Công văn 7404/NHNN-KTTC

Dear Credit Institutions,

Pursuant to credit institutions’ System of Accounting Entries (promulgated together with the Decision No.479/2004/QD-NHNN dated April 29, 2004; the Decision No.807/2005/QD-NHNN dated June 01, 2005; the Decision No.29/2006/QD-NHNN dated July 10, 2006 of the Governor of State Bank of Vietnam); Pursuant to the Decision No.1452/2004/QD-NHNN dated November 10, 2004 of the Governor of the State Bank of Vietnam on foreign exchange transactions carried out by authorized credit institutions; Pursuant to Vietnam Accounting Standard System,

The State Bank of Vietnam hereby provides guidance on accounting for financial derivative transactions as follows:

A/ ACCOUNTING FOR FORWARD EXCHANGE TRANSACTIONS

I. ACCOUNTING PRINCIPLES

1. When the contract for foreign currency forward is concluded, this holds foreign currency status open for credit institutions, which will expose them to any exchange rate risk. In order to timely record profit/loss earned or incurred by exchange rate variables or fluctuations on the balance sheet and the income statement, credit institutions must promptly record the open status of foreign currency exchange after every purchase/sale of foreign currency forward. Within the validity duration of the forward contract, it must be revalued on the regular basis (day, month or quarter-based periodic revaluation as of the date on which the financial statement is formulated) to match reasonable market value to record profit/loss on any additional transactions but yet to record the corresponding entry to the opposite account No.633 “The difference in the revaluation of financial derivative instruments”/ currency forward transaction item. By yearend, the account No.633 balance is brought forward to the revenue/expense account for currency derivative instruments.

2. Revaluation method of the forward contract as follows:

a. Promptly determine and record the difference between forward exchange rate agreed in the forward contract and spot exchange rate agreed at the date on which the forward contract is concluded in order to track and linearly distribute this marginal amount to the revenue / expense account gained or incurred from currency derivative instruments – forward transactions (the account No.723 and No.823).

b. Throughout the validity duration of the contract, the amount of purchased/sold foreign currency as agreed in the forward contract shall be revaluated regularly (day, month or quarter-based periodic revaluation) at the official exchange rate announced by the State Bank of Vietnam or spot exchange rate announced by the contracting credit institution (if entitled by legal regulations)

3. Account No.486 “Payment for currency derivative instruments” (currency derivatives), by its nature, refers to the monitoring or tracking of cash flow to specify accounts payable to partners which shall be accounted for at the expiration date on which the contract is closed and conform to the forward exchange rate agreed in the forward contract.

4. In order to separate the effectiveness of each currency derivative instrument in foreign currency transactions carried out by credit institutions, revenues/expenses earned or incurred from currency derivative instruments are separately recorded to the account No.723/ No.823.

5. At the expiration date of the forward contract:

- Credit institutions can consistently and immediately record the impact of exchange rate fluctuations from the date of final evaluation to the date on which the forward contract is executed to the account No.633, given each closed contract, or keep a record of balances of foreign currency purchase/sale which are converted into revaluated VND currency throughout forward transactions as prescribed at Clause 2.b of this Section.

- Aggregate the foreign currency amount generated from contractual forward transactions available on the account No.4741, then record this aggregate amount to the account No.4711 and concurrently bring forward the contractual amount of foreign currency converted into VND value at the exchange rate of spot trade defined at the date on which the Contract is closed, which is also brought forward from the account No.4742 to the account No.4712.

II/ ACCOUNTING CONTENTS

1. Foreign currency purchase forward paid in VND currency:

1.1. At the effective date of the forward contract for foreign currency purchase

Based on the forward contract for foreign currency purchase and the detailed statement on the contract for foreign currency forward purchase (form 01-PL01PSTT), contractual transactions shall be accounted for as follows:

- Record the amount of foreign currency to be purchased as agreed upon in the forward contract:

Debit A/C 4862- Payment for forward transactions in proper currency/foreign currency

Credit A/C 4741 – Commitment to carrying out forward transactions in proper currency/foreign currency

- Record the undertaken amount of VND currency to be paid equivalently

Debit A/C 4742 – Value of the currency forward transactions

(The amount of VND currency at the exchange rate of spot sale agreed upon at the effective date of the forward contract)

Debit A/C 3962- Interest receivable / Credit A/C 4962- Interest payable generated from the forward transaction

(The amount of VND currency gained from the difference between the exchange rate of forward purchase and the exchange rate of spot purchase agreed upon at the effective date of the contract for the purchase of foreign currency)

Credit A/C 4862 - Payment for forward transactions

(The amount of VND currency at the exchange rate of forward purchase)

1.2. Within the validity duration of the contract

1.2.1. Periodically (at the end of day, month and quarter) distribute the difference between future and spot exchange rate, which is calculated by the straightforward method

The accountant must create the statement on determining interest receivable on forward transactions to be accounted for to expense accounts (Form 04-PL01PSTT) and/or the statement on distributing interest payables from the currency forward contract (Form 05-PL01PSTT).

Based on the accounting statement (Form 04-PL01PSTT), contractual forward transactions shall be accounted for as follows:

Credit A/C 823 – Expenditure on currency derivative instruments

Credit A/C 3962- Interest receivable generated from forward transactions

Or based on the accounting statement (Form 05-PL01PSTT), forward transactions shall be accounted for as follows:

Debit A/C 4962- Interest payable generated from forward transactions

Credit A/C 723 – Revenue from currency derivative instruments

Note: At the closing date of the forward contract, balances of A/C 3962/ A/C 4962 generated from the forward contract shall be equal to zero (0).

1.2.2. Periodically (at the end of day, month and quarter) revaluate the amount of VND currency gained from converted balances of foreign currency forward purchase/sale at the spot exchange rate agreed upon at the date of revaluation.

