University of Wollongong Research Online University of Wollongong Thesis Collection University of Wollongong Thesis Collections 2004 Accounting changes in a transition economy: the case of Vietnam Thanh Chu University of Wollongong Recommended Citation Chu, Thanh, Accounting changes in a transition economy: the case of Vietnam, Doctor of Philosophy thesis, School of Accounting and Finance, University of Wollongong, 2004. http://ro.uow.edu.au/theses/1903 Research Online is the open access institutional repository for the University of Wollongong. For further information contact Manager Repository Services: [email protected]. ACCOUNTING CHANGES IN A TRANSITION ECONOMY: THE CASE OF VIETNAM A thesis is submitted in fulfillment of the requirements for the award of the degree DOCTOR OF PHILOSOPHY from UNIVERSITY OF WOLONGONG by CHU THANH BA (Economics University, Prague, Czech Republic) MsBA (University of Illinois, Illinois, USA) SCHOOL OF ACCOUNTING AND FINANCE FACULTY OF COMMERCE 2004 CERTIFICATION I, Chu Thanh, declare that this thesis, submitted in fulfillment of the requirements for the award of Doctor of Philosophy, in the School of Accounting and Finance, University of Wollongong, is wholly my own work unless otherwise referenced or acknowledged. The document has not been submitted for qualifications at any other academic institution. Chu Thanh 3 June 2004 i TABLE OF CONTENTS TABLE OF CONTENTS i CHAPTER 1 Introduction 1 1.1 Rationale for the Study 1 1.2 Objective of the Study... 4 1.3 Research Methodology 5 1.4 Structure of the Thesis 6 CHAPTER 2 Research Methodology 10 2.1 Introduction 10 2.2 The Long Way to Non-mainstream/Alternative Accounting Research 10 2.2.1 The Confrontation between Educational Background and Practical Experience 12 2.2.2 Why Non-Mainstream/Alternative Accounting Research? 16 2.3 Ethnography 23 2.3.1 Definition 23 2.3.2 Characteristics of Ethnography 24 2.3.3 Why ethnography? 27 2.4 Data Collection Techniques 28 2.4.1 Participant Observation 29 12.4.2 In-depth Interviews 35 2.5 Conclusion 40 CHAPTER 3 Accounting in the Socialist Economy 42 3.1 Introduction 42 3.2 Main Characteristics of the Socialist Economy 42 3.2.1 The Centralisation of Political Administration and Economic Management 43 3.2.2 The Public Ownership of the Means of Production and the System of Production and Distribution of the National Income Under Socialism. .49 3.2.3 State-Owned Enterprises 51 3.2.4 The Problems of Socialism 56 3.3 The Main Characteristics of Accounting in Socialist Countries 57 11 3.3.1 The Economic Data Processing System (Economic Accounting System) JO 3.3.2 The Centrally Regulated Accounting System 60 3.3.3 The Functions and Tasks of Accounting in Socialism 62 3.3.4 The National Accounting Plan 65 3.4 Conclusion /J CHAPTER 4 Accounting Changes in a Transition Economy 76 4.1 Introduction '" 4.2 The Transition Economy 77 4.2.1 Key Issues in the Process of Transition 77 4.2.2 Two Approaches of Transition: 'Big Bang' vs. 'Gradualism' 82 4.3 Accounting in the Transition Economy: a Literature Review 85 4.3.1 The Role of Government 90 4.3.2 The Accounting Regulation Reform - a Westernisation Approach 92 4.3.3 The Intervention (role) of Foreign Countries and International Organization 96 4.3.4 The Effects of the Past on the New Accounting System 100 4.4 Conclusion 103 CHAPTER 5 Historical Background and Cultural Characteristics of Vietnam 105 5.1 Introduction 105 5.2 Geographic and Natural Settings 105 5.3 The Vietnamese Culture 107 5.3.1 The People 107 5.3.2 Main Characteristics of the Vietnamese Culture 108 5.4 A sketch of Vietnamese History 115 5.4.1 Old Vietnam 116 5.4.2 Chinese Domination 116 5.4.3 The Independent Period under Vietnamese Dynasties 120 5.4.4 French Colonialism 125 5.4.5 Vietnam in Recent Times 132 5.5 Conclusion 136 CHAPTER 6 Vietnamese Accounting under Socialism 138 6.1 Introduction 13g / 6.2 Historical Sketch of the Development of the Vietnamese Accounting System 139 iii 6.2.1 The Vietnamese Accounting System Before 1960s 139 6.2.2 1961 - 1970 the Period of Setting Foundation of the Vietnamese Accounting System 140 6.2.3 1971 - 1980 the Period of Unification of Accounting and Statistics.... 