Thông tư 10/2022/TT-BTC

CIRCULAR

PRO FORMA FINANCIAL STATEMENTS

Pursuant to the Law on Securities No. 54/2019/QH14 dated November 26, 2019;

Pursuant to the Government’s Decree No. 155/2020/ND-CP dated dc 31, 2020 elaborating some Articles of the Law on Securities;

Pursuant to the Government’s Decree No. 87/2017/ND-CP dated July 26, 2017 on functions, tasks, powers and organizational structure of the Ministry of Finance;

At the request of Director of Department of Accounting and Auditing Regulations and President of State Securities Commission (SSC);

The Minister of Finance promulgates a Circular on pro forma financial statements.

Chapter I

GENERAL PROVISIONS

Article 1. Scope

This Circular provides for templates, rules, methods for preparations of pro forma financial statements and calculation of average equity in the formula for calculation of return on equity (ROE) for the subjects and purposes specified in the Government’s Decree No. 155/2020/ND-CP dated dc 31, 2020 elaborating some Articles of the Law on Securities (hereinafter referred to as "Decree No. 155/2020/ND-CP”).

Article 2. Regulated entities

The following entities are regulated by this Circular:

1. Enterprises that have to prepare pro forma financial statements in the cases specified in Articles 31, 35, 113, 114, 115 and 116 of Decree No. 155/2020/ND-CP .

Other organizations and individuals that are relevant to the preparation of pro forma financial statements as prescribed by law.

2. Enterprises other than those mentioned in Clause 1 of this Article may apply regulations of this Circular to preparation of their pro forma financial statements if necessary.

Chapter II

SPECIFIC PROVISIONS

Article 3. Contents and templates of pro forma financial statements

1. Pro forma financial statements include:

- Pro forma balance sheets;

- Pro forma profit and loss (P&L) statements;

- Descriptions of pro forma financial statements;

2. Templates of pro forma financial statements are provided in Appendix 01 hereof;

Article 4. Reporting periods

Enterprises that have to prepare pro forma financial statements in the cases specified in Articles 31, 35, 113, 114, 115 and 116 of Decree No. 155/2020/ND-CP .

Article 5. Rules for preparation of pro forma financial statements

1. General rules:

a) Making a financial information statement means an enterprise collecting, classifying, consolidating and presenting financial information to demonstrate the impacts of crucial events or transactions to unadjusted financial information of the enterprise on the assumption that such events have occurred or the transactions have been carried out at a selected time. This process includes the following steps:

- Determine sources of unadjusted financial information for consolidation of pro forma financial information;

- Add pro forma adjustments to unadjusted financial information for pro forma presentation. Pro forma adjustments include:

+ Adjustments to unadjusted financial information for demonstration of the impacts of crucial events or transactions to unadjusted financial information of the enterprise on the assumption that such events have occurred or the transactions have been carried out on a previous date time;

+ Adjustments to unadjusted financial information that are necessary for consolidation of pro forma financial information on the basis of consistency with the financial statement presentation framework of the preparing unit and with accounting policies that are appropriate for such framework.

- Pro forma presentation of financial information and descriptions thereof.

b) The sources of unadjusted information for preparation of the pro forma balance sheet and pro forma income statement prescribed in Article 6 of this Circular shall be the balance sheet and the income statement for the period of the pro forma financial statement. If the enterprise is a parent company that has to prepare the consolidated financial statement, the unadjusted information used for preparation of the pro forma balance sheet and pro forma income statement shall be the consolidated balance sheet and the consolidated income statement.

c) The pro forma financial statement shall be prepared on the assumption of restructuring, partial division of the company which has been completed during the period of the pro forma financial statement. Specifies rules are specified in Clause 2 and Clause 3 of this Article.

d) Techniques for consolidation of pro forma financial information shall comply with applicable accounting regulations and accounting standards. Enterprises must not apply provisional accounting regulations according to Vietnam's Accounting Standard No. 11 – Business consolidation.

dd) The pro forma financial statement shall contain the pro forma adjustments regarding impacts of additional capital (loans or equity) for completion of restructuring transactions, usually including additional capital and relevant costs, such as loan principal and interest.

e) When negotiating an agreement on restructuring transactions that allows adjustments of prices and costs according to future events, the enterprise shall include in the pro forma financial statement descriptions of the price adjustment terms and their potential impacts to future incomes.

g) Pro forma adjustments on the pro forma financial statement must be consistent with the financial statement presentation framework and accounting policies applied to these events or transactions on the financial statement of the enterprise that is established after the restructuring or partial division, unless otherwise prescribed by this Circular.

h) The pro forma financial statement shall only include pro forma adjustments to events that have all of the following characteristics:

- The events are directly relevant to the company restructuring or partial division;

- The events occur by the time for preparation of the pro forma financial statements; and

- The events are practically proven.

i) The events that directly occur from the company restructuring or partial divisions and will not reoccur in the next periods shall not be included in the pro forma income statement and shall only be included in the pro forma balance sheet.