The method of revaluating the amount of VND currency gained from converted balances of foreign currency forward purchase/sale agreed upon in the forward contract (A/C 474 / & A/C 4742) is similar to the method of revaluating the amount of VND currency gained from converted balances of forward purchase/sale of traded foreign currency (A/C 4711 & A/C 4712). Based on the valuation result, the balance of A/C 4742 is adjusted and accounted for as follows:

Debit A/C 6332- Difference in the revaluation of currency derivative instruments / forward transactions

Credit A/C 4742- Value of currency forward transactions

(Adjustable amount of VND currency: unrealizable losses incurred) or

Debit A/C 4742- Value of currency forward transactions

Credit A/C 6332- Difference in the revaluation of currency derivative instruments / forward transactions

(Adjustable amount of VND currency: unrealizable interest gained)

By yearend, A/C No.633 balance is brought forward to A/C 723/ A/C 823- Revenue / expense gained or incurred from currency derivative instruments.

1.3. At the date on which the contract is closed

1.3.1. Accounting for foreign currency purchase agreed in the forward contract with partners

- Record the purchased amount of foreign currency

Debit A/C proper foreign currency (A/C 1031, A/C Foreign currency deposit from the client....)

Credit A/C 4862 “Payment for forward transactions/ proper foreign currency

- Record the paid amount of VND currency at the exchange rate of forward purchase transactions

Debit A/C 4862 “Payment for forward transactions”/ VND currency

Credit relevant A/C VND currency (A/C 1011, A/C VND currency deposit from the client....)

1.3.2. The revaluation of VND currency / the amount of foreign currency agreed in the contract for forward purchase transactions at the exchange rate of spot purchase on the agreed future date.

The accountant must create the statement on revaluating VND currency / the amount of foreign currency agreed in the contract for forward purchase to be carried out on the agreed future date (Form 06-PL01PSTT). Based on results recorded in the accounting statement, forward transactions shall be accounted for as follows:

Debit A/C 6332- Difference in the revaluation of currency derivative instruments / forward transactions

Credit A/C 4742- Value of currency forward transactions

Or

Debit A/C 4742- Value of currency forward transactions

Credit A/C 6332- Difference in the revaluation of currency derivative instruments / forward transactions

Notes: Credit institutions can skip this valuation step. By doing this, keeping a record of the impact of exchange rate fluctuations from the date of final valuation to the maturity date of the contract is implied in the general result obtained in the subsequent valuation on the value of VND currency yielded from the converted balance recorded in foreign currency account No.47.

1.3.3. Contractual transactions agreed in the contract for forward purchase are recorded in account No.4741, 4742 and brought forward to A/C Spot Foreign Currency Purchase/Sale (A/C 4711, 4712)

- Record the purchased amount of foreign currency:

Debit A/C 4741 – Currency forward transactions agreed upon the future date

Credit A/C 4711 - Purchase/sale of traded foreign currency

- Record the paid amount in VND currency:

Credit A/C 4712- Payment for purchase/sale of traded foreign currency

Credit A/C 4742- Value of currency forward transactions at the exchange rate of spot purchase

2. Forward sale transactions in foreign currency paid in VND:

At the stage (1) and stage (3), contents of transactions that have been accounted for are in contrast to accounting entries for forward purchase transactions in foreign currency. At the stage (2), contents of transactions that have been accounted for are the same as these of foreign currency forward purchase, which is specified as follows:

2.1. At the effective date of the forward contract for foreign currency sale

Based on the forward contract for foreign currency purchase and the detailed statement on the contract for foreign currency forward sale (Form 02-PL01PSTT), these transactions is accounted for as follows:

- Record the amount of foreign currency to be sold as agreed upon in the forward contract:

Debit A/C 4741 – Commitment to performing forward transactions in proper currency / foreign currency

Credit A/C 4862- Payment for forward transactions/ proper foreign currency

- Record the amount of VND currency to be paid equivalently at the agreed date:

Debit A/C 4862 - Payment for forward transactions/ VND currency

The amount of VND currency at the exchange rate of forward sale

Credit A/C 4742 - Value of currency forward transactions

The amount of VND currency at the exchange rate of spot sale agreed upon at the effective date of the contract

Debit A/C 3962- Interest receivable / Credit A/C 4962- Interest payable

(The amount of VND currency gained from the difference between the exchange rate of forward sale and the exchange rate of spot sale agreed upon at the effective date of the contract for the sale of foreign currency)

2.2. Within the validity duration of the contract

Processing and accounting for contractual transactions are the same as these for foreign currency forward sale.

2.3. At the date on which the contract is closed

2.3.1. Accounting for foreign currency sale as agreed upon in the forward contract

- Record the amount of foreign currency to be sold:

Debit A/C 4862- Payment for forward transactions/ proper foreign currency

Credit A/C proper foreign currency (A/C 1031, A/C Foreign currency deposit from the client....)

- Record the received amount of VND currency at the exchange rate of forward sale agreed in the contract

Debit A/C proper VND (A/C 1011, A/C VND currency deposit from the client....)

Credit A/C 4862 - Payment for forward transactions/ VND currency

2.3.2. Revaluating VND currency/ the sold amount of foreign currency agreed in the forward contract for foreign currency sale at the exchange rate of spot sale determined at the maturity date specified in the contract (Form 07-PL01PSTT). Based on results recorded in the accounting statement, accounting for contractual transactions shall be carried out as follows:

Debit A/C 6332- Difference in the revaluation of currency derivative instruments / forward transactions

Credit A/C 4742- Value of currency forward transactions

or Credit A/C 4742- Value of currency forward transactions

Credit A/C 6332 - Difference in the revaluation of currency derivative instruments / forward transactions.

Notes: Credit institutions can skip this valuation step. By doing this, keeping a record of the impact of the exchange rate fluctuations from the date of final valuation to the maturity date of the contract is implied in the general result obtained in the subsequent valuation on the value of VND currency yielded from the converted balance recorded in foreign currency account No.47.

2.3.3. Contractual transactions agreed in the contract for forward sale are recorded in account 4741, 4742 and brought forward to A/C Spot Foreign Currency Purchase/Sale (A/C 4711, 4712).

