Circular No. 210/2009/TT-BTC dated November 6, 2009, of the Ministry of Finance guiding the application of international accounting standards on presentation of financial statements and disclosures of financial instruments

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Issuing body:	Ministry of Finance	Effective date:	Known Please log in to a subscriber account to use this function. Don’t have an account? Register here
Official number:	210/2009/TT-BTC	Signer:	Tran Xuan Ha
Type:	Circular	Expiry date:	Updating
Issuing date:	06/11/2009	Effect status:	Known Please log in to a subscriber account to use this function. Don’t have an account? Register here
Fields:	Accounting - Audit , Finance - Banking

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THE MINISTRY OF FINANCE -------	SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom – Happiness ---------
No. 210/2009/TT-BTC	Hanoi, November 06, 2009

CIRCULAR

GUIDING THE APPLICATION OF INTERNATIONAL ACCOUNTING STANDARDS ON PRESENTATION OF FINANCIAL STATEMENTS AND DISCLOSURES OF FINANCIAL INSTRUMENTS

Pursuant to the June 17, 2007 Accounting Law;
Pursuant to the Government's Decree No. 129/2004/ND-CP of December 31, 2004, detailing and guiding a number of articles of the Accounting Law regarding business activities;
Pursuant to the Government's Decree No. 118/2008/ND-CPof November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;
The Ministry of Finance guides the application of international accounting standards on presentation of financial statements and disclosures of financial instruments in Vietnam as follows:

Chapter I

GENERAL PROVISIONS

Article 1. Scope of application

This Circular guides the application of international accounting standards on presentation of financial statements and disclosures of financial instruments and applies to all entities in all domains and of all economic sectors in Vietnam that conduct transactions related to financial instruments.

Article 2. Bases for application

The contents to be guided in this Circular are based on international accounting standards and international financial reporting standards promulgated and published in 2007 by the International Accounting Standards Committee.

Article 3. Applicable terms

The terms referred to in International Accounting Standard 32 - Presentation of financial instruments (IAS 32) and International Financial Reporting Standard 07 - Disclosures of financial instruments (IFRS 07) shall be applied in this Circular as follows:

1. Finance instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

2. Financial asset is any asset that is:

a/ Cash:

b/ An equity instrument of another entity;

c/ A contractual right:

(i) To receive cash or another financial asset from another entity; or.

(ii) To exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity;

d/ A contract that will or may be settled in the entity's own equity instruments.

3. Financial liability is any liability that is:

a/ A contractual obligation:

(i) To deliver cash or another financial asset to another entity;

(ii) To exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity; or,

b/A contract that will or may be settled in the entity's own equity instruments.

4. Equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

5. Derivative financial instrument is a financial instrument or a contract that concurrently satisfies the following three conditions:

a/ Having its value changed upon a change in interest rate, financial instrument price, goods price, exchange rate, price index or interest rate, credit ranking or index, or other indexes provided that in case these other indexes are non-financial variable numbers, such numbers are not associated with contractual parties (also referred to as basic variable numbers);

b/ Not requiring initial net investment or requiring initial net investment lower than that required by contracts of other types with similar reactions to the change of market factors; and,

c/ Being settled at a certain future date.

6. Financial asset or financial liability recognized at fair value through profit or loss statements is a financial asset or a financial liability
that satisfies either of the following conditions:

a/ Being classified as held for trading. A financial asset or financial liability will be classified as securities held for trading if:

(i) It is purchased or created mainly for the purpose of resale/redemption in a short term;

(ii) There is an evidence that such instrument is traded for the purpose of gaining short-term profits; or,

(iii) It is a derivative financial instrument (except derivative financial instruments identified as financial guarantee contracts or effective hedging instruments).

b/ Upon initial recognition, the entity categorizes the financial asset or financial liability as such reflected at fair value through profit or loss statement.

7. Held-to-maturity investments are non-derivative financial assets with fixed or identifiable payments and fixed maturity periods which an entity has the intent and ability to hold until the date of maturity, with the exceptions of:

a/ Financial assets that, upon initial recognition, were categorized as such recognized at fair value through profit or loss statements;

b/ Financial assets already categorized as available for sale;

c/ Financial assets that meet the definitions of loans and receivables.