The enterprise shall specify these events and must not include them in the pro forma income statement; describes relevant tax effects, incomes and expenses.

k) The pro forma financial statement does not include information that are forecasts, prognoses, information about events that have not occurred, such as information about impacts that may happen or are expected to happened and are relevant to the transactions that the Board of Directors of the enterprise is expected to conduct due to impacts of the company restructuring or partial division.

l) The pro forma balance sheet and the pro forma income statement shall have a separate part for data before the pro forma adjustments are made for each task of the company restructuring or partial division process, and a separate part for pro forma financial information. The enterprise shall explain in details each pro forma adjustment in the description of the pro forma financial statement.

m) In case the enterprise has multiple restructuring or partial division activities for which pro forma financial statements have to be prepared, the enterprise shall present the pro forma adjustments separately for each transaction in the pro forma balance sheet and the pro forma income statement.

n) Tax effects:

- Tax effects shall be calculated according to tax rates under tax laws that are effective during the preparation of the pro forma income statement.

- In case the enterprise has foreseen future changes in corporate income tax rates while recording deferred income tax or deferred income tax payable, and the deferred income tax or deferred income tax payable will be reversed when the new tax rates become effective, the enterprise shall apply the new tax rates to record deferred income tax or deferred income tax payable in the pro forma financial statement.

2. Rules for preparation of the pro forma balance sheet

Pro forma adjustments shall be calculated on the assumption that the company restructuring or partial division transactions are completed on the ending date of the period of the pro forma balance sheet.

3. Rules for preparation of the pro forma income statement

a) Pro forma adjustments shall be calculated on the assumption that the company restructuring or partial division activities are completed on the beginning date of the period of the pro forma income statement.

b) The enterprise must not exclude from the pro forma financial statement items that are not regular or do not recur in the next periods if these items are not directly relevant to the company restructuring or partial division activities which have been included in the income statements of the restructured or partially divided enterprises.

Article 6. Methods for preparation of pro forma financial statements

1. In case of enterprise consolidation:

a) In case the consolidating companies do not have subsidiary companies:

- The pro forma balance sheet shall be prepared on the basis of aggregation of financial position statements of the consolidating enterprises on the ending date of the period of the pro forma balance sheet.

- The pro forma income statement shall be prepared on the basis of aggregation of the income statements of the consolidating enterprises of the same period as that of the pro forma income statement.

- The enterprise shall exclude all debts, financial investments and other balances, revenues, expenses, profits, losses derived from the transactions among the parties to the consolidation.

b) In case one or some consolidating enterprises have subsidiary companies and the consolidated enterprise has to prepare a consolidated financial statement:

- In case the purchase transaction is identified as purchase of a business operation:

+ In case the consolidating enterprises are under common control before consolidation:

The pro forma balance sheet and the pro forma income statement shall be prepared as if the consolidating enterprises do not have subsidiary companies as prescribed in Point a Clause 1 of this Article.

+ In case the consolidating enterprises are not under common control before consolidation:

- The enterprise shall determine the buyer according to Vietnam's Accounting Standard No. 11 – Business Consolidation.

. The buyer shall record assets purchases, payables and potential liabilities incurred, including assets, payables and potential liabilities that have not been previously recorded by the seller as prescribed in Circular No. 202/2014/TT-BTC, Vietnam's Accounting Standard No. 11 – Business Consolidation and relevant Vietnam's Accounting Standards.

. The pro forma balance sheet shall be prepared on the basis of the buyer's financial position statement on the ending date of the period of the pro forma financial statement and the financial position statement of the seller shall be determined on the date of completion of the consolidation transaction. The buyer shall record the assets and payables that can be determined and potential liabilities of the seller in the pro forma balance sheet of the buyer according to fair values; record corresponding goodwill value on the ending date of the period of the pro forma financial statement.

. The pro forma income statement shall be prepared on the basis of aggregation of the income statements of the buyer and the seller of the same period as that of the pro forma financial statement. The enterprise shall implement the pro forma adjustments that reflect the direct impacts of the business consolidation transaction, including net asset adjustments at fair values, distribution of good will and other appropriate adjustments on assumption that the consolidation transaction occurs on the beginning date of the period of the pro forma financial statement.

. The enterprise shall exclude all debts, financial investments and other balances, revenues, expenses, profits, losses derived from the transactions among the parties to the consolidation.

- In case the enterprise purchases a group of assets or net assets but the purchase does not constitute a business operation:

+ The pro forma balance sheet shall be prepared on the basis of the buyer's financial position statement on the ending date of the period of the pro forma financial statement. The buyer shall distribute prices of these assets among the assets and payables that can be separately determined in the group of purchased assets according to their fair values of the seller on the date of completion of the purchase for inclusion in the pro forma balance sheet.

+ The pro forma income statement shall be prepared on the basis of aggregation of the income statements of the buyer and seller of the same period as that of the pro forma income statement. When preparing the pro forma income statement, the enterprise shall implement the pro forma adjustments that reflect the changes to depreciation of assets due to distribution of the aforementioned prices on the assumption that the consolidation transaction occurs on the beginning date of the period of this statement.

