Advantages and Disadvantages of Applying Forensic Accounting in the Developing Countries: The Case in Vietnam

Introduction

Vietnam is an independent nation after passing a long time in the war of colony and empire from 1945–1975. Since 1986, Vietnam has been reforming its economy to be more market-oriented and globally integrated. The success of this reformation pushes Vietnam into a situation of stable growth economy recently. From a poor and backward economy before 1986, Vietnam nowadays is rapid developing country towards a market oriented and greatly integrated economy (World Bank & Ministry of Planning and Investment of Vietnam, 2016). Vietnam economy has been forecasted as the fastest-growing one in the world and possibly become the 20th greatest economy by 2050 (Maruichi & Abe, 2019). Following the economic freedom index by the Heritage Foundation (2021), Vietnam’s economic freedom score is 61.7, ranks as the world’s 90th freest, and is 17th among 40 countries in the Asia–Pacific region in 2021. Under the circumstances, Vietnam accounting has been developed to meet the practical needs of enterprises.

Unfortunately, some foreign organizations in the business community do not fully support the Vietnam business environment (Maruichi & Abe, 2019). According to World Bank (2020), the ease of Vietnam doing business ranking in 2020 was 115 among 190 countries. The GDP per capita of Vietnam 2020 was still low at US$3,609, which is far from the world average at US$12,152 (International Monetary Fund [IMF], 2021). The research by Maruichi & Abe (2019) reported that corruption in Vietnam still occurs and is the most impactful business obstacle. In 2020, according to Trading Economics, the Corruption Index in Vietnam was at 36 points in the survey of 196 countries with 20 million different indicators. According to results of a survey conducted in 2018 by PricewaterhouseCoopers (PWC) from 7,228 respondents in 123 territories in 24 months of 2016-2018 period, the rate of frauds in Vietnamese companies reached 52%, which is higher than that of global level at 49%. In which, accounting fraud is 22%, ranking at 6th top of the most common types of economic crime, while the highest level is belonging to assets misappropriation at 40%. In this survey, 53% of respondents in Vietnam estimated that they lost less than US$100,000, while 32% of them reported the losses of more than US$100,000 for economic crimes (PWC, 2018).

One scandal was about false accounting information on Audiovisual Vietnam Global (AVG). Actually, AVG had a accumulated losses of US$ 68 million, approximately VND1,563.7 billion in 2010-2015, however, the fair value of appraisal report was published without this information. In January 2016, Vietnam Mobifone still acquired 95% of AVG’s shares for more US$370.4 million, around VND 8,445.324 billion (Bac Van, 2019). These company accounting frauds put multiple ministries and high-ranking officials at risk of punishment (Luong, 2018). Another typical situation was found during 2011–2012 when the Vinashin executives had intentionally broken national economic regulations, which led to severely consequences. It is not the whole cause, but part of these consequences is investigations, thefts, or fraud cases. In which, the financial fraud and white-collar crimes were not prevented.

As part of the governance in business, forensic accounting can contribute to fraud prevention and investigation (Bhasin, 2013a). However, forensic accounting in Vietnam is still a new term (Diep, 2018, 2020). In the legislature, academic research about forensic accounting seems to be not mentioned or is rarely studied. Only few forensic accounting researchers or accountants, or auditors considered while almost of them never heard this term before (Diep, 2020). Their knowledge and identification of the term forensic accounting are still low, while business governance always requires many flexible ways to prevent the tendency of increasing and various financial frauds. Therefore, research on the advantages and disadvantages of applying forensic accounting in developing countries, especially in Vietnam, is essential. This research is to review the scope of forensic accounting in developing countries with the special description of corporate governance and accounting reformation in Vietnam to provide the advantages and disadvantages of applying forensic accounting. These findings are evidences for proposing solutions and recommendations for improving forensic accounting in Vietnam. The remainder of the chapter contains the research background, the main focus of study, solutions and recommendations, and conclusion.