HANOI UNIVERSITY

FALCULTY OF MANAGEMENT AND TOURISM

----------

ADVANCED FINANCIAL REPORTING

Truong Thanh Furniture

Corporation (TTF)

Tutor: Dinh Le Mai

Tuorial class: Tut 04

Student’s name ID
Nguyen Thi Hai Anh 1704010004
Nguyen Thi Ngoc Ha 1704010030
Phùng Thi Thu Huyen 1704010052

Hanoi, December 2020

 Abstract

In the current integration period, international standards are increasingly

being appreciated and popularly used. Foreseeing that situation, the
Vietnamese accounting system is also gradually changing and applying
international IFRS standards. However, accounting standards are not always
applied and implemented properly by businesses. Therefore, in order to
clarify the highlights, we will also analyze a case of the Truong Thanh
company. Firstly, we will show the most overview of the information of the
company. Based on provided reliable financial statements, newspaper, we
analyze their mistakes in the revenues and earnings in 2015 and 2016 leading
to serious consequences. Moreover, we justify that whether the assests reflect
its fair value. At the same time, we will also highlight the advantages and
challenges of Vietnam today in applying IFRS in accounting.
 Table of Contents
Abstract ...................................................................................................................................... 2
I. Introduction ........................................................................................................................ 1
II. Go Truong Thanh overstate its revenue and earnings ........................................................ 1
1. Company background ......................................................................................................... 1
2. By selling goods to related party, did Truong Thanh Corporation overstate its revenue
and earnings (year 2015 & year 2016)? ..................................................................................... 2
3. Did the assets reflect Truong Thanh’s fair value? .............................................................. 5
a. Inventory...................................................................................................................... 5
b. Account receivable ...................................................................................................... 6
III. Application of IFRS in Vietnam ........................................................................................ 7
1. Advantages of applying IFRS in Vietnamese economies .................................................. 7
2. Disdvantages of applying IFRS in Vietnamese economies ............................................... 8
3. Audit opinion ..................................................................................................................... 9
IV. Conclusion ......................................................................................................................... 9
REFERENCES ........................................................................................................................ 11
 I. Introduction

Truong Thanh Furniture Corporation (TTF) is a manufacturer specializing in supplying,

installing and executing interior-exterior established in 1993 in DakLak. Their products are
presenting in markets with strict demand for wood such as Korea, Japan, the United States
and European countries ... TTF's products are widely used in interior decoration and are
representatives of housing areas, apartments, villas, schools, hospitals, shopping centers,
luxury resorts,....However in 2016, the company fell into a crisis when there were a series of
mistakes is indicated. DFK is the company that audited Truong Thanh Wood Company in
2015, but 6 months later, another auditing company, E&Y discovered a very serious
problem at Truong Thanh Wood, TTF shares fell to the floor 13 consecutive sessions. In
detailed, after the bad news, the stock price immediately halved and company’s missteps are
mainly related to inventories, sales and accounts receivable. The collateral declaration
contract is virtual because the audited inventory value does not match reality, leading to
Truong Thanh company losing equity capital, causing direct damage to shareholders as well
as the banks. Since then, it more clearly shows the role of the accounting system in
businesses. It should be taken seriously and properly. Therefore, through the case of Truong
Thanh company, some perspectives of applying IFRS standards into accounting system in
Vietnam also are indicated when Vietnam is aiming to replace the old system with IFRS.

II. Go Truong Thanh overstate its revenue and earnings

1. Company background

Truong Thanh Furniture Corporation (TTF) is a manufacturer specializing in supplying,

installing and producing interior and exterior furniture, floors, wooden doors, and products
for construction and interior decoration. TTF was established in 1993 in DakLak, and became
one of the most successful pioneers manufacturer in the wood production industry in
Vietnam. Their products were provided for foreign markets with strict demand for wood such
as Korea, Japan, the United States and European countries, etc. In particular, TTF's products
are widely used as modern interior decoration for houses, apartments, villas, schools,
hospitals, shopping malls, luxury resorts, etc. TTF factory includes 6 member companies and
13 affiliated factories, including 11 factories in Binh Duong, 2 factories in Dak Lak with a
scale of 200,000m2, fully equipped with machinery and equipment and more than 2000 staff
members. (Truong Thanh)

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 2. By selling goods to related party, did Truong Thanh Corporation overstate its
revenue and earnings (year 2015 & year 2016)?