- Record the sold amount of foreign currency:

Debit A/C 4711 – Purchase / sale of traded foreign currency

Credit A/C 4741 – Commitment to performing currency forward transactions at the specified date

- Record the paid amount of VND currency:

Debit A/C 4742- Value of currency forward transactions at the exchange rate of spot sale

Credit A/C 4712 - Payment for purchase/sale of traded foreign currency

3. Forward exchange transactions between two foreign currencies

- As regards foreign currency forward exchanges under which the amount of VND currency generated from the difference between forward exchange rate and spot exchange rate must be determined to distribute this marginal amount to Revenue or Expense account within the validity duration of the contract, which is specified as follows:

+ Determining the amount of VND currency converted from the amount of foreign currency in need of foreign currency exchange (purchased foreign currency) at the agreed date, which conforms to the exchange rate of spot purchase agreed on the signing date of the forward exchange contract;

+ Determining the amount of VND currency converted from the amount of foreign currency used as payments on the agreed date (sold foreign currency) at the exchange rate of spot sale agreed at the signing date of the forward exchange contract.

+ The differential amount of VND currency converted from the purchased amount of foreign currency agreed in the forward contract and the amount of VND currency converted from the sold amount of foreign currency agreed in the aforementioned forward contract shall be separately accounted for to A/C 3962/ A/C 4962 in order to apply the straightforward method to distribute and make this amount gradually carried forward to Revenue/ Expense account for financial derivative instruments (A/C 723/ A/C823) within the validity duration of the contract.

- As regards foreign currency forward exchanges under which accounting for contractual exchange transactions at stage (1) and (3) can be changed and accounting for contractual exchange transactions at stage (2) is the same as that for foreign currency forward purchase/sale as mentioned above.

3.1. At the effective date of the contract for foreign currency forward exchange

Based on the contract for foreign currency forward exchange and the detailed statement on the contract for foreign currency forward exchange (Form 03-PL01PSTT), accounting for these transactions is carried out as follows:

- Record the purchased amount of foreign currency as agreed upon in the forward contract:

Debit A/C 4862 - Payment for forward purchase transactions in proper currency/foreign currency

Credit A/C 4741 – Commitment to performing purchase forward transactions in proper currency/foreign currency

- Record the amount of foreign currency to be paid as agreed upon in the forward contract

Debit A/C 4741 – Commitment to performing forward sale transactions in currency / foreign currency

Credit A/C 4862 - Payment for forward purchase transactions in currency/foreign currency

- Simultaneously, record VND currency value used in foreign currency forward exchanges.

Debit A/C 4742 – Value of currency forward transactions / payment for the purchase of foreign currency in VND currency

The exchange rate of spot purchase at the signing date of the contract for the purchase of foreign currency

Credit A/C 4742 - Value of currency forward transactions / payment for the purchase of foreign currency in VND currency

The exchange rate of spot sale at the signing date of the contract for the sale of foreign currency

Debit A/C 3962- Interest receivable / Credit A/C 4962- Interest payable

The marginal amount in VND currency for such 2 accounts

3.2. Within the validity duration of the contract

Processing and accounting for contractual transactions are the same as these for foreign currency forward purchase/sale

3.3. At the date on which the contract is closed

3.3.1. Record payment of agreed amount of foreign currency to partners

- Record the purchased amount of foreign currency

Debit A/C proper foreign currency (A/C 1031/, A/C Foreign currency deposit from the client):

Credit A/C 4862 “Payment for forward transactions” / proper foreign currency

- Record the paid amount of foreign currency (sold)

Debit A/C 4862 - Payment for forward transactions/ proper foreign currency

Credit A/C proper foreign currency (A/C 1031, A/C Foreign currency deposit from the client....)

3.3.2. Revaluating VND currency/ foreign currency balances agreed in the contract for foreign currency forward exchange at the spot exchange rate specified at the maturity date (separately valuating purchased foreign currency by filling in Form 06-PL01PST and sold foreign currency by filling in 07-PL01PSTT):

- Revaluate purchased foreign currency

Debit A/C 6332- Difference in the revaluation of currency derivative instruments / forward transactions

Credit A/C 4742 – Value of currency forward transactions / payment for the purchase of foreign currency in VND currency or

Debit A/C 4742 – Value of currency forward transactions / payment for the purchase of foreign currency in VND currency

Credit A/C 6332- Difference in the revaluation of currency derivative instruments / forward transactions

- Revaluate accounts payable in foreign currency (sold foreign currency)

Debit A/C 6332- Difference in the revaluation of currency derivative instruments / forward transactions

Credit A/C 4742- Value of currency forward transactions / payment for the sale of foreign currency in VND currency

or Credit A/C 4742- Value of currency forward transactions / payment for the sale of foreign currency in VND currency

Credit A/C 6332- Difference in the revaluation of currency derivative instruments / forward transactions

Notes: Credit institutions can skip this valuation step. By doing this, keeping a record of the impact of exchange rate fluctuations from the date of final valuation to the maturity date of the contract is implied in the general result obtained in the subsequent valuation on the value of VND currency yielded from the converted balance recorded in foreign currency account 47.

3.3.3. Contractual transactions agreed in the contract for forward exchange are recorded to A/C 4741, 4742 and brought forward to A/C Foreign Currency Spot Purchase/Sale (A/C 4711, 4712)

- Record the sold amount of foreign currency:

Debit A/C 4711 – Purchase and sale of traded / sold foreign currency

Credit A/C 4741 – Commitment to performing forward sale transactions in currency / foreign currency

- Record the purchased amount of foreign currency:

Debit A/C 4741 – Commitment to performing purchase forward transactions in currency/foreign currency

Credit A/C 4711 – Purchase or sale of traded / purchased foreign currency

- The equivalent amount of VND currency agreed in the contract at the spot exchange rate on the account No. 4742 is brought forward to the account No.4712 in VND currency:

+ Record the equivalent amount of foreign currency to be purchased

Debit A/C 4712- Payment for the purchase and sale of traded / sold foreign currency

Credit A/C 4742- Value of currency forward transactions at the exchange rate of spot purchase

+ Record the equivalent amount of foreign currency to be sold:

Debit A/C 4742- Value of currency forward transactions at the exchange rate of spot sale

Credit A/C 4712 - Payment for the purchase or sale of traded / sold foreign currency

B/ ACCOUNTING FOR CURRENCY SWAPS

I. ACCOUNTING PRINCIPLES

Currency swap transactions shall not create the open status of foreign currency, which leads to none of exchange rate risks. Therefore, credit institutions do not need to perform the regular revaluation of foreign currency market for spot purchase/sale at the spot exchange rate as well as for forward sale/purchase. In addition to accounting for the cash flow that serves as payments to partners, credit institutions do not need to account for the foreign currency swap in outward direction at the date on which the contract starts coming into existence and the foreign currency swap in reverse direction at the date on which the contract is closed for A/C On-balance Purchase/Sale in foreign currency. Credit institutions record the original currency in outward direction agreed upon in the swap contract for off-balance accounts to serve the tracking purpose on the expiration date.