+ The enterprise shall exclude all debts, financial investments and other balances, revenues, expenses, profits, losses derived from the transactions among the parties to the consolidation.

2. In case of acquisition:

a) In case the acquiring enterprise and the acquired enterprises do not have subsidiary companies:

- The pro forma balance sheet shall be prepared on the basis of aggregation of financial position statements of the acquiring enterprise and the acquired enterprises on the ending date of the period of the pro forma balance sheet.

- The pro forma income statement shall be prepared on the basis of aggregation of the income statements of the acquiring enterprise and the acquired enterprises of the same period as that of the pro forma income statement.

- The enterprise shall exclude all debts, financial investments and other balances, revenues, expenses, profits, losses derived from the transactions among the parties to the acquisition.

b) In case the acquiring enterprise or acquired enterprise has subsidiary companies and the acquiring enterprise has to prepare a consolidated financial statement after the acquisition is completed:

- In case the acquisition is identified as purchase of a business operation:

The pro forma balance sheet and the pro forma income statement shall be prepared similarly to the case in which the consolidating enterprises do not have subsidiary companies and the purchase is identified as purchase of a business operation as prescribed in Point b Clause 1 of this Article.

- In case the enterprise purchases a group of assets or net assets but the purchase does not constitute a business operation:

The pro forma balance sheet and the pro forma income statement shall be prepared similarly to the case in which the consolidating enterprises do not have subsidiary companies and purchase a group of assets or net assets but the purchase does not constitute a business operation as prescribed in Point b Clause 1 of this Article.

3. In case of purchase of an enterprise (including purchase of assets that fits the definition of purchase of enterprises prescribed in the Law on Competition):

- The pro forma balance sheet and the pro forma income statement shall be prepared similarly to the case of business consolidation prescribed in Point b Clause 1 of this Article.

- In case there are transactions to increase finance for completion of the purchase, the enterprise shall implement the pro forma adjustments to reflect the impacts of these transactions e.g. principal and interest of loans for financing restructuring transactions.

4. In case of partial division:

a) In case part of the assets is transferred for establishment of a new enterprise which does not exist on the ending date of the period of the pro forma financial statement, the enterprise is not required to prepare the pro forma financial statement. Instead, the enterprise may use the financial statement of the same period as that of the pro forma financial statement.

b) In case part of the assets is transferred for establishment of a new enterprise which has been existing or is being establishing on the ending date of the period of the pro forma financial statement:

- The pro forma balance sheet shall be prepared on the basis of aggregation of financial position statements of the partially divided enterprise minus (-) book values of the transferred assets on the ending date of the period of the pro forma financial statement.

- The pro forma income statement shall be prepared on the basis of the income statement of the partially divided enterprise minus (-) the part of the income statement of the transferred assets in the same period as that of the pro forma financial statement.

- The enterprise shall prepare and monitor detailed information in the administrative accounting system to serve the determination of book values of transferred assets on the ending date of the period of the pro forma financial statement and the part of the income statement of the transferred assets in the same period as that of the pro forma financial statement.

5. In case of sale of assets:

a) In case the sold assets do not exist on the ending date of the period of the pro forma financial statement, the enterprise is not required to prepare the pro forma financial statement. Instead, the enterprise may use the financial statement of the same period as that of the pro forma financial statement.

b) In case the sold assets have been existing or are being formed on the ending date of the period of the pro forma financial statement:

- The pro forma balance sheet and the pro forma income statement shall be prepared similarly to the case of partial division, in which part of the assets are transferred for establishment of a new enterprise that has been existing on the ending date of the period of the pro forma financial statement prescribed in Point b Clause 4 of this Article.

- The pro forma adjustments shall reflect the impacts of the prices paid in reality on the date of completion of the sale in the pro forma balance sheet and shall not reflect relevant tax effects, incomes and expenses in the income statement.

Article 7. Other instructions

The average equity in the formula for calculation of return on equity (ROE) based on the pro forma financial statement shall be determined as follows:

1. The opening equity is the equity that is determined on the basis of the financial position statement of the year preceding the year in which ROE has to be calculated.

2. The closing equity is the equity that is determined by aggregating the opening equity mentioned in Clause 1 of this Article with the profit after corporate income tax on the pro forma income statement of the year in which ROE has to be calculated, and will be adjusted according to the transactions that have occurred and directly affected the equity in the year in which ROE, including but not limited to transactions such as: dividend payment in case, increase in interests being held in subsidiary companies, decrease in interests being held in subsidiary companies that do not lose control.

Chapter III

IMPLEMENTATION ORGANIZATION

Article 8. Effect

This Circular comes into force from April 1, 2022.

Article 9. Organization of implementation

1. Director of Director of Department of Accounting and Auditing Regulations, President of State Securities Commission, relevant organizations and individuals are responsible for organizing the implementation of this Circular.

2. Difficulties that arise during the implementation of this Circular should be reported to the Ministry of Finance for consideration and settlement./.