OECD Review of the Corporate Governance of State-Owned Enterprises in Viet Nam

12. Disclosure and transparency

Abstract

This chapter analyses the disclosure and transparency practices of SOEs against the Chapter VI of the SOE Guidelines. The chapter assesses the country’s policy framework to ensure transparency in the SOE sector, including auditing standards and aggregate reporting practices.

Overarching recommendation from the SOE Guidelines

State‑owned enterprises should observe high standards of transparency and be subject to the same high quality accounting, disclosure, compliance and auditing standards as listed companies.

12.1. Disclosure standards and practices

A. SOEs should report material financial and non-financial information on the enterprise in line with high quality internationally recognised standards of corporate disclosure and including areas of significant concern for the state as an owner and the general public. This includes in particular SOE activities that are carried out in the public interest

The requirements for SOE disclosure in Viet Nam are primarily found in three pieces of legislation – the Law on Enterprises (Articles 73, 109, 110, 164 and 176), Decree 47/2021/ND-CP which elaborates articles of the Law on Enterprises, and Decree 87/2015/ND-CP on Financial Supervision, Performance Assessment and Disclosure of Financial Information of State‑Owned and State‑Invested Enterprises. Table 12.1 demonstrates how the various disclosures are applied to different SOE forms in Viet Nam, noting that listed SOEs are separately subject to disclosures contained in the Securities Law.

Table 12.1. Periodic and ad-hoc disclosure requirements for all Vietnamese SOEs – state Enterprise Law

Application of disclosure requirements in the Enterprise Law, complemented by Decree 47/2021/ND-CP and Decree 87/2015/ND-CP for unlisted SOEs (and the Securities Law for listed SOEs).

	Wholly-owned single‑member LLCs	Partially-owned multi-member LLCs	Partially-owned JSCs
Periodic disclosures, posted on website and shared with the state ownership representative body (Art. 109, Clause 1):
a) Basic information about the company and the company’s charter;	X	X	X
b) Overall objectives, specific objectives and targets of the annual business plan approved by the state ownership representative body; this information shall be disclosed before 31 March of the execution year (elaboration from Decree 47)	X
c) The annual financial statements and summaries thereof audited by an independent audit organisation, including the financial statement of the parent company and the consolidated financial statement (if any) as prescribed by regulations of law on corporate accounting; this information shall be disclosed within 150 days from the end of the fiscal year (elaboration from Decree 47, Art. 23, 1.h)2.	X	X (only specified in Decree 47, not LOE)	X1
d) The mid-year financial statement audited by an independent audit organisation and its summary (including the financial statement of the parent company and the consolidated financial statement (if any); these documents must be disclosed before July 312;	X	X (only specified in LOE, not required per Decree 47)
dd) Reports on implementation of annual business plans; shall be disclosed before 30 June of the year preceding the succeeding year; (elaboration from Decree 47, Article 23, 1.c)	X	X	X
e) Reports on performance of public duties that are assigned or bid for (if any) and other social responsibilities;	X
g) The report on the company’s management and organisational structure, including: - 6‑month report on administration and organisational structure of the enterprise; this information shall be disclosed before 31 July every year (details from Decree 47, Art. 23, 1.dd) - Annual report on administration and organisational structure of the enterprise according; this information shall be disclosed before 30 June of the execution year (details from Decree 47, Art. 23, 1.e). The report on the company’s management and organisational structure shall contain the following information (Art. 109, Clause 2),: a) Information about the state ownership representative body, its head and deputies; b) Information about the company’s executives, their qualifications and experience, managerial position previously held, how they are designated, their managerial tasks; their salaries, bonuses, benefits and payment method, their related persons and interests; c) Relevant decisions of the state ownership representative body; resolutions and decisions of the Board of Members of the company’s President; d) Information about the Board of Controllers, Controllers and their activities; e) Verdicts of inspecting authorities (if any) and reports of the Controllers and the Board of Controllers; f) Information about the company’s related persons; contracts and transactions between the company and its related persons; g) Other information prescribed by the company’s charter.	X	X	X
The following information of joint stock company should be published on their website (Art. 176, Clause 2): a) Company charter b) Curriculum vitae (CV), qualifications, professional experience of members of the Board of Directors, Controllers, Director/General Director of the company; c) Annual reports on performance of the Board of Directors and the Board of Controllers.			X
Within ten days after having their annual financial statements audited, public companies shall disclose periodical information on such annual financial statements according to the provisions of Clauses 1 and 2, Article 16 of this Law. 2. A public company shall disclose extraordinary information within 20 four hours after the occurrence of one of the following events: a/ Its bank account is frozen or is permitted to resume after a freezing period; b/ It temporarily ceases its business operation; c/ It has its business registration certificate or its establishment and operation license or its operation license revoked; d/ Its shareholders’ general assembly’s decisions as specified in Article 104 of the Enterprise Law are adopted; e/ Its Board of Directors makes decisions on redemption of its own stocks or resale of bought stocks, on the date of exercise of the right to buy stocks by owners of warranted bonds or the date of conversion of convertible bonds into stocks, and decisions related to the offering according to the provisions of Clause 2, Article 108 of the Enterprise Law; f/ There are decisions to initiate lawsuits against members of its Board of Directors, director or general director, deputy director or deputy general director, or chief accountant; there are court judgments or rulings concerning its operation; there are conclusions of tax offices on its violations of the tax law.			X (listed JSCs)
Irregular or ad-hoc disclosures (Art. 110) – disclosed on website within 36 hours of event
1. Information shall be posted the company’s website and printed matters (if any) and displayed at the company’s headquarters and business locations within 36 hours from the occurrence of any of the following events: a) The company’s account is frozen or unfrozen; b) All or part of the company’s business activities are suspended; the certificate of enterprise registration, establishment license, establishment and operation license, operation license or another license relevant to the company’s operation is revoked; c) The certificate of enterprise registration, establishment license, establishment and operation license, operation license or another license relevant to the company’s operation is revised; d) There is a change of members of the Board of Members, the company’s President, Director/General Director, Deputy Directors/General Directors, chief accountant, accounting – finance department manager, Controllers or Chief Controller; dd) An executive of the company is disciplined or charged under a decision; the court issues a decision that involves an executive of the company; e) An inspecting authority or tax authority announces a verdict on the enterprise’s violations of law; g) There is a decision that the independent audit organisation is changed or not permitted to audit the financial statement; h) There is a decision on establishment, dissolution, consolidation, acquisition or conversion of a subsidiary company, branch or representative office; investment in, decrease or withdrawal of investment in other companies.	X	X	X