The extra or discounted primary amount (due to the difference between spot and forward exchange rate) shall be recorded to the A/C 3961 Interest receivable/ A/C 4961 Interest payable for swap transactions and evenly distributed throughout the validity duration of currency swap contract.

II. ACCOUNTING CONTENTS

1.1. At the effective date of the contract for foreign exchange swaps:

Based on the contract for foreign exchange swap and the detailed statement on the currency swap contract (Form 01-PL03PSTT), accounting for contractual transactions is carried out as follows:

- Off-balance accounting is to track the sum to be swapped at the start of the contract:

Record a credit entry to Off-balance A/C 9235 “Commitment to performing currency swap transactions” / the swapped amount at the start of the contract (credit institutions must open detailed items for recording the outward or inward sum agreed in the swap contract)

- Accounting for on-balance accounts is performed for the transaction between the outward amount of foreign currency/ VND and the inward amount of A/C 4861 “Payment for swap transactions” and the extra or discounted primary amount is carried out to record relevant accounting entries to A/C 3961 Interest receivable/ A/C 4961 Interest payable.

+ Record the amount of foreign currency/ VND to be swapped in inward direction

Debit A/C proper foreign currency / proper VND currency

The actual amount received at the start of the contract

Credit A/C 4861 - Payment for swap transactions / foreign currency (or VND currency)

The paid amount at the closing of the contract

Debit A/C 3961 Interest receivable / Credit A/C 4961 Interest payable (if any)

The difference between received and repaid amounts

+ Record the amount of foreign currency/ VND to be swapped in the outward direction

Debit A/C 4861 - Payment for swap transactions / foreign currency (or VND currency)

The received amount at the closing of the contract

Credit A/C proper foreign currency / proper VND currency

The actual amount to be swapped in outward direction at the start of the contract

Debit A/C 3961 Interest receivable / Credit A/C 496 Interest payable (if any)

The difference between amounts to be swapped in outward and inward directions

1.2. Within the validity duration of the contract

Distributing balances of A/C 3961/ A/C4961 and Revenue or Expense to financial derivative instruments – A/C 723/ A/C 823. If the differential amount at the outward and inward cash flow is calculated in foreign currency, the distribution of foreign currency shall be carried out through A/C foreign currency purchase or sale for the purpose of accounting for VND currency to revenue/expense.

The accountant must create the accounting statement (Form 02-PL03PSTT and 03-PL03PSTT).

Based on the accounting statement (Form 02-PL03PSTT), swap transactions shall be accounted for as follows:

Debit A/C 823- Expenditure on currency derivative instruments

Credit A/C 3962- Interest receivable

Or based on the accounting statement (Form 03-PL03PSTT), swap transactions shall be accounted for as follows:

Debit A/C 4961 - Interest payable

Credit A/C 723 – Expenditure on currency derivative instruments

1.3. At the date on which the contract is closed

- Record a debit entry to Off-balance A/C 9235 “Commitment to performing swap transactions” (detailed items that has been already opened): Accounting for these transactions is based on the exchanged amount at the start of the contract

- Keeping a record of paid-off foreign currency/ VND currency to be swapped in outward direction that is currently received through the swap transaction performed in the inward direction

Debit A/C proper foreign currency / proper VND currency

The actual received amount

Credit A/C 4861 - Payment for swap transactions

- Accounting for paid-off foreign currency (VND currency) that has been received but currently paid through the swap transactions carried out in the outward direction

Debit A/C 486 / Payment for swap transactions

The actual amount to be paid through the swap transaction carried out in the outward direction

Credit A/C proper foreign currency / proper VND currency

C/ ACCOUNTING FOR CURRENCY OPTION TRANSACTIONS

I. BOOKKEEPING OF THE PURCHASE OF CURRENCY OPTIONS

(Call or put options)

1/ Accounting principles

- Paid premium is considered as an asset likely to generate economic benefits in the future and is determined in a reliable manner.

- Paid premium to buy currency options shall be distributed linearly to the expense (A/C 823) within a period ranging from the start of contract validity to the date on which the contract is closed. If the closing date of the contract falls within a specified period, it is considered the first date of that period.

- Except for the premium paid to buy currency options, the purchase of currency options can only generate interest. The generated but unrealizable interest amount shall be successively revaluated (in the day, month or quarter-based periodic revaluation) on the basis of elements such as market price, original price of the underlying asset under the option contract, transaction frequency and validity duration of the option contract. Generated but unrealizable interest shall be recorded on the balance sheet.

2/ Accounting contents

2.1. At the effective date of the contract for the purchase of currency options

Based on the contract for the purchase of options and the detailed statement on the contract to buy foreign currency call or put options (Form 01/02-PL04PSTT) accounting for these contractual transactions shall be performed as follows:

- Record the expense incurred from the purchase of call or put options:

Debit A/C 388 “Unexpired cost” / option purchase premium item

Credit proper account (cash and deposit, etc)

- Record the commitment to performing the purchase of call or put options:

Debit A/C 9236- Commitment to performing transactions in the currency call option /

Accounting items of the purchase of currency call option

or record a credit entry to A/C 9237- Commitment to performing transactions in the currency put option / Accounting items of the purchase of the currency put option

2.2. Within the validity duration of the contract to buy currency options

Periodically (at the end of day/ month/ quarter), accounting for contractual transactions shall be carried out as follows:

2.2.1. Calculating and distributing the premium generated from the purchase of currency options to the expense recorded in the accounting term

The accountant must create the statement on the distribution of the premium on the purchase of options (Form 11-PL04PSTT) as well as account for contractual transactions as follows:

Debit A/C 823 “Expenditure on currency derivative instruments”.

