Is It The Real Picture?

In a recent article in the International Herald Tribune, Seth Mydans recounted the problems experienced by the Vietnam Fine Arts Museum in determining the authenticity of certain paintings.

The trouble arose as a result of museum officials removing important art works to the countryside for safekeeping during the war with the United States and replacing them with copies. Due to problems with the management of the process at the time, it is now difficult to distinguish the originals from copies, with a loss of confidence in international markets for Vietnamese art the end result.

In order to restore confidence, the Museum is being transparent about the problems and seeking to employ international standards and practices to authenticate the paintings.

The question posed by international investors in Vietnamese art, ‘Is it the real picture?’ could similarly be asked about the financial statements of companies listed on the Hanoi and Ho Chi Minh stock exchanges. Do they reveal the real financial position and trading results of the companies concerned? This question is regularly posed by international investors of not only Vietnam, but indeed the capital markets of most countries. The recent collapse of confidence in the international banking sector is clear evidence of this.

In order to enhance the credibility of their capital markets, more and more countries are responding in the same way as the Vietnam Fine Arts Museum, by being more transparent and adopting international financial reporting and auditing standards.

Through this adoption, companies and their auditors are able to confirm that the ‘picture’ being presented of the company’s financial performance and position has been ‘painted’ and its authenticity assured, in accordance with standards that the investors are familiar with. This provides confidence that the picture of the company as presented through the financial statements is ‘real’.

Under the guidance of the Ministry of Finance and with the assistance of the Vietnam Association of Accountants and Auditors (VAA) and the Vietnam Association of Certified Public Accountants, Vietnam is moving to adopt International Financial Reporting Standards (IFRS) and International Auditing Standards (IAS).

This will enhance foreign investor confidence in Vietnam’s capital markets and assist Vietnamese companies to obtain access to the capital they require to grow their businesses. Just as artists around the world compete to have international investors buy their paintings, so too do Vietnamese companies compete to have international investors buy their shares and lend them money. These investors are naturally concerned about the security of their investment. Confidence in the authenticity of the ‘picture’ or the reliability of the company’s financial reporting is vital to this.

This is further underlined by a report issued in February entitled Vietnam Development Report 2009: Capital Matters in which the World Bank drew attention to the difficulties the global economic downturn will create for Vietnam in securing foreign direct and portfolio investment. In its discussion on how to best address these difficulties, the report draws attention to the benefits that improved accounting standards could provide in identifying systemic risk in the banking sector.

Adopting international accounting and reporting standards presents challenges to the accounting profession in training appropriately skilled accountants and auditors to abide by the standards.

In this regard, the Institute of Chartered Accountants in Australia (ICAA) was pleased to have recently met the Vietnam Association of Certified Public Accountants (VACPA) to discuss ways in which ICAA and VACPA could work together to ensure the accounting profession in Vietnam is able to fulfil its key role in enhancing the credibility of Vietnam’s capital markets and contribute to sound economic growth for the benefit of the whole community.

About the author: Bill Palmer FCA is the Director Asia for the Institute of Chartered Accountants in Australia (ICAA), a member of the Global Accounting Alliance comprising some of the world's leading accounting bodies including the Institute of Chartered Accountants in England and Wales and the American Institute of Certified Public Accountants. The ICAA in Asia is focused on education and training, capacity building and leadership initiatives.