Truong Thanh Company (TTF) announced its review financial report for the first 6 months of
2016 with disclaimer audit opinions from the E&Y audit firm. The primary reason for this
audit opinion derived from an unusual large amount of revenue of over VND520 billion,
related to a group of customers in the first 6 months in 2016. This amount accounted for
nearly 60% of revenue that TTF earned during the period (more than VND883 billion).
Based on the information provided, E&Y was unable to obtain sufficient appropriate
evidence to determine the existence of these sales transactions. Consequently, E&Y is unable
to determine whether an adjustment was required for the sales and cost of goods sold
recorded from these sales transactions for the six-month accounting period ended June 30,
2016.
According to the notes 25.1 in the financial statements, VND 520 billion of this revenue arise
from the customer group of six companies. The highest revenue amount belonged to DLC
Trading and Construction Co., Ltd with VND151 billion in 2016 and almost VND 441 billion
in prior year (constituting of 33% of total revenue). Ranking at the second position, Minh
Hoang Forestry Service and Trading Co., Ltd was recorded with revenue of VND148 billion
compared to VND163 billion of the same period last year. The remaining companies include
Tinh Tien Dak Nong Co., Ltd with revenue of VND123 billion (130 billion VND in the same
period in last year), Truong Son Agriculture and Forestry Construction Investment JSC with
revenue of VND63.5 billion in 2016 and Ha Son Hai Construction and Trading Co., Ltd with
revenue of VND36 billion (same period of previous year was VND59 billion). Especially,
TTF did not generate revenue with Hoang Nam Forestry Co., Ltd in this period but the first 6
months of 2015 earned a revenue of VND868 million from them.

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Figure 1: Sales revenue of TFF for the first six month ending in 2016 and the same period of
prior year

In addition to an unusual large amount of selling goods to related parties with no supporting
documents, E&Y audit firm also identified a big problem that approximately 50% of sales
revenue was recorded improper accounting, and was not sufficient conditions to recognize as
revenue. After E&Y had released a review financial report with emphasis explanation on for
first six month ending of 2016, Truong Thanh Wood Company disclosed an explanation for
the difference between the audited financial statements and the reports established by the
company earlier. Company explained the big difference in a number of some accounts
between internal and post-audit financial statements, of which there was a loss of VND1,275
billion after auditing.
Especially, in the internal financial statement of parents company, sales revenue decreased by
nearly VND251 billion, equivalent to a decrease of 29%. This meant that Truong Thanh
Company had overstated its revenue to VND1102 billion for any their intentional purpose.
Moreover, administrative expenses included the highest difference with a sharp increase up to
VND351 billion. There are also a number of other difference categories such as financial
income, cost of goods sold, financial expenses, other income and expenses.

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 Figure 2: Difference between reviewed report and internal report of parent company

Sales in the consolidated financial statements decreased by 48% from VND 1,249.5 billion to
VND 644 billion after audit process, administrative expenses had overstatement of around
353 billion.

Figure 3: Difference between reviewed report and TTF company’s consolidated report

The reason of revenue loss recognition explained by TTF was due to the fact that there was a
portion of the revenue which was ineligible for recognition. Since then, costs of goods sold
also recorded an adjusted amount to follow a decrease in proportion to revenue and
administration expenses also reduced because of a decrease in the provision for uncollectible
allowance for doubtful accounts.
In summary, as mentioned above, not obtaining sufficient appropriate evidence to determine
the existence of sales transactions for a group of customers with nearly VND 520 billion of
E&Y and the improper recorded accounting at overstatement of revenue of firm, It revealed
that obviously Truong Thanh Wood company had overstated its revenue and earnings.

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 3. Did the assets reflect Truong Thanh’s fair value?

Fair value is defined as the price appropriate to market price that would be received for sale
of an asset or paid to transfer a liability at the measurement date. Specifically, “in accounting,
fair value is a reference to the estimated worth of a company's assets and liabilities that are
listed on a company's financial statement” (Investopedia, Ames Chen, 2020). Hence, based
on these definitions, it could be concluded that Truong Thanh Company’s assets were not
reflected properly as it’s fair value because of some following reasons.
Firstly, in 2016 Truong Thanh suddenly reported a loss of up to VND1,123 billion in second
quarter while they had gained profit of VND54 billion in the previous quarter. Accumulated
the first 6 months in 2016, Truong Thanh Wood lost VND1,073 billion but the same period

still experienced VND133 billion for profit.

a. Inventory

According to Ernst & Young Vietnam Co., Ltd, The reason for this loss is because non
existent inventory that discovered up to VND980 billion missing from inventory in cost of
goods sold. The provision for bad debts and insufficient inventories caused the company to