Credit A/C 388 “Unexpired cost” / option purchase premium items

2.2.2. Determining and recording new value of the contract to buy currency options

Based on the contract to buy currency options and recorded interest in the preceding accounting term, formulating the statement on revaluating generated but unrealizable interest gained from the purchase of currency options at credit institutions (form 13/14-PL03PSTT- formulating separate statements on each purchase of call or put options)

Based on the statement on determining the interest gained from the purchase of currency options, the accountant shall figure out an increase or decrease in the amount of interest in order to record the adjusted entry to the unrealizable interest to be accounted for as follows:

- If the differential amount (xxx) is positive (Record an increase in the unrealizable interest).

Debit A/C 3964 – Interest gained from option transactions

Credit A/C 6334 – The difference in the revaluation of financial derivative instruments / currency option transactions

- If the differential amount (xxx) is negative: (Record a decrease in the unrealizable interest).

Debit A/C 6334 – The difference in the revaluation of financial derivative instruments / currency option transactions

Credit A/C 3964 – Interest gained from option transactions

2.3. At the payment due date agreed upon in the contract:

2.3.1. If credit institutions do not exercise their currency options

Formulating accounting records on the failure to exercise the purchase of currency options (form 05-PL03PSTT) to get this transaction accounted for as follows:

- Accounting for a debit entry to the off-balance account:

Record a debit entry to A/C 9236- Commitment to exercising currency call option / itemized accounts

or Record a debit entry to A/C 9237- Commitment to exercising currency put option / itemized accounts

- Paying off the unrealizable interest amount that has been recorded at the final valuation (if any):

Debit A/C 6334 – The difference in the revaluation of financial derivative instruments.

Credit A/C 3964 – Interest gained from currency option transactions

2.3.2. If credit institutions do not exercise their currency option

Formulating the accounting statement on the execution of the purchase of options (form 07/08-PL03PSTT) to get this transaction accounted for as follows:

a- Record a debit entry to off-balance accounts:

Record a debit entry to A/C 9236- Commitment to exercising currency call option / itemized accounts

or record a debit entry to A/C 9237- Commitment to exercising currency put option / itemized accounts

b- Record the transaction in the option purchase

- With regard to the contract to buy the call option (Buy foreign currency)

+ Accounting for the purchased amount of foreign currency:

Debit proper A/C (foreign currency cash and deposit, etc.)

Credit A/C 4711 – Purchase and sale of traded foreign currency

+ Concurrently keeping a record of paid VND currency amount.

Debit A/C 4712 – Payment for the purchase and sale of traded foreign currency

At the exchange rate of spot purchase on the closing date of the contract

Credit proper A/C (cash and deposit, etc.)

At the original exchange rate agreed in the contract

Credit A/C 3964: Current balance (Paying off the unrealizable interest that has been recorded at the final valuation)

Credit/Debit A/C 6334: The difference in the amount accounted for to 3 accounts above

(It is in fact a(n) increased or decreased interest compared to the interest recorded in the final time of valuation).

- With regard to the contract to buy the put option (Sell foreign currency)

+ Accounting for the sold amount of foreign currency.

Debit A/C 4711 – Purchase or sale of traded foreign currency

Credit proper A/C (foreign currency cash and deposit, etc.)

+ Concurrently keeping a record of received VND currency payments.

Debit proper A/C (cash and deposit, etc.)

At the original exchange rate agreed in the contract

Credit A/C 4712 – Payment for the purchase and sale of traded foreign currency

At the exchange rate of spot sale on the closing date of the contract

Credit A/C 3964: Current balance (Paying off the unrealizable interest that has been recorded at the final valuation)

Credit/Debit A/C 6334: The difference in the amount accounted for to 3 accounts above

(It is in fact a(n) increased or decreased interest compared to the interest recorded at the final valuation).

II. BOOKKEEPING OF THE SALE OF CURRENCY OPTIONS

(Sell call or put options)

1/ Accounting principles

Received premium is recorded as a liability likely to lead to economic losses in the future and is determined in a reliable manner.

- Received premium to sell currency options shall be distributed linearly to the revenue (A/C 723) within a period ranging from the start of contract validity to the date on which the contract is closed. If the closing date of the contract falls within a specified period, it is considered the last date on which the contract must be duly executed.

- Except for the received premium, the sale of currency options can only incur losses. The generated but unrealizable amount of loss shall be successively revaluated (in the day, month or quarter-based periodic revaluation) on the basis of elements such as market price, original price of the underlying asset under the option contract, transaction frequency and validity duration of the option contract.

2/ Accounting contents

2.1. At the effective date of the contract for the sale of currency options

Based on the contract for the sale of currency options and the detailed statement on the contract to sell foreign currency call or put options (Form 03/04-PL04PSTT) accounting for these contractual transactions shall be performed as follows:

- Accounting for the receipt of premium generated from the sale of call/put options:

Debit proper A/C (cash and deposit, etc.)

Credit A/C 488 – Retained revenue / option sale premium items

- Record the commitment to performing the sale of call or put options:

Record a debit entry to A/C 9236- Commitment to exercising currency call option /

Accounting items of the sale of currency call option

or record a debit entry to A/C 9237- Commitment to exercising currency put option /

Accounting items of the sale of currency put option

2.2. Periodically (at the end of day/ month/ quarter), accounting for contractual transactions shall be carried out as follows:

2.2.1. Calculating and distributing the premium generated from the sale of currency options to the revenue recorded in the accounting term

The accountant must create the statement on the distribution of the premium on the sale of options (Form 12-PL04PSTT) as well as account for contractual transactions as follows:

Credit A/C 488 – Retained revenue / option sale premium items

Credit A/C 723 – Revenue from currency derivative instruments

2.2.2. Determining and recording new value of the contract to sell currency options

The accountant must create the statement on revaluating the incurred but unrealizable losses for transactions in the sale of currency options from credit institutions (form 15/16-PL04PSTT) as well as formulate separate statements for each sale of call or put options.