An entity may not classify any financial assets as held to maturity if in the current fiscal year or two preceding fiscal years it sold or reclassified before maturity a quantity of assets larger than the insignificant level, unless:

(i) The financial assets were sold or reclassified so near the time of maturity (3 months at most before that time) that the change in the market interest rate did not much affect the fair value of these assets;

(ii) They were sold or reclassified after the entity had collected almost principals of financial assets according to payment schedule or they were settled in advance;

(iii) Such sale or reclassification is not repeated and is unpredictable for a special reason in separate cases beyond the entity's control.

8. Loans and receivables are non-derivative financial assets with fixed or identifiable payments and not listed on the market, with the exceptions of:

a/ The amounts the entity has the intent to immediately sell or will sell in a near future which are classified as assets held for trading, and like those which, upon initial recognition, the entity categorized as such recognized at fair, value through profit or loss statements;

b/ The amounts categorized by the entity as available for sale upon initial recognition; or,

c/ The amounts whose holders cannot recover most of the initial investment value not due to credit quality impairment and which are categorized as available for sale.

9. Available-for-sale assets are non-derivative financial assets determined as available for sale or not classified as:

a/ Loans and receivables;

b/ Held-to-maturity investments;

c/ Financial assets recognized at fair value through profit or loss statements.

10. Financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

11. Amortized cost of a financial asset or financial liability is determined as equaling the initially recognized value of that financial asset or financial liability minus principals, plus or minus accrued amortizations calculated by the effective interest method of the difference between the initially recorded value and the value upon maturity, minus deductions (directly or through a contingency account) due to impairment or irrecoverability.

12. Actual interest method is a method of calculating the amortized cost of one or a group of financial assets or financial liabilities and distributing profit incomes or expenses in the associated period. Effective interest rate is discount interest rate of cash flows forecast to be settled or obtained in the future throughout the expected life cycle of a financial instrument or in a shorter period, when necessary, to return to the current net carrying amount of a financial asset or financial liability.

13. Derecognition is the exclusion of a previously recognized financial asset or financial liability from the balance sheet.

14. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm's length transaction.

15. Ordinary trading transaction is the purchase or sale of a financial asset under a contract the terms of which require the transfer of the asset in a specified duration according to law or market practice.

16. Transaction expenses are arising expenses directly related to the purchase, issue or liquidation of a financial asset or a financial liability. These expenses will not arise if the entity does not purchase, issue or liquidate such financial instrument.

17. Certain commitment is a binding agreement for exchanging specific resources at a specified price at a specific future time.

18. Forecast transaction is a transaction which is not a certain commitment but is a probable forecast transaction.

19. Hedging instrument is a derivative instrument or a non-derivative financial asset or financial liability which is determined (only for hedging risks from exchange rate fluctuations) to have a fair value or cash flows forecast to offset changes in the fair value or cash flows of hedged items.

20. Hedged items include assets, liabilities, certain commitments and transactions forecast to highly probably happen in the future or net investments in foreign operations for which (a) an entity must bear risks from changes in the fair value or future cash flows and (b) which have been determined as being hedged.

21. Hedge effectiveness is the extent of changes in the fair value or cash flows (attributable to hedged risks) of hedged items, which are offset against changes in the fair value or cash flows of hedging instruments.

Chapter II

PROVISIONS ON APPLICATION OF INTERNATIONAL ACCOUNTING STANDARD 32 "FINANCIAL INSTRUMENTS - PRESENTATION"

Article 4. Objective of application

The application of International Accounting Standard 32 (IAS 32) aims to establish principles for presenting financial instruments in financial statements.

Article 5. Scope of regulation

1. This Circular applies to all entities and all financial instruments, with the exceptions of:

a/ Investments in and benefits from subsidiaries, joint ventures and associates in compliance with Vietnam Accounting Standard 07 - Accounting of investments in associates; Vietnam Accounting Standard 08 - Financial information on capital portions contributed to joint ventures; and Vietnam Accounting Standard 25 - Consolidated financial statements and accounting of investments in subsidiaries.

b/ Rights and obligations of employers.

c/ Agreements on contingent items in business consolidated transactions with regard to the purchaser according to Vietnam Accounting Standard 11 - Business consolidation.

d/ Insurance contracts according to Vietnam Accounting Standard 19 - Insurance contract. However, this Circular applies to insurance service providers if derivative financial instruments accompanied with insurance contracts are accounted separately from insurance contracts.

e/ Financial instruments governed by Vietnam Accounting Standard 19 - Insurance contracts for the reason that these financial instruments are partially not guaranteed.

