Accounting Introduction of International Financial Reporting
Russian Accounting Rules (RAR) are not yet in line with International Financial Reporting Standards (IFRS), although Russian accounting reforms based on IFRS have been introduced.
In 1998, the Russian government adopted a programme to reform Russian accounting in accordance with IFRS. In line with this programme, new Russian Accounting Standards (RAS) are being introduced. These standards regulate major aspects of accounting, as well as the presentation and disclosure of information (such as accounting policies, fixed assets, intangible assets, inventories, income and expenses, related parties, segment information, government grants and others). The new RAS haveintroduced fundamental accounting assumptions and requirements, such as going concern, consistency of accounting policies, accrual basis, prudence, substance over form, cost-effectiveness and others, thus bringing Russian practice closer to international practice. Practical interpretation of the requirements and assumptions under RAR may be different from IFRS (e.g., RAR are often form-driven). In 2004, the new Accounting Development Concept was adopted, outlining fundamental changes to be introduced in accounting regulations and their schedule. The concept envisages mandatory preparation of consolidated financial statements by public and other public interest companies in accordance with IFRS. Stand-alone accounts will be prepared by companies in accordance with Russian accounting rules, to be developed on the basis of IFRS. The concept also includes certain measures to develop the accounting profession, in particular, delegating the development of accounting standards to professional organizations, while state authorities still decide whether to adopt them or not.
It is expected that the procedure for preparing consolidated financial statements will be established by a Federal Law «On Consolidated Financial Statements», a draft of which is being discussed by the State Duma. Under the new Law, consolidated financial statements of public companies will be prepared solely under IFRS, whose recognition and translation into Russian will be approved by the government. Consolidated financial statements shall be subject to audit and publication.
Accounting principles in Russia
Russian accounting practice has already moved a long way from the central-planning model towards a market-economy model and, consequently, towards international accounting practice. Although accounting principles and procedures are gradually becoming more harmonized with IFRS, there is still a long way to go.
Some significant differences continue to exist, and in some cases there are no specific rules under RAR for certain areas.
The main differences between national accounting rules and IFRS are presented below.
• The concept of inflation accounting does not exist.
• Consolidated financial statements are treated as secondary to the stand-alone statutory financial statements of a company and are often not prepared.
• There are no rules for accounting for the impairment of some assets.
• Nor is there a specific rule for business combinations. Overall, the accounting profession is still in the formation stage. Overall, the accounting profession is still in the formation stage.
• An annual statutory audit is mandatory for all companies meeting certain criteria set by Russian legislation.
• New Russian Standards on Auditing (RSA) are currently being developed.
• Russian Standards on Auditing are close to international practice.
• Licensing is mandatory for audit firms and auditors working independently.
• In order to conduct audit activities, auditors should hold an audit certificate.
Companies subject to statutory audit
Under Russian auditing legislation, some companies must have their annual statutory financial statements audited. Commercial non-governmental companies whose annual statutory financial statements are subject to statutory audit include:
• All open joint-stock companies;
• Banks and other credit institutions, insurance companies, commodity and stock exchanges, investment funds, charitable and other (noninvestment) funds, etc.;
• Other companies with annual sales exceeding 500,000 times the average official minimum monthly wage for the reporting year and companies with total balance sheet assets exceeding 200,000 times the average official minimum monthly wage for the reporting year (currently RUB 50 million and RUB 20 million, respectively). In addition, annual statutory financial statements subject to publication must be audited by independent auditors prior to their publication. Consolidated financial statements are not subject to mandatory statutory audit.
Standards for audits required by law
The Federal Law «On Audit», enacted in 2001, defines audit services, establishes the rights, obligations and liability of auditors and audit firms, discusses confidentiality and independence, and sets forth substantial compliance regulations. In May 2005, the State Duma adopted in the first reading amendments to the Law on Audit which introduce significant changes to the audit profession. They propose to replace audit licensing with audit firms' mandatory membership in self-regulated professional associations, to introduce mandatory quality control and to toughen the requirements on auditors' independence. Auditing standards in Russia are expected to be in line with international standards.