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fall into heavy losses. By the end of June, inventories of Truong Thanh Wood decreased to
1,777 billion VND. Public revenue decreased 34.5% to 883 billion. Total assets evaporated
more than 800 billion to 3,573 billion. In particular, the debt ratio has increased to nearly
86%, eroding the equity of this wood giant.
For a company with a large inventory of goods as Truong Thanh, a loan from banks is very
necessary and according to the note from the company, the above loans are secured by
revolving inventories, fixed assets under the ownership, receivables are formed and will be
formed in the future from export contracts. However, TTF made serious mistakes in
inventory recognition and bad debts to ensure those loans.
According to the inventory results, Ernst & Young discovered that Truong Thanh Wood
lacked up to 980 billion VND inventory compared to reports. E&Y said it was impossible to
determine when the gap arisen was in the previous reporting periods or in the current
reporting period. Therefore, E&Y is unable to determine whether an adjustment is required to
the interim consolidated statement of income and the interim consolidated cash flow
statement. In this financial report, with the recognition of inventory loss and loss of
approximately 1,052 billion dong, TTF's COGS soared to 1,763 billion dong. This is also the
main reason that makes Truong Thanh Yin Wood's profit to 1,085.5 billion dong.

b. Account receivable

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In the item of account receivable, Truong Thanh was adjusted retroactively, going down 218
billion VND to 861 billion VND (as at 31/12/2015). The reason is because TTF had to make
an additional provision of VND 193 billion into the provision for bad debts. At the same
time, these numbers make the assets decrease.
Moreover, the company also had to make an additional provision of VND 38 billion for
short-term bad debts and customers' capital appropriation. Therefore, with the adjustment
prefix at the beginning of the year, account receivables continued to decrease by 30%, down
to 597 billion VND. Cash and cash equivalent of TTF increased from nearly 8 billion to 100
billion. However, with the decrease in the value of inventories and accounts receivable, TTF's
total assets decreased by 18.5%, to VND 3,574 billion.
In principle, the retrospective adjustment aims to ensure that the data accurately reflect the
actual assets at the past time. This raises questions that the accounts receivable and inventory
figures established by the Board of Directors of Truong Thanh Wood and audited by DFK as
of December 31, 2015 were problematic.

III. Application of IFRS in Vietnam

Vietnam's accounting standards (VAS) revealed the limitations that affect the quality of
financial statements of enterprises as well as the integration process of Vietnam with other
countries. The biggest difference is that VAS is at historical cost, and IFRS is at market
prices. To overcome these inadequacies, as well as in accordance with international
standards, Vietnamese Government has planned and developed the process for IFRS
application in Vietnam.

1. Advantages of applying IFRS in Vietnamese economies

IFRS standards have been investigated and fulfilled for a long time, to best suitable for the
preparation of financial statements. Application of IFRS have many advantages to business
accounting and management, which the most important are increasing investment and
integration opportunities, attracting many domestic and international investors, and
promoting the integration process with the world economy. Currently, 131/143 (93%)
countries and territories have officially applied IFRS with different forms. This standard
becomes a common accounting language for businesses in all over the world. With uniform
accounting standards among economies, the financial statement of any operation can be
presented and disclosed in the same measurement, thus the information comparability among

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businesses worldwide becomes easier. Investors can easily assess the situation of any
economies through the financial systems, and seek opportunities in many countries.
Meanwhile, Vietnamese enterprises have chances to attract capital sources not only in
domestic but also from foreign investors, and expanding development opportunities in
international markets.
Companies that apply IFRS will improve the transparency and reliability of their financial
statements, because IFRS rules require that information be presented honestly, reasonably
and publicly. Fluctuations in fair value, depreciation of assets are assessed and recognized
immediately, so as to stabilize financial performance of companies responding to market
changes. The corporate responsibility is enhanced, thus preventing negativity and corruption.
The quality of the financial statements is improved when IFRS helps the company's financial
system be best evaluated, which benefits the management of business, finding financial
resources as well as when investors evaluate business.
In addition, businesses can save costs when preparing reports when issuing securities to
mobilize capital, especially foreign investment, or when preparing a finance report according
to IFRS, without having to prepare under VAS to submit to Vietnamese authorities.