Notes: ^1, Decree 47 specifies that a JSC “shall send its ratified [by the General Meeting of Shareholders] annual financial statements to competent authorities prescribed by accounting laws and relevant laws”.

^2/ Decree 87 adds that 6‑month and annual financial reports (audited) include:  Balance sheet; income statement; cash flow statement; note on financial statement in accordance with accounting legislation. As for enterprises operating according to the parent – subsidiary company model, upon disclosing annual financial reports (audited), enterprises must carry out the disclosure of annual financial report of parent companies and annual consolidated financial report.

Disclosure requirements for wholly-owned single‑member LLCs found in Article 109 of LOE, and elaborated by Article 23, clause 1, of Decree 47. Disclosure requirements for partially-owned multi-member LLCs found in Article 73 of LOE, referencing applicable requirements of Article 109 for wholly-owned single‑member LLCs, and elaborated by Article 23, Clause 2, of Decree 47. Disclosure requirements for JSCs, and listed SOEs, found in Article 176 of LOE (referencing applicable requirements of Article 109 for wholly-owned single‑member LLCs) and elaborated by Article 23, Clause 2, of Decree 47.

Source: Law on Enterprises Decree 47.

Both periodic and irregular information should be disclosed on company websites and in the “Business Information Portal” (more below). Information is meant to be fully disclosed in an accurate and timely manner, by the SOE’s legal representative or the person authorised to disclose information. The legal representative shall be responsible for the adequacy, punctuality and accuracy of the information disclosed. At the same time, the SOE should send a report to its competent ministry or oversight agency, which then has five working days from receipt of the report to publish on their portal or website “information that must be periodically announced”. The owner’s representative agency “shall review, evaluate and decide to restrict the disclosure of important information related to or affecting secrets and national security or business secrets of the enterprise, and at the same time notify the Ministry of Planning and Investment for monitoring and supervision” (Article 25, Decree 47/2021/ND-CP).

Multiple state bodies have responsibilities for monitoring SOEs’ financial and non-financial disclosure. The following list highlights key agency responsibilities:

• Representative agencies should work together with the MoF to carry out financial supervision and performance evaluation of business activities of parent companies, and single‑member LLCs under their authority. This requires the agency to develop the monitoring processes in order to oversee financial disclosure (including setting up the necessary IT system) and set the parameters for financial supervision including the “criteria” and “plan” for each enterprise (subject to the opinions of other state agencies). They are also responsible for flagging when an entity is faced with financial insecurity based on the results of its financial supervision. The representative agency prepares and submits reports on results of financial supervision on a 6‑monht or annual basis to the MoF. Where there are suspected inaccuracies, the representative agency can require SOEs to hire independent audit to review the financial data (presumably in addition to the previous audit of financial statements, which is required by law). The ownership representative agency is responsible to the Prime minister for “failure to supervise and inspect information disclosure by enterprises in accordance with this Decree (47), and failure to publicly and punctually upload the information disclosed by enterprises under its management to its website”.

• Similarly, the Ministry of Finance should carry out financial supervision of parent companies and single‑member LLCs under its authority, in collaboration with the representative agency. From a more whole‑of-government perspective, the MoF is additionally responsible for synthesising and reporting to the government and the Prime Minister every six months and annually on the management and use of state capital in enterprises, operational efficiency and financial status of the enterprises (Decree 87/2015/ND-CP, Art. 12, Clause 2). It is also responsible for flagging and issuing warnings when there are signs of SOEs’ financial insecurity, or for seeking clarification and resolution when the SOE and the competent ministry have different opinions from the MOF, as well as for proposing remedy and action in cases of non-compliance. The MoF also consults ownership entities on their classification of SOEs. It prepares a report on the operational efficiency and classification of SOEs, the performance of public objectives, to be presented to the government before 31 July of each year.

