Circular 118: IFRS Election for Vietnam IFC Members, Key Obligations and the Transition Roadmap

IFRS transition is more than an accounting conversion. Although it begins with financial reporting requirements, its effects can extend to governance, performance measurement, systems, data and controls. A well-managed transition can improve financial comparability and support better-informed discussions with investors and financing partners. These benefits depend on implementation quality; they are not automatic.

1. Vietnam: A Specific Application Framework under Circular 118

Circular 118 was issued under Clause 5, Article 3 of Decree 324/2025/ND-CP. Circular 118 applies to enterprises and economic organizations that are members of the International Financial Center (IFC) within the scope of Resolution 222/2025/QH15 and related guidance.

• Who may elect: IFC members wishing to apply the standards, with sufficient capability and resources, may elect to use them to prepare and present financial statements and consolidated financial statements.
• Effective date: Circular 118 takes effect on 1 January 2027 and applies to financial years beginning on or after that date.
• Existing appliers: Entities already applying the standards under Resolution 222/2025/QH15 continue under Circular 118.
• Public list: The Ministry of Finance publishes and updates a list of applying entities on its portal.

2. What Eligible Members Need to Consider

2.1 Apply the standards in full, without modification

Under Circular 118, effective International Accounting Standards must be applied in their original form and consistently throughout the financial year. Commencement or discontinuation is permitted only at the beginning of the subsequent annual accounting period.

2.2 Plan notification and reporting obligations

Under Circular 118, written notice must be sent to the Ministry of Finance at least 30 days before commencing or discontinuing application. For a 1 January 2027 start, this means early December 2026 at the latest. Financial statements and consolidated financial statements must be submitted to the IFC's Executive Body and Supervisory Body and competent Vietnamese authorities. Reporting periods, filing deadlines and public disclosure remain subject to applicable Vietnamese requirements.

2.3 Maintain accountability and transparency

Entities applying the standards under Circular 118 are responsible for their election and must provide complete information and clear explanations to tax, regulatory and supervisory authorities. They must also include a statement of compliance in the notes to their financial statements and consolidated financial statements.

2.4 Keep accounting and tax requirements distinct

Circular 118 does not replace tax legislation: tax obligations continue to be determined under Vietnamese tax law. The implementation team should separately assess current and deferred tax consequences and maintain clear reconciliations between financial reporting and tax information.

3. Beyond Accounting: The Strategic Case for IFRS

A common reporting framework can make financial information easier to compare across entities and markets. For management, the opportunity of a common reporting framework is to improve the quality of information used in decisions and strengthen communication with stakeholders.

Management key performance indicators (KPIs) also need consistent definitions and reconciliations to IFRS measures. Under IFRS 18, certain management-defined performance measures (MPMs) must be disclosed and reconciled in the notes.

4. Five Foundations of a Successful IFRS Transition

Technical accounting, project governance, and data readiness need to be addressed together. We recommend five foundations:

(i) Develop compliant, entity-specific accounting policies

Policies must follow IFRS requirements and reflect the entity's transactions and operating model. Business objectives inform implementation priorities, not departures from accounting requirements. Document permitted choices and significant judgements.

(ii) Assign cross-functional ownership

Appoint an executive sponsor and finance project lead. Involve operations, information technology (IT), treasury, human resources (HR) and tax specialists as relevant, with named owners for data, technical decisions and controls.

(iii) Set measurable milestones

Include policy approval, the opening IFRS statement of financial position, comparative information, system readiness, draft disclosures and pilot reporting. Build regulatory notification and filing requirements into the project calendar.

(iv) Address complex areas early

Depending on the business, prioritize revenue, leases, financial instruments, impairment, income taxes, employee benefits, consolidation and presentation under IFRS 18, which applies from 2027. Escalate material judgements and data gaps before they affect the reporting timetable.

(v) Communicate decisions and impacts clearly

Keep the board or members' council, lenders and other relevant stakeholders informed about progress, unresolved issues and material changes in reported results. Distinguish accounting changes from changes in underlying business performance.