2. Disdvantages of applying IFRS in Vietnamese economies

Besides these benefits, businesses are concerned that they will face many difficulties and
challenges as Vietnam still prepares a long-term stages to apply IFRS.
The first time application requires high cost for employee training, translating IFRS into
Vietnamese, changing information systems and accounting software. Changing accounting
standards nationwide must be done through many stages, with different scopes and contents.
That means initial investment is not only required for individual businesses, but also for the
public financial system, and the government of Vietnam. At the same time, the human
resource and the accounting system must also be trained, updated to be proficient with the
new standards, and also avoid potential for errors and misstatement when applying IFRS.
VAS standards have been applied for a long time, have a deep and long-term impact on the
accounting system in Vietnam, so changing accounting rules will face ethical difficulties, for
example, professional ethics, unwillingness to publicize the financial situation or weakness
cover-up. All the information about the financial situation, cash flow, performance results
and other information of the enterprises must be publicly available. Meanwhile, changing in
accounting systems may lead to negative variation in operation ratio on the first stage, and

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results in down response of market valuation, which can be unexpected to some companies
that are suffering difficult period.
In terms of law, the legal framework of Vietnam on accounting, tax, customs and valuation is
not compatible with the IFRS requirements, leading to problems in implementing this
standard. The adjustment for mechanisms and policies must correspond with change in
accounting frameworks, but also be consistent with the public and economic situation in
Vietnam. However, the influence scope of legal system are significant and various, so in
short term, Vietnam authorities have to face with a huge problem when applying IFRS in
businesses accounting system.

3. Audit opinion

The change at company leadership levels about IFRS is very important. Since it will be
difficult to update and catch up on the transition to IFRS adoption, it will be difficult to see if
business managers see this as a must-follow change, rather than a management strategy.
Otherwises, the accounting staff's ability to respond to IFRS is still limited, especially in
small companies. This shortage of human resources, skills required many times and to adapt
to international standards. This leads to the financial statements depending on the proposals
of the auditors. Concerns for auditing units participating sometimes are too much in the
financial statement preparation process of enterprises, which may cause a lack of independent
assessment when auditing.
Otherwises, managers are concerned about the impact of the new standard on corporate
financial results, thus affecting company position in the market. “Applying IFRS will cause
the financial ratios on the high-level financial statements to drop, leading to an initial shock
when the financial indicators change.”- said Mr. Truong Duc Phuong, CFO of Zamil Steel
Company.

IV. Conclusion

In fact, enterprises can use accounting tricks to adjust figures for their own purposes and it is
the audit's job to quantify and quantify these adjustments so that they are within a
permissible framework not to miss material deviation. The numbers increased and decreased
abnormally and had no evidence so it causes significant losses to the investors. It is a
valuable lesson for Truong Thanh company and others. They should have a good business
strategy and accounting management system. This accounting error also further shows the
importance of accounting in today's businesses. The application of international accounting
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standards IFRS still has some difficulties when implementing in Vietnam. But it is also
gradually being perfected towards common standards that will be widely and entirely
applied in the near future.

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 REFERENCES

Vietstock (2016), Giai trinh bao cao tai chinh rieng, hop nhat nam 2016. Retrieved from:
https://static2.vietstock.vn/data/HOSE/2016/BCTC/VN/NAM/TTF_Giaitrinh_KQKD_2016
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https://static2.vietstock.vn/data/HOSE/2016/BCTC/VN/QUY%202/TTF_Baocaotaichinh_Q
2_2016_Hopnhat_DieuChinh.PDF
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T_2016_Soatxet_Congtyme.pdf
Vietstock (2016), Bao cao tai chinh T6 2016 cong ty me soat xet, hop nhat. Retrieved from:
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T_2016_Soatxet_Hopnhat.pdf
Thanh Thủy (2016). Gỗ Trường Thành (TTF): Tồn kho "bay hơi", lỗ quý II hơn nghìn tỷ
đồng. Cafef. Retrieved from:
https://cafef.vn/go-truong-thanh-ttf-ton-kho-bay-hoi-lo-quy-ii-hon-nghin-ty-dong-
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Minh Châu (2016). Kiểm kê thiếu hụt gần 1000 tỷ tại Gỗ Trường Thành: trách nhiệm của
công ty kiểm toán DKF Việt Nam thế nào?. Cafef. Retrieved from:
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nhiem-cua-cong-ty-kiem-toan-dfk-viet-nam-the-nao.chn
Thu Hằng (2016). Cơn bĩ cực của Gỗ Trường Thành. Thời báo kinh doanh. Retrieved from:
https://thoibaokinhdoanh.vn/co-phieu/con-bi-cuc-cua-go-truong-thanh-1013712.html
Website: https://www.truongthanh.com/
Tân Văn (2020). Nhiều khó khan khi triển khai IFRS tại Việt Nam. BSC. Retrieved from:
https://www.bsc.com.vn/tin-tuc/tin-chi-tiet/726824-nhieu-kho-khan-khi-trien-khai-ifrs-tai-
viet-nam

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