Based on the statement on determining the loss incurred from the sale of currency options, the accountant shall figure out an increase or decrease in the amount of loss in order to record the adjusted entry to the unrealizable loss to be accounted for as follows:

- If the differential amount (xxx) is positive (record the incurred or increased entry to the loss), this contractual transaction is accounted for as follows:

Debit A/C 6334 – The difference in the revaluation of financial derivative instruments / currency option transactions

Credit A/C 4964 – Interest payable (loss) derived from currency option transactions

- If the differential amount (xxx) is negative (record a decrease in the loss that has been recorded at the previous valuation):

Debit A/C 4964 – Interest payable derived from currency option transactions

Credit A/C 6334 – The difference in the revaluation of financial derivative instruments / currency option transactions

2.3. At the date on which the payment for the option contract is due:

2.3.1. If clients do not exercise their currency options

Formulating the accounting statement on the execution of the sale of currency options (form 06-PL03PSTT) to get this transaction accounted for as follows:

- Record a debit entry to the off-balance account:

Record a debit entry to A/C 9236- Commitment to exercising currency call option / itemized accounts

or record a debit entry to A/C 9237- Commitment to exercising currency put option / itemized accounts

- Accounting for the paid-off unrealizable amount of loss that has been recorded at the final valuation:

Debit A/C 4964 – Interest payable (loss) derived from currency option transactions

Credit A/C 6334 – The difference in the revaluation of financial derivative instruments / currency option transactions

2.3.2. If clients exercise their currency options:

The accountant must create accounting records (form 09/10-PL04PSTT) and contractual transactions must be accounted for as follows:

a- Record a debit entry to off-balance accounts:

Record a debit entry to A/C 9236- Commitment to exercising currency call options / itemized accounts

or record a debit entry to A/C 9237- Commitment to exercising currency put option / itemized accounts

b- Keep a record of the sale of currency options shall be carried out to meet partners’ requirements:

- If it is the contract to sell currency call option: Credit institutions must exercise a put on their foreign currency

+ Accounting for the sold amount of foreign currency:

Debit A/C 4711 – Purchase or sale of traded foreign currency

Credit proper A/C (foreign currency cash and deposit, etc.)

+ Simultaneously, record the received amount in VND currency:

 Debit proper A/C (cash and deposit, etc.)

At the original exchange rate agreed in the option contract

Debit A/C 4964: Current balance (Paying off the loss that has not been recorded at the final valuation)

Credit A/C 4712 – Payment for the purchase and sale of traded foreign currency

At the exchange rate of spot sale of foreign currency on the closing date of the option contract

Credit/Debit A/C 6334 - Difference in the amount accounted for to 3 accounts above

(It is in fact the increased / decreased loss incurred from the contract to sell the currency call option in comparison with that incurred in the last valuation)

- If it is the contract to sell currency put option: Credit institutions must exercise a call on the foreign currency

+ Accounting for the purchased amount of foreign currency:

Debit proper A/C (foreign currency cash and deposit, etc.)

Credit A/C 4711 – Purchase or sale of traded foreign currency

+ Simultaneously, record the amount payable in Vietnam dong:

Debit A/C 4964: Current balance (Paying off the loss that has not been recorded at the final valuation)

Debit A/C 4712 – Payment for the purchase and sale of traded foreign currency

At the exchange rate of foreign currency spot purchase on the closing date of the currency option contract

Credit proper A/C (cash and deposit, etc.)

At the original exchange rate agreed in the currency option contract

Credit/Debit A/C 6334 The difference in the amount accounted for to 3 accounts above

 (It is in fact the increased loss / the decreased loss incurred from the contract to sell the put option compared with that incurred in the last valuation)

III. BOOKKEEPING OF OPTION TRANSACTIONS BETWEEN TWO FOREIGN CURRENCIES

The supplementary accounting principles are mentioned below:

- Record an entry of premium receivable/ payable to on-balance accounts at the time of transactions performed in foreign currency.

- Periodically distribute these premiums to revenue / expense through the foreign currency trade.

- Generated but unrealizable Profit / Loss shall be recorded to A/C 6334 and to the corresponding A/C 3964 Interest receivable/ A/C 4964 interest payable (loss) incurred from the currency option transactions: Record the option transaction in Vietnam dong through conversion to be carried out at the call exchange rate at the time of recording the relevant accounting entry on the statement (the row with information about VND conversion in the form 13/14/15/16-PL04PSTT).

Accounting contents and methods of option transactions between 2 foreign currencies shall be the same as the guidance available at section I and II.

D/ SEVERAL NOTES ON ACCOUNTING PRACTICES

1. This guidance is only applied to credit institutions authorized by the State Bank to get involved in currency derivative transactions.

2. Currency future transactions shall be processed and accounted for in the same accounting method applied to currency forward transactions but accounts recorded as the tool to track future transactions are specified (A/C 475 – Future transactions).

3. At the end of fiscal year, in order to ensure the discretion and sustain a sufficient amount of unrealizable interest (credited balance of A/C 63 before being brought forward), credit institutions are not offered a part of profits or dividends generated from this interest in the subsequent year, except for the case in which gaining more than two-thirds of unrealizable interest amounts earned in the preceding year after the first half of the subsequent year enables them to get the aforementioned profits or dividends over this period.

4. Depending on their technological conditions, credit institutions are allowed not to create the accounting statement identical to the attached form given in the appendix. However, they must ensure that economic transactions specified in accounting records are correct under the guidance of the State Bank.

5. Accounting entries of purchase/sale transactions and foreign currency forward exchange are recorded to the on-balance account No.474. Hence, credit institutions do not need to carry out the monitoring activities for off-balance accounts (A/C 9233, 9234).

6. Accounting entries of currency swap and option transactions are recorded and tracked to the off-balance accounts. Therefore, credit institutions do not need to track accounting entries recorded to the on-balance accounts (A/C 473 – Currency swap transaction, A/C 476 – Currency option transaction) since these transactions do not need the revaluation of equivalent VND currency.