5. The IFRS Journey: From Readiness Assessment to Business as Usual

Phase 1: Readiness and gap analysis

Phase 1 starts with accounting differences and follows the supporting processes, data and controls end to end. Typical Viet Nam differences include:

The output of Phase 1 should be a prioritized action plan, with owners, data requirements and decision deadlines.

Phase 2: First-time adoption

First-time adoption requires a separate workstream. Circular 118 requires entities changing accounting frameworks to present comparative information and full disclosures under IFRS 1. IFRS 1 requires:

• An opening IFRS statement of financial position at the transition date;
• Consistent policies based on standards effective at the end of the first IFRS reporting period;
• Assessment of mandatory exceptions and optional exemptions; and
• Reconciliations explaining the transition's effects.

Under IFRS 1, the first IFRS financial statements include at least three statements of financial position, including the opening one.

Illustration, not a prescribed deadline: for an existing calendar-year entity whose first IFRS financial statements are for the year ending 31 December 2028, with one full comparative year, the transition date is 1 January 2027 and the comparative year is 2027.  

The Circular’s effective date is not automatically the IFRS transition date; management must determine the timeline from the first reporting period and comparative information presented.

Phase 3: Implementation

Implementation (Phase 3) turns policy decisions into repeatable operations. Entities should:

• establish reliable lease registers;
• analyse customer contract terms (performance obligations, variable consideration);
• identify financial instrument data; and
• integrate impairment assessments into the close.

System enhancements and process redesign may be needed depending on volume and complexity. Controlled spreadsheets can support the IFRS transition, but should have defined ownership, version control, reconciliations, and review.

Phase 4: Training & Monitoring

Training & Monitoring (Phase 4) embeds IFRS into monthly and quarterly routines. Pilot closes, targeted workshops and structured reviews help teams apply policies consistently. Management should monitor unresolved judgements, data quality, reporting timeliness and control exceptions, with clear escalation and corrective actions.

6. What Businesses Can Gain from a Well-Managed Transition

• Stronger systems and controls, through better data capture, documented decisions and repeatable reporting processes.
• Clearer international communication, through more comparable financial information for investors, lenders and group reporting.
• Greater reporting resilience, through defined responsibilities, trained teams and sustainable closing routines.

7. Conclusion: A Practical First Step

For eligible IFC members considering the election under Circular 118, we recommend completing an IFRS readiness assessment before committing to a reporting timetable. Confirm eligibility with the appropriate specialists, define the first reporting period and transition date, and assess accounting gaps, data, systems, controls and resources. Use the results to approve a phased roadmap, assign accountable owners and plan notification and filing obligations.

How can we help?

Contact our Accounting & Outsourcing team to discuss how Circular 118 applies to your IFRS transition strategy in Vietnam.

Sources and Remarks

• Circular 118/2026/TT-BTC, Articles 1–7, issued on 18 August 2026; Decree 324/2025/ND-CP, Clause 5, Article 3; Resolution 222/2025/QH15.
• IFRS Foundation, IFRS 1, paragraphs 6–8, 12–18 and 21–33, and Appendix A; IFRS 18 Presentation and Disclosure in Financial Statements.

(*) Circular 118 uses "International Accounting Standards" as its regulatory term. This article uses "IFRS Accounting Standards" or "IFRS" when discussing the financial reporting framework and first-time adoption under IFRS 1. In our view, the Circular's term should be read as the full body of standards issued by the International Accounting Standards Board (IASB) (IFRS, IAS and Interpretations), not only the standards titled "IAS".

*Disclaimer: The materials presented by Forvis Mazars in Vietnam have been prepared for the purpose of providing professional updates in Vietnam. The information, analyses, and comments contained herein are intended solely as general guidance and are based on, cited from, and interpreted from official regulations and documents issued by government authorities. We recommend that clients contact Forvis Mazars Vietnam's advisory team for detailed professional advice tailored to their specific circumstances.