• The Agency for Enterprise Development (AED) of the MPI launched in December 2021 the aforementioned “Business Information Portal1”, in collaboration with the German Corporation for International Co‑operation (GIZ). The portal is meant to improve transparency around companies, while allowing access to market information and potential business partners to suit the growing business needs of Vietnamese SOEs. It is accessible in English and Vietnamese. The MPI is generally responsible for overseeing the use of the “Business Information Portal” or non-compliance by SOEs. For instance, it should inform the Prime Minister and notify the owner’s representative agency of the cases where SOEs have not disclosed information on the Portal in order for those competent ministries to handle the violations accordingly (Decree 47/2021/ND-CP). In addition, MPI is responsible for training and providing guidance on information disclosure and use of the new system (Article 32, Decree 47).

Notwithstanding the responsibilities mentioned above, there are additional responsibilities of those institutions as well as others that make for a rather complex constellation of reporting requirements and monitors. Viet Nam would benefit from a document outlining all relevant roles and responsibilities of relevant institutions in place. Indeed, one SOE confirmed that it shares various reports with the MoF, MPI, MoIT and other line ministries regarding areas they are managing and submits oversight and performance to CMSC. The dispersion of roles across the administration with regards to monitoring SOE disclosure appears may leave gaps in oversight in practice and help to explain why certain stakeholders informed the OECD that there is a lack of compliance in disclosure and, relatedly, weak accountability. The reports submitted by SOEs were considered by one stakeholder to be quite general in nature. A 2010 comparative report on SOE disclosure prepared by CIEM, albeit outdated, found that equitised SOEs performed better in terms of meeting disclosure requirements. The OECD would expect this to be the case given the additional application of Securities Law requirements for at least listed SOEs.

Vietnamese SOEs would benefit from a disclosure policy that aggregates and elaborates on disclosure requirements in one place. Disclosure requirements, and the responsibilities of entities and agencies regarding monitoring and taking action on disclosure, is dispersed across various pieces of legislation. While they are mostly consistent, it is not easy to follow, and the OECD detected at least a couple of inconsistencies – for instance in the application of particular content disclosures to multi-member LLCs.

Certain stakeholders raised concerns about the implementation of disclosure requirements in practice. This is confirmed in a 2020 report prepared by the ADBI and the UK Government, which found that “most SOEs have not strictly implementation the regulations on information disclosure and have not yet built their own information disclosure section (on their website)”. Moreover, it found that disclosure is not stringently regulated, which was another perception of stakeholders in Viet Nam.

SOEs’ financial statements are supposed to be prepared, and audited, in line with the Vietnamese Accounting Standards issued by the MOF. The same standard is used for all SOEs, including listed companies. SOEs participating in this review reported no discrepancies between accounting standards of unlisted and listed companies. The mission team understands that there is a five‑year roadmap for the introduction of IFRS that at least certain SOEs are working towards, but this is not yet in place. Many large SOEs are already audited by one of the “big 4” auditing firms. Listed firms must be audited by one of the 40 pre‑approved audit firms listed by the SCC. SOEs are additionally subject to the audit of the State Audit Agency (SAV).

A1. [Examples of such information include:] A clear statement to the public of enterprise objectives and their fulfilment (for fully-owned SOEs this would include any mandate elaborated by the state ownership entity);

For wholly-owned SOEs, the Prime Minister approves the 5‑year development investment strategy and plan and the 5‑year production and business plan on the basis of the proposal of the competent ministry (for instance, Ministry of Transport in the case of VNR). The Committee for Management of State Capital at Enterprises approves the below contents. MPI annually summarises and reports to the government (that is, the Prime Minister) on the implementation of the objectives, tasks and business lines of wholly-owned SOEs:

• Capital contributions, increase or decrease in contributed capital, transfer of investment capital of SOE to invest in joint stock companies or limited liability companies with two or more members.

• Financial statements; distribution of profits, setting up annual funds of SOEs.

The Law on Enterprises requires these SOEs 100% owned by the state to disclose “overall objectives, specific objectives and targets of the annual business plan approved by the state ownership representative body” (LOE, Art. 109, 1.b). The information should be disclosed before 31 March of the execution year. The contents is prescribed in the Appendix II of Decree 47. This information should be disclosed on wholly-owned SOE websites, the “Business Information Portal” and in reports shared with the representative agency. In theory it should be publicly available, but it would require more work to understand whether at least the largest SOEs are disclosing this information in a meaningful way. This information is only required of wholly-owned single‑member LLCs, not of multi-member LLCs nor JSCs. One partially-owned SOEs participating in this study indicated that that “The business plans and financial reports of SOEs are discussed and adopted at their annual general meetings of shareholders”, considering this to be disclosure, though not public.

Though not all SOEs are required to disclose objectives, all SOEs are required to disclose “Reports on implementation of annual business plans… disclosed before 30 June of the year preceding the succeeding year” (LOE, Art. 109, 1.dd., and Decree 47, Art. 23, 1.c)”. These too should be disclosed on websites, the “Business Information Portal” and in reports shared with the representative agency.

