LESSONS FROM CONSOLIDATED FINANCIAL STATEMENTS

1. Benefits and limitations

1.1. Benefits
Firstly, the consolidated financial statements provide a general view of the whole resources
of Vietnam Dairy Products Joint Stock Company under the control of its parent company. It is
certain that investors do not want to spend lots of time reading numerous reports to find out
whether the corporation is profitable or losing. The consolidated financial statements composed
by Vinamilk - the parent company facilitate the work and become a reliable reference for managers
who need to know the way subsidiaries have operated as a unified entity.
Secondly, the consolidated financial statements reduce a number of papers used for
creating reports. Because Vinamilk owns 7 subsidiaries, 28 separate financial statements will be
composed, let alone separate reports of the parent company. Not only does it have difficulty
keeping track of all reports, shareholders and investors also find it challenging to examine each
statement and have a panoramic picture of Vietnam Dairy Products Joint Stock Company’s
performance. The consolidated financial statements have reduced 28 statements to just 4 reports,
which generates the ease of monitoring the financial situation of the corporation.
Thirdly, the consolidated financial statements create efficiency and save time for readers.
Rather than investigate the individual financial statements of 7 subsidiaries and 3 associates,
investors only need to consider the consolidated financial statements to find out the financial
situation of the corporation.
Lastly, the consolidated financial statements with containing full of assets and liabilities
will help investors to assess the corporation for investment purposes. In addition, the executives
looking at reports can find out how to foster and raise revenues for Vietnam Dairy Products Joint
Stock Company.

1.2. Limitations
In addition to some uses, the consolidated financial statements still have limitations. The
main disadvatages is that it lacks of subsidiaries’s financial information. In consolidated statement
of income, revenues and expenses data are described as combined statistics, which do not express
the profitability of subsidiaries. For example, if a subsidiary does business inefficiently and lose a
large amount of money, this information will not be reflected in the financial statements if it is
consolidated with the profit of the parent company. Moreover, in consolidated statement of
financial position, the financial ratio - which tells us that the liquidity of the company is not fully
expressed. Since each company's assets and liabilities are consolidated, the ratios are concentrated
on the consolidated figures that do not represent the ratios of each company. If a company has a
low liquidity index, they will not be indicated on the consolidated report.

2. Difficulties in creating consolidation financial statements

To begin with, information used for composing statments is not provided in a complete
and appropriate way. Some subsidiaries submit their financial statements for the purpose of
management rather than consolidation. Therefore, these information is not designed for unified
goals, leading to inadequate statistics needed for the consolidation process. Furthermore, in a
corporation, datas reported by subsidiaries sometimes are not consistent with each other in terms
of policies and forms, which makes the consolidation process become difficult.
Another difficulty while preparing the consolidated financial statements is that
information of financial statements is not provided in a timely manner. Additionally, the
accounting staffs who perform the preparation do not have enough experience and qualifications.
It can be concluded that the consolidation process of some enterprises are not carefully
prepared. As a result, at the end of the fiscal year, various problems arise when setting up the
issue of consolidating. In addition to personnel difficulties, the information for the consolidation
process is not complete and sufficient enough to meet the requirements of consolidation, which
originates from being inadequately monitored and followed by unified form since these
information appeared.

3. International countries’ expriences in preparing consolidated financial statements

In the trend of global economic integration, many countries and territories support the
preparation of financial statements according to IFRS standar. The following is the experience
in the consolidation basis of other countries.
In terms of the criteria for determining subsidiaries, it is based on the control right or the
voting rates. Countries such Japan, China, ... and IFRS are based on control to determine their
subsidiaries. However, the US when determining subsidiaries depends on voting rates.
Regarding the noncontrolling interest, Japan bases the book value and the economic
benefit ratio of noncontrolling interest in subsidiaries on defines it. Meanwhile, Australia and
Malaysia specify uncontrolled shareholders' benefits by fair value and the ratio of economic
interests of uncontrolled shareholders in subsidiaries with allocation of goodwill.
With regard to technical adjustments and exclusion of internal transactions. The general
principle is that internal transactions between the parent company and its subsidiaries is
completely excluded. In addition, the accounting standards of some countries such as the US and
Japan ... have guidelines for adjusting and eliminating internal transactions between parent
companies and associates or between subsidiaries and associates.
Concerning the content of the consolidated financial statements system, according to
IFRS and most countries in the world such as the UK, the US and Australia ..., there are 05 main
reports: Consolidated statement of financial position, Consolidated statement of Income, ;
Consolidated statement of cash flow; Report of equity changes; Notes to the consolidated
financial statements. However, the arrangement of information on each specific report in each
country is different. For example, in the US, Australia and IFRS 03 accounting standards, the
noncontrolling interest’s benefit is presented in the owners’equity section of the balance sheet.
However, for Japanese accounting standards, the presentation of noncontrolling interest’s
benefit is a separate item, which lies between the liabilities and the owners' equity on the
consolidated balance sheet.

4. The current status and the lessons for Vietnam in the consolidation process
In Viet Nam, VAS 25 – Consolidated Financial Statements And Accounting Investments
For Subsidiaries is now applied to prepare the consolidation. Besides a clear integration process,
an update consolidated accounting methods, VAS 25 still have some contents needed improving
after learning a lesson from other countries’ experiences.
Firstly, nowadays, Vietnam is using the historical cost as a basis for measurement. This
method is old and no longer popular when preparing consolidated reports. Today, in IFRS, fair
value is increasingly used in the consolidation. Many countries around the world support the use
of fair value as a primary basis to increase appropriateness of information presented on the
financial statements. Therefore, in the future, the study of theoretical basis and conditions to use
the "fair value principle" becomes an issue that Vietnam needs to consider and implement.
Secondly, concerning noncontrolling interest, VAS 25 regulates its benefits basing on
the book value and the economic benefit ratio of the uncontrolled shareholders in the company
is is an experience for Vietnam because it is now in the regulation of VAS when determining the
uncontrolled shareholders' benefits based on the book value and the economic benefit ratio of
the noncontrolling interest in subsidiaries. However, the general trend across the world is to
encourage the determination of noncontrollig interest basing on fair value and economic interests
ratio of noncontrolling interest in subsidiaries. Is is an experience for Vietnam, we need to
change to keep up with the current trend in consolidating financial statements.
For adjustment and exclusion of intra company transactions, VAS excludes internal
transactions between parent company and its subsidiaries without between parent company and
associates or between subsidiaries and an associates. It is neccessary that Vietnam needs to
Vietnam needs to consider and introduce regulations on the above issues.
Fourthly, as for the consolidated financial statements system, VAS 25 does not have
enough specific and detailed stipulation for the consolidation. As a result, we needs to improve
and have supplementary regulations .
Lastly, in the context that IFRS is widely used and supported by international countries,
Vietnam also should approach this standard and gradually improve the legal and economic
environment which is suitable for IFRS. For instance, the asset trading markets needs clarifying
and the fair value is used as the basis for measuring the value of assets.