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Russia

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Financial Reporting Framework in Russia

Deloitte & Touche Regional Consulting Services Limited (Russia) publishes annually Doing Business in Russia. Please click here for the newest version of this publication (external link).

 

Accounting Environment

Overview

For historical reasons the Russian financial reporting framework has been determined and regulated by the state, rather than being developed by professional bodies. Indeed, the primary users of Russian statutory financial statements based on Russian accounting standards (RAS) are the tax and other state authorities, rather than management or third parties.

Currently, International Financial Reporting Standards (IFRS) are becoming increasingly important, both in terms of influencing the development of RAS and as the compulsory standards for certain types of Russian entities.

Adoption of IFRS in Russia

The adoption of IFRS in Russia has been finalized in 2012.

IFRS are required for the consolidated financial statements of all entities whose securities are listed on stock exchanges, for banks and other credit institutions, insurance companies (except those with activities limited to obligatory medical insurance), non-governmental pension funds, management companies of investment and pension funds, and clearing houses. Additionally, certain state-owned companies are required to prepare consolidated IFRS financial statements by separate decrees of the Russian government.

Publicly listed entities that previously reported under US GAAP have an extension for IFRS transition till 2015.

IFRS are mandatory for consolidated financial statements. Standalone (separate) financial statements for all entities must be prepared using RAS.

IFRS are part of the Russian legislative framework. Federal Law 208-FZ ‘On Consolidated Financial Statements’ states that standards and interpretations issued by IASB are endorsed for adoption in Russia by the Russian Government in consultation with the Central Bank.

Russia has a formal process for endorsement of new or amended IFRSs (including interpretations). Newly-issued standards go through a technical expertise by the National Accounting Standards Board (NSFO), an independent organization designated by the Ministry of Finance. Based on the results of the expertise the Ministry issues endorsement decisions.

Financial statements and audit requirements

Financial Statements under RAS

Each legal entity registered in Russia must prepare standalone statutory (RAS) financial statements for each fiscal (calendar) year ending 31 December.

The format and contents of the financial statements are regulated by the Ministry of Finance that also prescribes the chart of accounts along with the recommended accounting entries for typical transactions (for banks and other credit institutions – by the Central Bank of Russia).

The financial statements must include balance sheet (with two years’ comparatives), statements of profit and loss, changes in equity and cash flows (all - with one year comparatives) and explanatory notes.

Branches and representative offices of foreign legal entities may opt out from maintaining their accounting records and preparing financial statements according to RAS, provided they maintain tax records in accordance with the Russian tax legislation.

RAS financial statements must be filed with the tax authorities and the state statistical register within three months after the end of the calendar year.

Audit Requirements

Audit of annual standalone statutory (RAS) financial statements is mandatory for:

  • Joint stock companies;
  • Entities with securities listed on stock exchanges;
  • Banks and other credit institutions, insurance companies, pension and investment funds and their management companies, credit bureaus, stock exchanges, clearing houses, registrars, depositaries, stock brokers and dealers;
  • Other entities with annual revenue for the preceding financial year exceeding RUB 400 million (approximately USD 12.5 million)
  • Other entities with total assets as at the preceding 31 December exceeding RUB 60 million (approximately USD 1.8 million)
Publicly listed entities (and the financial statements included in an offering memorandum), banks and other credit institutions, insurance companies, non-governmental pension funds, state corporations and companies owned more than 25% by the government must be audited by an audit firm, rather than by an individual auditor.

Covergence of RAS with IFRS

Considerable progress is being made towards converging RAS with IFRS. However significant differences still remain between the Russian standards and IFRS in recognition, measurement and presentation, including:

  • The fair value concept is not applied in RAS;
  • Non-quoted financial assets are accounted for at cost or amortized cost (less impairment provision);
  • Finance leases may be capitalized or expensed by agreement of the parties to the lease contract;
  • Property, plant and equipment are not impaired, though revaluation to the current replacement cost is allowed;
  • Useful lives of fixed assets are often in line with the useful lives applied for tax purposes.
  • Deferred tax is calculated using the income statement method, although the methodology differs.
  • Revenues or expenditures are often recognized after documentation supporting the transaction is received in accordance with the tax rules.

 Certain complex IFRS topics such as Joint Arrangements, Hedging, Pension Plans, Share-Based Payments, etc. are not covered in RAS. In absence of RAS guidance, entities may chose to apply relevant IFRSs. Consolidation and Business Combinations topics are not relevant to RAS, as it is only applicable to standalone financial statements.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.