A2. [Examples of such information include:] Enterprise financial and operating results, including where relevant the costs and funding arrangements pertaining to public policy objectives;

SOEs are required to disclose information about financial and operating results (see Table 12.2, which offers an abbreviated version of Table 12.1). All SOEs are subject to the same requirements for reporting on performance, with two exceptions. First, partially-owned SOEs are exempt from reporting on “performance of public duties… and other social responsibilities”. The Ministry of Finance confirmed that these disclosures are not accompanied with information about relevant costs and funding arrangements. Second, JSCs must additionally disclose on their website an annual report about performance of the Board of Directors and the Board of Controllers, which LLCs (whether single or multi-member) do not.

Table 12.2. Disclosures on financial and operating results

	Wholly-owned single‑member LLCs	Partially-owned multi-member LLCs	Partially-owned JSCs
Periodic disclosures, posted on website and shared with the state ownership representative body (Art. 109, Clause 1):
c) The annual financial statements and summaries thereof audited by an independent audit organisation, including the financial statement of the parent company and the consolidated financial statement (if any) as prescribed by regulations of law on corporate accounting; this information shall be disclosed within 150 days from the end of the fiscal year (elaboration from Decree 47, Art. 23, 1.h)1.	X	X (only specified in Decree 47, not LOE)	X1
d) The mid-year financial statement audited by an independent audit organisation and its summary (including the financial statement of the parent company and the consolidated financial statement (if any); these documents must be disclosed before July 312	X	X (only specified in LOE, not required per Decree 47)	*listed firms report quarterly
dd) Reports on implementation of annual business plans; shall be disclosed before 30 June of the year preceding the succeeding year; (elaboration from Decree 47, Article 23, 1.c)	X	X	X
e) Reports on performance of public duties that are assigned or bid for (if any) and other social responsibilities	X
The following information of joint stock company should be published on their website (Art. 176, Clause 2)
c) Annual reports on performance of the Board of Directors and the Board of Controllers			X

Note: ^1. Decree 87 adds that 6‑month and annual financial reports (audited) include:  Balance sheet; income statement; cash flow statement; note on financial statement in accordance with accounting legislation. As for enterprises operating according to the parent – subsidiary company model, upon disclosing annual financial reports (audited), enterprises must carry out the disclosure of annual financial report of parent companies and annual consolidated financial report.

Source: LOE Art. 109, Decree 47/2021/ND-CP, Art. 23, Decree 87/2015/ND-CP.

The state disposes of another tool to understand and assess SOE performance established in the Law on Financial Supervision of SOEs (Decree 87/2015/ND-CP) – the “performance assessment and enterprise rating”. The SOE applies a rating based on a self-assessment and shares with the representative agency for approval and eventual transmission from the Ministry of Finance to the Prime Minister. It appears that this report is not made public. The legislation is not clear as to which corporate form of SOE it pertains to. Viet Nam might consider making performance ratings publicly available in order to incentivise improvement in corporate governance practices and overall performance, as in done in a number of countries. Insofar as the company and individual ratings remain internal to the government, the OECD speculates that there could be a risk of the process being used namely as a way to inform Party leadership about the performance of its members, for reward or reprimand, as opposed to serving a broader goal of informing the government about the performance of individual firms, and across SOE portfolios.

A3. [Examples of such information include:] The governance, ownership and voting structure of the enterprise, including the content of any corporate governance code or policy and implementation processes;

All SOEs – single and multi-member LLCs and JSCs – are required to periodically report on the company’s management and organisational structure. It should be done half-yearly (disclosed before 31 July each year), and annually (before 30 June of the execution year). Reports do not contain information about golden shares or power of veto over corporate decisions, nor are SOEs required to disclose information about compliance with corporate governance standards. The report on the company’s management and organisational structure is limited to the following information (Art. 109, Clause 2):

• Information about the state ownership representative body, its head and deputies

• Information about the company’s executives, their qualifications and experience, managerial position previously held, how they are designated, their managerial tasks; their salaries, bonuses, benefits and payment method, their related persons and interests

• Relevant decisions of the state ownership representative body; resolutions and decisions of the Board of Members of the company’s President

• Information about the Board of Controllers, Controllers and their activities

• Verdicts of inspecting authorities (if any) and reports of the Controllers and the Board of Controllers

• Information about the company’s related persons; contracts and transactions between the company and its related persons

• Other information prescribed by the company’s charter.

Publicly-listed SOEs are required to disclose any change in the number of voting shares, according to listed SOEs, as well as resolutions of the Annual Shareholders’ Meetings, and decisions of management boards on the reacquisition or resale of shares of the company (Law No. 62/2010/QH12, amending the Law on Securities). It appears that there are no regulations on golden shares or vetoes in any SOE‑relevant legislation.

A4. [Examples of such information include:] The remuneration of board members and key executives;

SOEs (in the form of single and multi-member LLCs and JSCs) are required to disclose “Information about the company’s executives, their salaries, bonuses, benefits and payment method, their related persons and interests” pursuant to the LOE. SOEs participating in the review confirmed it is compulsory to disclose wages of the members of the Members’ Council and Board of Directors where relevant, the Chief Accountant and/or other managers as prescribed. However, SOEs pointed to Decree 47/2021/ND-CP as the reference document where this requirement does not appear. Rather, the requirement is explicit in the LOE.

