Russia National Professional Organisation Website: The Institute of Professional Accountants of Russia (IPAR) National Professional Organisation Website: Russian Collegium of Auditors Response to IFAC Member Body Survey on Standard Setting and Regulation Update for December 2009 Update for October 2009 Update for July 2008 Update for April 2005 Update for November 2004 Update for January 2003 Update for July 2002 Update for January 2002 Update for May 2001 Financial Reporting Framework in Russia (updated October 2009) In June 2009 Deloitte & Touche Regional Consulting Services Limited (Russia) published Doing Business in Russia 2009 (PDF 2,330k, 80 pages). A section of that report examines the accounting environment in Russia. Here is a summary of what is now required: For historical reasons, the Russian financial reporting has been determined by the state rather than the accounting profession. Russian Accounting Standards (RAS) tend to be a summarised version of IFRSs, with modifications and options that allow the financial statements to be consistent with tax laws and regulations. Every legal entity in Russia must prepare financial statements as of each 31 December, with form and content prescribed my the Ministry of Finance. The financial statements must include a balance sheet, income statement, statement of cash flows, summary of accounting policies, and other supplementary accounting data. Consolidated financial statements are generally not prepared. Statutory financial statements must be filed with the tax authorities by 1 April. Since the main purpose of financial statements has tended to be for submission to the tax authorities, the accounting policies adopted by an entity have also tended to reflect the tax rules where such an alternative is permitted by the accounting standards. The financial statements of listed companies are available to the general public and have additional disclosure requirements. The financial statements of the following types of companies must be independently audited: All open joint stock companies Banking, insurance, and investment companies Companies with annual revenue for the preceding financial year exceeding RUB 50 million (approximately USD 1.4 million) Companies with total assets as of the preceding 31 December exceeding RUB 20 million (approximately USD 570,000) Differences between Russian Accounting Standards and IFRSs Russian legislation and regulations are very specific as to the documentation required to support a transaction. In practice, unlike IFRS, transactions are accounted for in accordance with their legal form, rather than their substance. The practical application of RAS results in significant differences compared to IFRS, in particular, the following: Financial statements are generally prepared on a historical cost basis with only limited use of revaluations The fair value concept is not widely applied, except for investments in market traded securities Finance leases may be capitalised, but usually are not Assets are not normally tested for impairment (except for intangible assets) The useful lives of fixed assets tend to be in line with the useful lives specified for tax purposes The assets and liabilities of an entity which has been acquired are measured and maintained at book value at the date of acquisition Goodwill on acquisition (positive and negative) is amortised over the shorter of 20 years or the life of the acquirer and is generally not subject to an annual impairment test Provisions (such as for bad debts) are generally not created Revenue or expenditure is only recognised after all the preceding primary documentation supporting the transaction has been received, in accordance with the tax rules Deferred tax is generally calculated using the income statement method, although the methodology differs There is no direct requirement to prepare consolidated accounts Banks already file financial statements with the Central Bank of Russia that are much closer to IFRSs. An increasing number of Russian companies are now also being required to produce audited annual financial statements that comply with IFRSs, US or other GAAP, in order to meet the following: Reporting and consolidation requirements of a foreign parent Reporting and listing requirements of a foreign stock exchange Information needs of western banks and lenders МСФО в кармане. – IFRSs in your Pocket in Russian 2009 Edition In December 2009, Deloitte & Touche CIS (Russia) published МСФО в кармане 2009 (PDF 1,037k, 152 pages) – a Russian translation of IFRSs in your Pocket 2009. This pocket guide includes summaries of all IFRSs issued through March 2009. Please click here for Information about Deloitte Russia. 2008 Edition In July 2008, Deloitte & Touche CIS (Russia) published МСФО в кармане 2008 год (PDF 697k, 186 pages) – a Russian translation of IFRSs in your Pocket 2008. This pocket guide includes summaries of all IFRSs issued through March 2008. Please click here for Information about Deloitte Russia. April 2005 Update Russia may delay move toward adopting IFRSs In our November 2004 update, we reported that the Russian Duma (parliament) had given preliminary approval to a bill requiring corporations with more than one subsidiary to publish financial statements that conform to IFRSs starting either in 2004 or 2005. We noted that two additional votes of the Duma were required before the bill would become law. It now appears that the legislation is stalled in the Duma. A news story in Vedomosti (Russia's top business newspaper, a joint venture of the Financial Times and Wall Street Journal) on 2 February 2005 was titled 'IFRS to be Adjourned' and stated that "the effort has come to a standstill". A few weeks later (22 February 2005), an editorial in Vedomosti said that neither the business community nor government is ready for transition to IFRS because "there are no incentives for transparency and there are technical difficulties for implementation that may cause chaos in the reporting rather than increase investment attraction". The editorial also questioned the quality of current