7. If the payment for currency option transactions is late (usually 2 days) compared with the maturity date agreed in the contract, Credit institutions must finish recording all accounting entries of off-balance accounts to the account of commitment to performing currency options and then carry out the tracking of the account of commitment to performing foreign currency spot transactions (itemize the account to perform the tracking or monitoring of currency options) and have yet to process and account for on-balance accounts of currency options.

In the furtherance of this guidance, if there is any difficulty that arises, credit institutions are advised to send their feedbacks to the State Bank of Vietnam (c/o the Department of Accounting – Finance) for any further guidance or solutions.

APPENDIX 01:

FORWARD EXCHANGE

(Form 01-PL01PSTT)

DETAILED STATEMENT ON THE CONTRACT FOR FOREIGN CURRENCY FORWARD PURCHASE

Effective date (accounting date):

Maturity date:……………. Contract validity duration:

(Form 02-PL01PSTT)

DETAILED STATEMENT ON THE CONTRACT FOR FOREIGN CURRENCY FORWARD SALE

Effective date (accounting date):

Maturity date:……………. Contract validity duration:

(Form 03-PL01PSTT)

DETAILED STATEMENT ON THE CONTRACT FOR FOREIGN CURRENCY FORWARD EXCHANGE

Effective date (accounting date):

Maturity date:……………. Contract validity duration:

(Form 04-PL01PSTT)

STATEMENT ON DETERMINING INTEREST RECEIVABLE ON FORWARD TRANSACTIONS TO BE ACCOUNTED FOR TO EXPENSE ACCOUNTS

Accounting date:………………………

Notes:

- Column (8) & (9) are only applicable to the contract for foreign currency forward exchange

- Foreign currency forward contract shall generate the interest receivable and shall periodically distribute this to expense account in the following cases:

+ With respect to the Contract for Forward Purchase: the exchange rate of forward purchase > the exchange rate of spot purchase at the effective date of the contract;

+ With respect to the Contract for Forward Sale: the exchange rate of forward sale < the exchange rate of spot sale at the effective date of the contract;

+ With respect to the Contract for foreign currency forward exchange: Total VND value of the purchased amount of foreign currency by the expiration date, which is calculated at the exchange rate of spot sale at the effective date of the contract < Total VND value of the paid amount of foreign currency by the expiration date, which is calculated at the exchange rate of spot sale at the effective date of the contract.

(Form 05-PL01PSTT)

STATEMENT ON DETERMINING INTEREST PAYABLE ON FORWARD TRANSACTIONS TO BE ACCOUNTED FOR TO REVENUE ACCOUNTS

Accounting date:………………………

Notes:

- Column (8) & (9) are only applicable to the contract for foreign currency forward exchange

- Foreign currency forward contract shall generate the interest payable and shall periodically distribute this to revenue account in the following cases:

+ With respect to the Contract for Forward Purchase: the exchange rate of forward purchase < the exchange rate of spot purchase at the effective date of the contract

+ With respect to the Contract for Forward Sale: the exchange rate of forward sale > the exchange rate of spot sale at the effective date of the contract

+ With respect to the Contract for foreign currency forward exchange: Total VND value of the purchased amount of foreign currency by the expiration date, which is calculated at the exchange rate of spot purchase at the effective date of the contract > Total VND value of the paid amount of foreign currency by the expiration date, which is calculated at the exchange rate of spot sale at the effective date of the contract.

(Form 06-PL01PSTT)

STATEMENT ON DETERMINING THE VND VALUE FOR THE CONTRACT FOR FOREIGN CURRENCY FORWARD PURCHASE

Maturity date of the contract:…………….

(Accounting date):………………………

(Form 07-PL01PSTT)

STATEMENT ON DETERMINING THE VND VALUE FOR THE CONTRACT FOR FOREIGN CURRENCY FORWARD SALE

Maturity date of the contract

(Accounting date):………………………

APPENDIX 02:

FUTURE

(use the forms given in currency forwards)

APPENDIX 03:

CURRENCY SWAP

(Form 01-PL03PSTT)

STATEMENT ON THE CURRENCY SWAP CONTRACT

Effective date (accounting date): ………………..

Maturity date:……………. Expiration date:…………….

(Form 02-PL03PSTT)

STATEMENT ON DETERMINING INTEREST RECEIVABLE ON THE CURRENCY SWAP CONTRACT TO BE ACCOUNTED FOR TO EXPENSE ACCOUNTS

Accounting date:………………………

Notes: - As regards foreign currency / VND currency to be swapped in outward direction shall generate interest receivable if the paid amount in the beginning of accounting period < the received amount at the maturity date;

- As regards foreign currency / VND currency to be swapped in inward direction shall generate interest payable if the received amount in the beginning of accounting period > the paid amount at the maturity date.

(Form 03-PL03PSTT)

STATEMENT ON DETERMINING INTEREST PAYABLE ON THE CURRENCY SWAP CONTRACT TO BE ACCOUNTED FOR TO REVENUE ACCOUNTS

Accounting date:………………………

Notes: - As regards foreign currency / VND currency to be swapped in outward direction shall generate interest payable if the paid amount in the beginning of accounting period > the received amount at the maturity date;

- As regards foreign currency / VND currency to be swapped in inward direction shall generate interest payable if the received amount in the beginning of accounting period < the paid amount at the maturity date.

APPENDIX 04:

OPTION

(Form 01-PL04PSTT)

STATEMENT ON THE CONTRACT FOR THE PURCHASE OF CURRENCY CALL OPTION

Contract validity date (accounting date):

Contract validity duration:

(Form 02-PL04PSTT)

STATEMENT ON THE CONTRACT FOR THE PURCHASE OF CURRENCY PUT OPTION

Contract validity date (accounting date):

Contract validity duration:

(Form 03-PL04PSTT)

STATEMENT ON THE CONTRACT FOR THE SALE OF CURRENCY CALL OPTION

Contract validity date (accounting date):

Contract validity duration:

(Form 04-PL04PSTT)

STATEMENT ON THE CONTRACT FOR THE SALE OF CURRENCY PUT OPTION

Contract validity date (accounting date):

Contract validity duration:

(Form 05-PL04PSTT)