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

2. This Circular applies to contracts to purchase or sell a non-financial item that can be settled net in cash or another financial instrument or settled through exchanging financial instruments.

3. This Circular applies to contracts on the option to purchase or sell a non-financial item that can be settled net in cash or another financial instrument or settled through exchanging financial instruments.

Article 6. Presentation of financial liabilities and equity instruments

1. The issuer of a financial instrument shall classify this instrument or its components upon initial recognition as a financial liability or an equity instrument in suitability to the nature and definition of financial liability or equity instrument.

2. A financial instrument shall be presented by the issuer as an equity instrument when such financial instrument does not cover a contractual obligation to deliver cash or another financial asset to another entity or exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the issuer. Financial instruments other than equity instruments shall be presented by the issuer as liabilities.

3. Preferred shares shall be presented as financial liabilities if there is a term requiring the issuer to redeem a specified number of preferred shares at a specified future time.

Article 7. Presentation of contingent settlement provisions

A financial instrument may require the entity to deliver cash or another financial asset, in the event of the occurrence or non-occurrence of uncertain future events that are beyond the control of both the issuer and the holder of the instrument, which is presented as the issuer's financial liability.

Article 8. Presentation of the settlement option

A derivative financial instrument is the option to be presented as a financial asset or a financial liability.

Article 9. Presentation of compound financial instruments

1. The issuer of a non-derivative financial instrument shall evaluate the terms of the financial instrument to determine whether it contains both a liability and an equity component. The identification of components of a compound financial instrument shall be based on the entity's liability (financial liability) created from the financial instrument and the holder's right for converting it into an equity instrument. For example, a convertible bond may be converted into an ordinary share as a compound financial instrument, consisting of two components: financial liability (compulsory agreement on payment in cash or another financial asset) and equity instrument (the right to be converted into a share within a specified period).

2. The component classified as financial liability in a compound financial instrument shall be presented separately from the component classified as financial asset or equity in the balance sheet.

3. The initial carrying amount of a compound financial instrument shall be amortized for liability and equity components. The equity component is determined as the residual value of the financial instrument after deducting the fair value of the liability component. The value of a derivative instrument (such as contract on sale option) accompanied with a compound financial instrument and not belonging to the equity component (such as the option to convert the equity) shall be presented in the liability component. The total carrying amount of liability and equity components upon initial recognition always equals the fair value of financial instruments.

Article 10. Presentation of fund shares

Fund shares shall be presented in a separate item as an equity reduction. An entity shall recognize no gain or loss on the purchase, sale, issue or cancellation of fund shares. The amount to be obtained or settled shall be recognized directly in equity.

Article 11. Presentation of interests, dividends, losses and gains

1. Interests, dividends, profits, losses and gains relating to a financial instrument or a component that is a financial liability shall be recognized as income or expense in the loss or profit statement. Dividends or profits to be settled to shareholders shall be debited directly to equity. In case a preferred share is classified as a liability, the dividend of such preferred share payable to shareholders shall be recognized in expenses in the period.

2. Transaction costs relating to the issue of a compound financial instrument shall be amortized in proportion for liability and equity components of such instrument. Transaction costs relating to different transactions shall be amortized for such transactions in proportion. Transaction costs shall be accounted for as a deduction from equity in the reporting period.

3. Gains and losses resulting from changes in the carrying amount of financial liabilities shall be recognized as incomes or expenses in the profit or loss statement.

Article 12. Offsetting of financial assets and financial liabilities in balance sheets

A financial asset and a financial liability shall be offset for each other in the balance sheet when, and only when, an entity:

a/ Has a legally enforceable right 10 offset the recognized amounts: and.

b/ Intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

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Circular No. 210/2009/TT-BTC dated November 6, 2009, of the Ministry of Finance guiding the application of international accounting standards on presentation of financial statements and disclosures of financial instruments

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