The LOE also prescribes that multi-member LLCs should record remunerations, bonuses and other benefits for the President of the Board of Members, the CEO (Director/General Director) and other executives as operating costs and “placed in a separate section in the company’s annual financial statements”. This requirement is not applied to other forms of SOE. The LOE’s secondary legislation, Decree 47/2021/ND-CP, requires a similar approach for the accounting of the “salaries, remunerations, bonuses, working conditions, costs of business trip and other operating costs of the Board of Controllers and Controllers”. They “shall be decided by the state ownership representative body, at least equal to those of the Board of Members or Deputy General Director/Deputy Director of the enterprise; will be included in the enterprise’s business costs and presented in a separate section in the enterprise’s annual financial statement” (Art. 8.2).

A5. [Examples of such information include:] Board member qualifications, selection process, including board diversity policies, roles on other company boards and whether they are considered as independent by the SOE board;

Pursuant to the LOE, all SOEs must disclose a report on the company’s management and organisational structure, which includes: “information about the company’s executives, their qualifications and experience, managerial position previously held, how they are designated, their managerial tasks; their salaries, bonuses, benefits and payment method, their related persons and interests” (Art. 109, Clause 2). These reports are published on SOE websites, and/or on the “Business Information Portal” and shared with the representative agency, on a half-yearly and annual basis. While this is required for all forms of SOEs, those participating in the study had contradicting responses about this disclosure.

All SOEs are required to disclose, as part of the report on the organisation of the company: (b) information about the company’s executives…how they are designated… and their related persons and interests; and (c) relevant decisions of the state ownership representative body, resolutions and decisions of the Board of Members of the company’s President. Such disclosures should include information about the selection process. However, an assessment of ten of Vietnam’s largest SOEs (listed and unlisted, partially and wholly-owned) show that many SOEs are not compliant with this requirement. See Table 12.3.

Table 12.3. Board-related disclosures in ten large SOEs

Tabulated from websites of 10 large SOEs (6 of the top 10 largest listed SOEs, 1 listed, and 3 wholly-owned by the state)

	Board of Directors (JSC) /Members (LLC)		Manage‑ment	BoC	Names	Photos	Information on appointments	Information on roles in other companies	Background information on individual	Independent representation explicit?
Top 10 large listed SOE
Commercial Bank for foreign trade of VN JSC – Vietcombank	x	x		x	x	x			x
PetroVietnam Gas JSC (Pvgas)	x	x		x	x				x
Viet Nam Dairy Products JSC	x	x			x	x		x		x
Bank for Investment and Development of Viet Nam JSC (BIDV)	x	x		x	x	x			x	x
Vietnam Rubber Group	x	x			x	x
Saigon Beer-Alcohol-Beverage Corporation	x	x		x	x	x
Listed
Vietnam Airlines	x	x		x	x				x
100% owned by State
State Capital Investment Corporation (SCIC)		x		x	x	x	x		x
Petrovietnam (PVN)		x		x	x	x
Vietnam Electricity (EVN)		x			x	x

Source: Author’s research of SOE websites.

The assessment of large SOE websites also showed a serious dearth in the gender diversity of boards. As shown in Chapter 4, Boards (BoD or BoM) and of executive management are dominated by males. Only the BoCs have more equal representation. There are no diversity requirements for boards in Vietnamese SOEs, which could go a ways to improving the diversity and thus overall professionalism and effectiveness of SOEs’ leadership. The gender representation of ten large (listed and unlisted, wholly-owned) SOEs is as follows:

• Board of Directors / Board of Members: 85% male; 14% female

• Executive Management: 91% male; 9% female

• Boards of Controllers: 44% male; 56% female.

Most information about how the nominations process unfolds in reality was uncovered almost exclusively through informational interviews. Theoretically, information about board members roles on other boards (which is apparently common) should come up as part of the report on related persons and interests, but this information was only provided on one or ten company websites.

A6. [Examples of such information include:] Any material foreseeable risk factors and measures taken to manage such risks;

SOEs are not explicitly required to disclose material foreseeable risk factors and measures taken to mitigate those risks. However, all forms of SOEs are required to disclose events that could have a material impact on the company. The following pieces of information must be disclosed on the company’s website and printed or display at the company’s headquarters and business locations within 36 hours from the occurrence of any of the following events:

• The company’s account is frozen or unfrozen.

• All or part of the company’s business activities are suspended; the certificate of enterprise registration, establishment license, establishment and operation license, operation license or another license relevant to the company’s operation is revoked.

• The certificate of enterprise registration, establishment license, establishment and operation license, operation license or another license relevant to the company’s operation is revised.

• There is a change of members of the Board of Members, the company’s President, Director/General Director, Deputy Directors/General Directors, chief accountant, accounting – finance department manager, Controllers or Chief Controller.

• An executive of the company is disciplined or charged under a decision; the court issues a decision that involves an executive of the company.

• An inspecting authority or tax authority announces a verdict on the enterprise’s violations of law.

• There is a decision that the independent audit organisation is changed or not permitted to audit the financial statement.

• There is a decision on establishment, dissolution, consolidation, acquisition or conversion of a subsidiary company, branch or representative office; investment in, decrease or withdrawal of investment in other companies.