STATEMENT ON THE FAILURE TO EXECUTE THE CONTRACT FOR THE PURCHASE OF CURRENCY CALL / PUT OPTION

Maturity date (Accounting date):………………………

(Form 06-PL04PSTT)

STATEMENT ON THE FAILURE TO EXECUTE THE CONTRACT FOR THE SALE OF CURRENCY CALL / PUT OPTION

Maturity date (Accounting date):………………………

(Form 07-PL04PSTT)

STATEMENT ON THE EXECUTION OF THE CONTRACT FOR THE PURCHASE OF CURRENCY CALL OPTION

Maturity date (Accounting date):………………………

(Form 08-PL04PSTT)

STATEMENT ON THE EXECUTION OF THE CONTRACT FOR THE PURCHASE OF CURRENCY PUT OPTION

Maturity date (Accounting date):………………………

(Form 09-PL04PSTT)

STATEMENT ON THE EXECUTION OF THE CONTRACT FOR THE SALE OF CURRENCY CALL OPTION (FOREIGN CURRENCY SELLER)

Maturity date (Accounting date):………………………

(Form 10-PL04PSTT)

STATEMENT ON THE EXECUTION OF THE CONTRACT FOR THE SALE OF CURRENCY PUT OPTION (FOREIGN CURRENCY BUYER)

Maturity date (Accounting date):………………………

(Form 11-PL04PLSTT)

STATEMENT ON THE DISTRIBUTION OF THE PREMIUM ON THE PURCHASE OF OPTIONS TO BE ACCOUNTED FOR TO EXPENSE ACCOUNTS

Accounting date:………………………

(Form 12-PL04PSTT)

STATEMENT ON THE DISTRIBUTION OF THE PREMIUM ON THE SALE OF OPTIONS TO BE ACCOUNTED FOR TO REVENUE ACCOUNTS

Accounting date:………………………

(Form 13-PL04PSTT)

STATEMENT ON DETERMINING INTEREST ON THE PURCHASE OF CALL OPTIONS

Valuation date:…………….

The exchange rate according to the market value specified at the valuation date:…………….

Notes:

- Proposed exchange rate specified in the contract = Exchange rate specified at the effective date of the contract + ((Original exchange rate specified in the contract – exchange rate specified at the effective date of the contract) / (Contract validity duration)) x length of time ranging from the effective date to the valuation date of the contract.

- The exchange rate specified at the effective date of the contract refers to the exchange rate of spot purchase carried out at the date on which the contract comes into effect

- The original exchange rate specified in the contract refers to the exchange rate agreed upon in the contract for the purchase and/or sale of options.

- Interest for the current accounting period is revaluated when the exchange rate according to the market value is greater than (>) the proposed exchange rate specified in the contract.

- Interest = the amount of contractual transactions in options x (Exchange rate according to market value - the proposed exchange rate specified in the contract)

- If the exchange rate according to the market value is less than or equal to (≤) proposed exchange rate specified in the contract, the interest equals zero (0)

(Form 14-PL04PSTT)

STATEMENT ON DETERMINING INTEREST ON THE PURCHASE OF PUT OPTIONS

Valuation date:…………….

The exchange rate according to the market value specified at the valuation date:…………….

Notes:

- Proposed exchange rate specified in the contract = Exchange rate specified at the effective date of the contract + ((Original exchange rate specified in the contract – exchange rate specified at the effective date of the contract) / (Contract validity duration)) x length of time ranging from the effective date to the valuation date of the contract.

- The exchange rate specified at the effective date of the contract refers to the exchange rate of spot sale carried out at the date on which the contract comes into effect

- The original exchange rate specified in the contract refers to the exchange rate agreed upon in the contract for the purchase and/or sale of options.

- Interest for the current accounting period is revaluated when the exchange rate according to the market value is less than (<) the proposed exchange rate specified in the contract.

- Interest = the amount of contractual transactions in options x (Proposed exchange rate specified in the contract – exchange rate according to the market value)

- If the exchange rate according to the market value is less than or equal to (≤) proposed exchange rate specified in the contract, the interest equals zero (0)

(Form 15-PL04PSTT)

STATEMENT ON DETERMINING LOSS ON THE SALE OF CALL OPTIONS

Valuation date:…………….

The exchange rate at the valuation date:…………….

Notes:

- Proposed exchange rate specified in the contract = Exchange rate specified at the effective date of the contract + ((Original exchange rate specified in the contract – exchange rate specified at the effective date of the contract) / (Contract validity duration)) x length of time ranging from the effective date to the valuation date of the contract.

- The exchange rate specified at the effective date of the contract refers to the exchange rate of spot sale carried out at the date on which the contract comes into effect

- The original exchange rate specified in the contract refers to the exchange rate agreed upon in the contract for the purchase and/or sale of options.

- Loss for the current accounting period is revaluated when the exchange rate according to the market value is greater than (>) the proposed exchange rate specified in the contract.

- Loss = the amount of contractual transactions in options x (Exchange rate according to the market value - Proposed exchange rate specified in the contract)

- If the exchange rate according to the market value is less than or equal to (≤) proposed exchange rate specified in the contract, the loss equals zero (0)

(Form 16-PL04PSTT)

STATEMENT ON DETERMINING LOSS ON THE SALE OF PUT OPTIONS

Valuation date:…………….

The exchange rate at the valuation date:…………….

Notes:

- Proposed exchange rate specified in the contract = Exchange rate specified at the effective date of the contract + ((Original exchange rate specified in the contract – exchange rate specified at the effective date of the contract) / (Contract validity duration)) x length of time ranging from the effective date to the valuation date of the contract.

- The exchange rate specified at the effective date of the contract refers to the exchange rate of spot purchase carried out at the date on which the contract comes into effect

- The original exchange rate specified in the contract refers to the exchange rate agreed upon in the contract for the purchase and/or sale of options.

- Loss for the current accounting period is revaluated when the exchange rate according to the market value is less than (<) the proposed exchange rate specified in the contract.

- Loss = the amount of contractual transactions in options x (Proposed exchange rate specified in the contract - Exchange rate according to the market value)

- If the exchange rate according to the market value is less than or equal to (≤) proposed exchange rate specified in the contract, the loss equals zero (0)