Balancing Prudence and Relevance: Key Levers Shaping Vietnam's Accounting System During IFRS Integration

Abstract

This article analyzes the dynamic relationship between prudence and relevance - two core characteristics that define the quality of accounting information - in the context of Vietnam's preparation for the mandatory adoption of International Financial Reporting Standards (IFRS) after 2025. Based on the IFRS Conceptual Framework and cost-benefit theory, we develop a net benefit curve model. In this model, the optimal equilibrium point represents a level of prudence sufficient to minimize error risks without compromising timeliness and usefulness. A review of international experience indicates that developed markets often prioritize relevance, while legal frameworks based on detailed civil law (code law) emphasize prudence. In Vietnam, our analysis of the current situation and expert surveys reveal that the accounting system still leans heavily towards prudence, which reduces its predictive capability and attractiveness for capital investment. Building on these findings, the article proposes three key policy recommendations for the post2025 period: (1) Implementing a two-tier standard framework: IFRS for public enterprises and Vietnam Financial Reporting Standards (VFRS) for small and medium-sized enterprises; (2) Establishing a flexible domestic endorsement mechanism: This would allow for adjustments to the fair value measurement roadmap; (3) Utilizing a tax-audit stabilization mechanism: This involves separating tax purposes from financial reporting, while simultaneously enhancing transparency in the disclosure of estimates and strengthening audit accountability. These proposals aim to achieve a "new equilibrium" where prudence and relevance are mutually supportive. This will contribute to improving information quality, reducing capital costs, and fostering the sustainable development of Vietnam's financial market.