While SOE Boards of Members (or the President of the enterprise, where this form is opted for) are required to take preventive measures against risks to the management of capital and assets in SOEs with, there is no evidence that SOEs must disclose such preventative or actionable measures to limit identified risks.

All SOEs shall carry out disclosure of 6‑month and annual financial reports that include the balance sheet, income statement, cash flow statement, and a note on financial statement in accordance with accounting legislation (Decree 87/2015/ND-CP). The Vietnamese Accounting Standards (VAS), applicable to all SOEs, requires SOEs to disclose contingent liabilities (relevant to the balance sheet date) (VAS, 18, Art. 81), unless an “outflow of resources embodying economic benefits has occurred”. The VAS states “if it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognised in the financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made).” The Standards are clearer on the need for SOEs to disclose off-balance contingent assets in the notes: “contingent assets are assessed continually to ensure that developments are appropriately reflected in the note to financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statements of the period in which such inflow of economic benefits is probable” (VAS, 18, Art. 31).

The VAS makes explicit reference to “off balance sheet contingencies and commitments” only in the Chapter specific to banks and similar financial institutions (22).2 SCIC confirmed this to be the case. They must recognise in the notes to the financial statements, disclosed half-yearly and annually, the following “off balance sheet” items:

• the nature and amount of commitments to extend credit that are irrevocable because they cannot be withdrawn at the discretion of the bank without the risk of incurring significant penalty or expense.

• the nature and amount of contingent liabilities and commitments arising from off balance sheet items including those relating to:

  • credit substitutes including general guarantees of indebtedness, bank acceptance guarantees and standby letters of credit serving as financial guarantees for loans and securities

  • certain transaction-related contingent liabilities including performance bonds, bid bonds, other warranties and standby letters of credit related to particular (special) transactions

  • short-term contingent liabilities arising from the movement of goods, such as documentary credits where the underlying shipment is used as security.

• other commitments, note issuance facilities.

A7. [Examples of such information include:] Any financial assistance, including guarantees, received from the state and commitments made on behalf of the SOE, including contractual commitments and liabilities arising from public-private partnerships;

CMSC informed the OECD that reporting requirements around financial assistance or subsidies to SOEs include: the form, dates and duration and any other time limits attached to it; the eligibility requirements; the total amount or the annual amount budgeted for the financial assistance/subsidy; and any other relevant information relating to the financial assistance/subsidy that might be relevant. However, the OECD could not identify where this information should be channelled, with no reference to such details in legislation and standards on accounting or disclosure.

SOEs informed the mission team that they are not required to disclose information about financial assistance received from the state unless regulated by the preparation and disclosure of financial statements. One SOE said this information is only provided “to competent agencies”. The VAS require that notes to SOEs’ financial statements include “contingencies, commitments and other financial disclosures”. Items classified could, in theory, be broad enough to include liabilities that would transpire within the balance sheet year owing to contractual commitments or liabilities arising from public-private partnerships (PPPs), but in practice the OECD understands that information about liabilities arising from commitments and deriving from state assistance are only shared with competent agencies.

The only explicit reference to disclosure of guarantees relates, as discussed above, to banks and other financial institutions, which must disclose the nature and amount of contingent liabilities and commitments arising from off balance sheet items. This includes those related to credit substitutes including general guarantees of indebtedness, bank acceptance guarantees and standby letters of credit serving as financial guarantees for loans and securities (VAS, 22).

At least wholly-owned SOEs do not engage in PPPs. MPI suggested that contractual arrangements owing to procurement and bidding should be disclosed, except where business secrecy exemptions can apply. Most stakeholders were adamant that SOEs do not receive exemptions from general laws or regulations. Indeed, SOEs or BOD members do not receive any legal privilege and competition law explicitly forbids discrimination. However, the OECD mission team was informed by others that SOEs are in fact treated “favourably” in all aspects including by the government and including with regards to access to capital, natural resources, land and human resources. Such privileges are not formalised and thus not disclosed.

The government does provide guarantees for SOEs’ loans per Decree No. 15/2011/ND-CP on Granting and managing government guarantees. The government has issued Decrees and Circulars to provide guidance on the procedures and reporting scheme to supervise and manage SOEs’ loan usage.

A8. [Examples of such information include:] Any material transactions with the state and other related entities;

The Enterprise Law (Art. 4, Clause 23) establishes “related parties” as stakeholders are deemed to have a direct or indirect relationship with the enterprise:

a) The parent company, managers and legal representatives of the parent company, and the people with the authority to appoint a manager for the parent company

b) Subsidiaries, managers, and legal representatives of subsidiaries

c) Individuals or entities or groups thereof having control over the enterprise including as owners, shareholders, capital contributors, or decision-makers

d) The managers, legal representatives, and controllers of the enterprise

e) Spouses, biological parents, adoptive parents, parents-in-law, biological children, adopted children, children-in-law, siblings, brothers-in-law, and sisters-in-law of the enterprise’s managers, legal representatives, controllers, controlling shareholders, or capital contributors

f) Individuals who are authorised representatives of enterprises or entities prescribed in points a, b, and c of this clause

g) Enterprises where individuals or entities prescribed in points a, b, c, d, dd, and e of this clause have a controlling interest that influences decision-making.

