1.2 of Section II of this Circular.

III. IMPLEMENTATION PROVISIONS

1. This Circular takes effect from the date of issuance. All previous regulations regarding the handling of financial matters related to foreign exchange rate differences in state-owned enterprises that conflict with this Circular are hereby abolished.

2. This Circular does not apply to enterprises specializing in buying and selling foreign currencies.

3. During implementation, any difficulties should be reported to the Ministry of Finance for study and appropriate amendments./.