IFRS implementation by Russian banks, which have been required to use IFRSs since third quarter 2004. November 2004 Update Russia moves toward adopting IFRSs On 29 October 2004, the Duma (parliament) gave preliminary approval to a bill requiring corporations with more than one subsidiary to publish financial statements that conform to International Financial Reporting Standards within six months of the end of their financial year. All companies will still have to report unconsolidated results to Russian standards. Two additional votes of the Duma are required before the bill would become law. The bill as passed calls for companies to report under IFRSs as of 2004. It may be changed to a 2005 effective date before final adoption. Some large Russian companies already report under IFRSs. Others currently use US GAAP. The US GAAP companies will have until 2008 to switch to IFRSs. January 2003 Update Plan for adopting IFRSs Russian Vice-Premier and Finance Minister Alexei Kudrin has announced government approval of a plan to require all listed holding companies in Russia to prepare consolidated financial statements using IFRS starting in 2004. The individual company financial statements of members of the group would continue to be prepared using Russian GAAP. For banks, not only would consolidated statements under IFRS be required starting in 2004, but also individual banks will have to prepare IFRS financial statements in addition to Russian GAAP statements. IFRS reporting would be extended to additional classes of companies in stages through 2007, though not to small companies. At the same time, the Finance Ministry will work to bring Russian GAAP more in line with international accounting standards. July 2002 Update On 25 July 2002, Russian Prime Minister Mikhail Kasyanov announced that all companies and banks in Russia will be required to prepare their financial statements in accordance with International Accounting Standards starting 1 January 2004. The Prime Minister has ordered the Finance Ministry to develop implementation guidelines for the accounting changes by 1 January 2003. January 2002 Update The Russian Ministry of Finance sets accounting regulations for non-financial institutions. Entities governed by the Central Bank of the Russian Federation (CBRF) are banks and credit institutions. The CBRF has responsibility for setting their accounting and reporting principles, closely monitor their activity on a regular basis, setting minimum capital requirements and other obligatory prudential ratios, and issuing licenses. The CBRF has declared the following general accounting principles: Going concern Continuity of accounting principles Prudence Recognition of income and expenses on a cash basis Substance over form True and fair view of the financial statements The main difference between Russian Accounting Standards (RAS) and IAS for banks and credit institutions is that income and expenses are accounted for on a cash basis under RAS. Income is recognised when cash (or other consideration) is received and expenses are recorded at the date the payment is made, with some exceptions. Services paid for are recorded in the income statement on receipt of formal supporting documents confirming that services have been received.The CBRF has announced that it will require the use of IAS for all banks from 2004, however, this proposal has not yet been finalised. In addition, an instruction on calculating and recording provisions against possible losses on loans, securities, other assets and off-balance sheet commitments was made obligatory for all credit institutions operating in the Russian Federation. As for non-financial companies, following a decision to move to IAS in 1998, the Ministry of Finance of the Russian Federation continues to update and issue new RAS modelled on IAS. However, most RAS (or PBU as they are called in Russian) still differ in many significant respects from IAS. Recently, a new PBU was issued 'Accounting for Loans and Costs of Borrowings' effective 1 January 2002. In addition, revisions have been made to PBU on 'Accounting for Inventory', effective 1 January 2002 and 'Accounting for Property, Plant and Equipment' effective for all financial statements issued in 2001. May 2001 Update The Russian Federation's move to a market economy has necessitated a change in the standards of accounting for reporting the financial position and results of operations of Russian enterprises. The Ministry of Finance of the Russian Federation has responsibility for instituting reform to Russian Accounting Standards (RAS) applicable for all organisations, except those that are required to report to the Central Bank of the Russian Federation. Beginning in 1995, but mostly since 1998, the Ministry of Finance instituted revisions in an effort to account for transactions under more internationally accepted methods. For example, accounting for revenue under the accrual method has been introduced and accruing expenses incurred but not paid is now required in certain situations. Specifically, 14 provisions on accounting (termed PBU) have been issued. These PBUs include: Accounting Policy (PBU 1/1998) Accounting for Construction Contracts (PBU 2/1998) Accounting for Assets and Liabilities Denominated in Foreign Currency (PBU 3/2000) Financial Statements (PBU 4/1999) Accounting for Inventory (PBU 5/1998) Accounting for Property, Plant and Equipment (PBU 6/1997) Post-Balance Sheet Events (PBU 7/1998) Contingencies (PBU 8/1998) Incomes of an Enterprise (PBU 9/1999) Expenses of an Enterprise (PBU 10/1999) Related Party Disclosures (PBU 11/2000) Segment Information (PBU 12/2000) Accounting for Government Assistance (PBU 13/2000) Accounting for Intangible Assets (PBU 14/2000) However, even with the issuance of these accounting policies, fundamental differences still remain with internationally accepted methods. While the PBUs may be similar to IAS, important differences still exist. In addition, differences still exist with respect to wholly owned subsidiaries as, under RAS, a subsidiary company does not have to be consolidated.