All SOEs – LLCs and JSCs – are required to disclose, online and to the owner, the half-yearly and annual report on the company’s management and organisational structure, which includes information about company executives’ salaries, bonuses, benefits and payment method and their related persons and interests (b); the company’s related persons, contracts and transactions between the company and its related persons (f) (LOE).

Mechanisms to prevent abusive transactions are found in the LOE, as well as company charters and internal regulations. Contracts and transactions between the single‑member LLCs and related persons are regulated by Article 86 of the LOE, which allows for contracts and transactions to proceed subject to the approval of the BoM or the CEO (e.g. contracts between the SOE and the owner or owner’s related persons, members of the BoM and CEO or their related persons, as well as executives of the owners and/or persons with the power to appoint them and their relations. Approval should be based on certain criteria being met, and should be “recorded in separate documents of the company”. In multi-member LLCs, approval can only be granted by the BoM (though CEOs often sit on BoMs).

The law also prescribes that publicly-traded SOEs (Securities Law) disclose individual decisions of their General Meetings of Shareholders or BODs to adopt contracts or transactions between the SOEs and their insiders, someone related to the insiders, or someone related to the publicly-traded SOEs.

A9. [Examples of such information include:] Any relevant issues relating to employees and other stakeholders.

Periodic disclosure requirements for unlisted SOEs could theoretically be broad enough to encompass reporting on issues related to employees and other stakeholders that might materially impact the financial (and/or non-financial) performance of the company, but it is not explicitly required, nor does it seem to be common. Unlisted SOE participating in the review process did not respond to the relevant question let alone point to any concrete examples. However SOEs must provide information within 10 days of: (i) a change of members of the BoM (or President instead), or the CEO (Director/General Director) or its Deputies, Chief accountant or financing department manager and the Controllers or Chief Controller (understood to be the head of internal audit); and (ii) if or when an executive of the company is disciplined or charged under a decision / the court issues a decision that involves an executive of the company.

As discussed in Section 11.3, unlisted SOEs are not required to report on stakeholder relations, nor to issue social and environmental disclosures, and there are no international standards encouraged in this regard. Single‑member LLCs are required to periodically report on their websites, on the “performance of public duties that are assigned or bid for (if any) and other social responsibilities”, as per the Enterprise Law (and supported by Decree No. 47). JSCs and multi-member LLCs are free from this particular disclosure requirement. It is possible that such disclosures would entail information that touches upon stakeholder relations, but none of the SOEs participating in the questionnaire or fact-finding missions could point to such disclosures even if voluntary. For their part, listed SOEs are required to periodically disclose information about “corporate environment, society and community sustainability”, aligned with the Guidance on Environmental, Social and Governance (ESG) Disclosure published by the Hanoi Stock Exchange market authority.

12.2. External audit of financial statements

B. SOEs’ annual financial statements should be subject to an annual independent external audit based on high-quality standards. Specific state control procedures do not substitute for an independent external audit

Since 2012, all SOEs are subject to external independent audit of annual financial statements, pursuant to the “Law on Independent Audit” and Decree 17/2012/ND-CP. In this way, SOEs are subject to the same standards as private firms but are additionally subject to audit by the SAV. SOEs operating in “classified” industries are exempt from the annual independent audit. Following the issuance of Decree 61 and later 81/2015/ND-CP and the revised LOE, SOEs must disclose annual audited financial statements on their websites before forwarding them to their line ministries and the Ministry of Planning and Investment. Audit reports themselves are excluded from disclosure.

In practice, audit recommendations are considered by the SOE and, if ‘sensible’, will be addressed the following year. According to the provisions of the Law on Independent Audit and the Law on State Audit, Directors of SOEs must have a written representation enclosed with relevant supporting documents in case the auditor provides conclusions or opinions as “inappropriate” or requests so. According to the SAV, most recommendations deriving from audit reports have been seriously followed by SOEs: 85‑90% of recommendations have been implemented. The SAV reported that non-implementation is usually due to SOEs needing more time (for instance for a restructuring). Where it reflects an emerging problem, they will forward this to the responsible authorities for action. The mission team was not able to verify this reportedly high level of implementation nor to obtain the figure for implementation of independent audit recommendations.

SOEs are audited against Vietnamese Accounting Standards. The mission team understands that there is a five‑year roadmap for the introduction of IFRS that at least certain SOEs are working towards. Many large SOEs are audited by one of the “big 4” auditing firms. Listed firms must be audited by one of the 40 pre‑approved audit firms listed by the SCC.

Enterprises with 100% charter capital held by the state have their auditors appointed, re‑appointed and dismissed by the owner’s representative agency and competent authorities (Article 45, Decree No. 69/2014/QH13). JSCs have the “right to recruit” the independent external auditor, with many large companies working with ‘the Big 4’. The OECD was informed that the auditor is selected through a transparent and public tender process, and the successful candidate is reported to the relevant state authorities, however the OECD could not identify the according legal provisions. For those that undertake competitive processes, it should be done in accordance with the bidding regulations in the Law on Bidding No. 43/2013/QH13 and Decree No. 63/2014/ND-CP. The OECD could not determine however whether this practice is actually put in place, and how transparent and open the process is at least for firms that are not using well-known audit firms.