143 6.3 Accounting in Vietnam: A Story of Socialist Accounting in a Developing Country 145 6.3.1 The Influence of French Accounting 145 6.3.2 The Influence/Importation of Socialist Accounting from the Soviet Union, China and other Socialist Countries 147 6.3.2.1 The influence of Chinese accounting 147 6.3.2.2 The Direct Importation of Socialist Accounting from the Soviet Union, and the Direct Involvement of Soviet Accounting Experts ..147 6.3.2.3 The Importation of Accounting through the Education and Training of Vietnamese Cadres in Socialist Countries 150 6.3.3 Structure of Accounting Importation and Accounting Regulation Development 151 6.4 The Accounting Mechanism (System): The Domination of Government Authorities in Accounting Methodology Development and Regulation 156 6.4.1 The Ministry of Finance 156 6.4.2 The Department of Financial Policy 157 6.4.3 The Department of Accounting Policy 158 6.4.4 Department of Accounting Policy of other Ministries 159 6.4.5 Chief Accountant 160 6.5 Basic Elements of Vietnamese Accounting 161 6.5.1 Source Documentation Regulation 162 6.5.2 Accounting Book Regulation 163 6.5.3 Uniform Chart of Account Regulation 163 6.5.4 Accounting Report Regulation 167 6.6 Issues of Accounting Practise in the Vietnamese Socialist Economy 172 6.6.1 The Inappropriateness of the Requirements of the Government for Accounting Information and the Material-Technical Facilities of Enterprises 174 6.6.2 Macro- vs. Micro- Perspectives 174 6.6.3 Conflicts of Interest between the Government and Enterprises 176 6.7 Conclusion 177 CHAPTER 7 Economic Reform in Vietnam 179 7.1 Introduction 179 7.2 Overview of Economic Reform 179 7.2.1 The Need for Economic Reform 179 7.2.2 Actions of the Government 182 7.2.3 Summary of Economic Reform 186 IV 7.3 Transition Economy from Cultural and Ideological Perspectives J90 7.3.1 Cultural Perspective 19° 7.3.2 Ideological Attitudes Towards the Transition Economy 192 7.4 Enterprises in the Vietnamese Transition Economy 196 7.4.1 Foreign Investment Enterprises • *99 7.4.2 Private Registered Enterprises (small and medium enterprises, SMEs) 201 7.4.3 State-owned Enterprises (SOEs) 203 7.4.3.1 Reform and Equitisation of SOEs 203 7.4.3.2 Major Characteristics of SOEs 209 7.5 Conclusion 211 CHAPTER 8 New Model of the Development of Accounting Regulations 214 8.1 Introduction 214 8.2 Accounting Reform in a Transition Economy - an Overview of Main Events.. 215 8.2.1 Initial Steps (1981-1990) 216 8.2.2 Radical Accounting Reform (1991-1996) 218 8.2.3 Standardisation of the Vietnamese Accounting (1997-present) 221 8.3 New Model of the Accounting Regulation Development 224 8.3.1 The Introduction of Market Economic Concepts into Vietnam 225 8.3.2 Finance, Tax and Statistical Reforms 229 8.3.3 Driving Forces for Accounting Reform 231 8.4 Players of Accounting Reform 234 8.4.1 The Department of Accounting Policy - a Key Player in Accounting Reform 234 8.4.2 Vietnamese Accounting Association (VAA) 236 8.4.3 State Audit Office (SAO) ""'"""'.237 8.4.4 National Council for Accountancy (NCA) 237 8.4.5 Public Accounting Firms 238 8.4.6 Universities 239 8.4.7 The Corporate Finance Department (CFD) 240 8.4.8 The General Tax Office and the Department of Finance 241 8.5 Major Changes of the Vietnamese Accounting Policy 241 8.5.1 Loosening of Source Document'Control 242 8.5.2 New Uniform Chart of Accounts with more Room for Market Transactions 242 8.5.3 Market-like New Financial Statements 243 8.6 Issues of Accounting in Transition 245 8.6.1 The leadership of the Government and its Effect on Accounting Reform.. 245 8.6.1.1 Tight Control 247 V 8.6.1.2 Subjective and Impractical Regulations 248 8.6.1.3 Bias in Favour of Government Interest 250 8.6.1.4 Reaction of Enterprises 251 8.6.2 Problems of the Regulatory Structure 252 8.6.2.1 Negative Effect of the Abolishment of Accounting Policy Departments at Ministries 252 8.6.2.2 Financial Policy vs. Accounting Policy 254 8.6.2.3 Tax Regulations vs. Accounting Regulations 256 8.6.3 Cooperation of Government Authorities in Accounting Reform 259 8.6.4 Professional Development 261 8.7 Conclusion 267 CHAPTER 9 Development of Vietnamese Accounting and Auditing Standards... 270 9.1 Introduction 270 9.2 Overview of the Development of Vietnamese Accounting and Auditing Standard Project 270 9.2.1 Sketch 270 9.2.2 Basis for the Development of Vietnamese Accounting and Auditing standards 272 9.2.3 Basic Procedures in Developing and Issuing Vietnamese Accounting and Auditing Standards 273 9.3 Why Accounting and Auditing Standards? 277 9.3.1 Pressure From Foreign Investors 277 9.3.2 Pressure From International Financial Institutions 279 9.3.3 Flexible Response 280 9.4 International Accounting and Auditing Standards - a Rational Choice? 283 9.4.1 Contribution and Effect of the Euro -Tap Viet Project 283 9.4.2 Supporters of Accounting Harmonization 286 9.5 Vietnamisation - Main Principle in the Development of Accounting and Auditing Standards 288 9.5.1 Justification for Vietnamisation 289 9.5.2 The Lens Used by the Vietnamising Process 294 9.6 Problems of the Vietnamising Process 295 9.6.1 Educational Problem 295 9.6.1.1 Language Obstacle 295 9.6.1.2 Poor Knowledge of International Standards 297 9.6.2 Ideological Clash 300 9.6.2.1 The Vietnamese Accounting Policy (VAP) and International Accounting Standards (IAS): Two Different Philosophies Toward Accounting