According to a few SOEs, mechanisms to ensure independence of external auditors are effective. In JSCs that opt to establish an Audit Committee (as opposed to a BoC), the Audit Committee is responsible for proposing the independent auditor to the General Meeting of Shareholders, as well as for monitoring and evaluating their independence and objectivity particularly when the company uses non-audit services (LOE). In wholly-owned SOEs however, the “Internal Control Board” (see Section 11.3) acts as the focal point for external auditors and apparently the SAV. Good practice in protecting the independence of the external auditor is that their interaction is limited to the Audit Committee that are part of, not serving, the BoM and, critically, that such a committee independent member that are non-state and non-executive. This is not the case for wholly-owned SOEs in Viet Nam, as the focal point can be staffed by executive management whose operations are the subject of external audit.

State audit does not substitute for independent external audit, but their audits and opinions are often considered to have more weight than those of independent auditors. The SAV audit work is generally geared towards safeguarding the value of state assets, focusing mostly on periodic compliance audits (every three to five years) in unlisted firms, and most commonly those 100% owned by the state. Some SOEs indicated that the SAV “can audit whatever it wants” and has the authority to sanction SOEs or work with relevant authorities (including GIV) as needed. The OECD understand that audits requested by the state and the parliament are always accommodated. In addition, and unusual compared to the global norm, the military and local authorities can also request audits, though the OECD understands this is subject to resources and capacity of the SAV in a given year. The International Organisation of Supreme Audit Institutions considers it good practice for an SAI to disclose all audits, but it appears that many SAV audits are only posted at the SAV headquarters. It may be worth noting that one stakeholder suggested the state audit may in fact substitute for appropriate controls at the company level (see Section 11.3 on challenges in the roles and responsibilities of company-internal control actors).

External and internal auditors are permitted to consult, but this does not happen often in practice. One stakeholder informed the OECD that the independent external auditor is not the one who raises issues in SOEs and, in the case of corruption or related irregularities, it is usually the state auditor or the government inspectorate (GIV).

12.3. Aggregate annual reporting on SOEs

C. The ownership entity should develop consistent reporting on SOEs and publish annually an aggregate report on SOEs. Good practice calls for the use of web-based communications to facilitate access by the general public

The Ministry of Planning and Investment (MPI) prepares a report annually at the Prime Minister’s instruction. The report is based on data from various sources, including the six‑month and annual audited financial reports of each SOE. Data is both quantitative and qualitative in nature.

In the aggregate report, MPI generally focuses on assessing and analysing SOE business operations and governance. It does not cover all SOEs. The report includes information on the following: SOE contributions to the economy (line structure, export-import turnover, national budget collection), financial performance and value of SOE sector, SOE business scale, employment and salary and SOE board remuneration. It does not provide financial information about individual SOEs. There could be an opportunity to do so given that SOEs are required to disclose audited financial statements on their websites at the six‑month mark and annually, meaning that the information should already be publicly available. MPI recognised that the introduction of the “Business Information Portal” which the entity oversees, and which will aggregate SOE‑specific financial and non-financial information, would allow for extraction of more SOE‑specific information. This could be integrated into the annual report, but political would be needed to bring the MPI report in closer alignment with the type of annual aggregate reporting that appears in the SOE Guidelines. Stakeholders suggested that such aggregate reporting could help to give perspectives regarding corporate governance “on those [companies] not directly controlled [by the government]” but neglected to apply the same reflection to wholly-owned SOEs.

The Asian Development Bank Institute issued a report in 2020 on SOE reform progress and challenges, therein assessing the level of disclosure of SOEs and of state‑level reporting. It reads: “Currently, reports on SOE performance are carried out by many authorities. However, because of the fragmentation of the focal points, the compilation of a national assessment of SOE performance has not yet been implemented fully and professionally and is not adhered to seriously. The best synthesis reports are the reports from the Ministry of Finance and the Ministry of Planning and Investment; however, they do not adequately list all of the SOEs. Important messages are missing and excluded, such as the comparison of SOE efficiency with similar enterprises in the same industry, statistics on the SOE debt situation related to state budget deficit and government debt” (ADBI, 2020[1]).

In Viet Nam the aggregate report is submit to the Prime Minister and the cabinet member. The Prime Minister has to present the report to Parliament at the mid-year conferences. The report is not translated into other languages and made available owing to “sensitivity issues”. The state does not have in place a dedicated website which published information on individual SOEs, but the state suggests that by preparing the report and disclosing it in period meetings and conferences that they are making publicly available information about SOE’s financial and non-financial performance.

References

[1] ADBI (2020), State‑Owned Enterprise Reform in Viet Nam: Progress and Challenges, https://www.adb.org/sites/default/files/publication/562061/adbi-wp1071.pdf.

Notes

← 1.  https://business.gov.vn

← 2.  Pursuant to Vietnamese Accounting Standards, Chapter 22: Disclosures in Financial Statements of Banks and Similar Financial Institutions (Issued in pursuance of the Minister of Finance Decision No. 12/2005/QD-BTC).