- National Professional Organisation Website: Audit Chamber of Russia
- Independent expert body advising the Russian Ministry of Finance regarding endorsement of IFRSs in Russia: National Organization for Financial Accounting and Reporting Standards
- Response to IFAC Member Body Survey on Standard Setting and Regulation
Financial Reporting Framework in Russia
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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 entity.
Preparation of RAS financial statements
Every legal entity registered in Russia must prepare standalone RAS financial statements for each financial reporting (calendar) year ending 31 December. The format and content of the financial statements are set by the Ministry of Finance, including the chart of accounts and recommended accounting entries for typical transactions. The financial statements must include a balance sheet (with two years’ comparatives), statements of profit and loss, changes in equity, and cash flows (with one year’s comparatives) and supplementary notes. Branches and representative offices of foreign legal entities may elect not to maintain accounting records and prepare financial statements according to RAS, provided they maintain tax records compliant with Russian tax legislation. RAS financial statements must be filed with the tax authorities within three months after the end of the calendar year. Certain entities, including open joint stock companies, banks and other lending agencies, insurance companies, stock exchanges and investment funds are required to publish their RAS financial statements. Such companies may have additional reporting and disclosure requirements (see below concerning the adoption of IFRS in Russia).
RAS audit requirements
The audit of annual RAS financial statements is mandatory for:
- Open joint stock companies
- Companies with securities traded on stock exchanges
- Banks and other lending agencies, insurance companies, credit bureaux, pension and investment funds, securities’ markets participants and stock exchanges
- Companies with annual revenue for the preceding financial year exceeding RUB 400 million (approximately USD 13 million)
- Companies with total assets as at the preceding 31 December exceeding RUB 60 million (approximately USD 2 million)
Publicly traded companies, banks, insurance companies, non-governmental pension funds, and companies owned more than 25% by the state must be audited by an audit firm, rather than by an individual auditor.
Harmonization of RAS with IFRS
Significant progress is being made towards converging RAS with IFRS. During 2011, this trend saw new Russian standards on provisions, contingent assets and liabilities, segment reporting and cash flow statements coming into force, with new standards on inventory, fixed assets, employee benefits and leases expected in 2012–2013. New procedures for revising and adopting Russian standards apply from 2013, including a requirement that they are based on the IFRS equivalent. There nevertheless remain significant differences between RAS and IFRS, including:
- The fair value concept is not applied
- Most financial instruments 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, but revaluation to current replacement cost is allowed
- The useful lives of fixed assets tend to be in line with the useful lives specified for tax purposes
- Deferred tax is calculated using the income statement method, although the methodology differs
- Revenue or expenditure are generally recognized after primary documentation supporting the transaction has been received in accordance with the tax rules
In 2004, the Ministry of Finance of the Russian Federation issued its "Medium-term concept for the development of accounting and financial statements", which set a target for the convergence of RAS with IFRS. Over the last two years, significant progress towards IFRS has been made, e.g. new standards on accounting for construction contracts and the correction of fundamental errors, and the new consolidation law. Already, companies in the banking sector submit financial statements to the Central Bank of Russia which are much closer to IFRS, as well as IFRS consolidated financial statements.
Adoption of IFRS in Russia
Following the formal adoption of IFRSs in Russia during 2011, public interest entities (PIEs) are now required to prepare consolidated financial statements under IFRS (previously, only Russian banks were required to prepare IFRS statements). This requirement is in addition to standalone statements prepared under RAS. PIEs include companies with securities traded on a stock exchange, banks, and insurance companies. Other entities that have issued securities by way of public offering, or by means of private placements to a wide group of shareholders, are also required to prepare consolidated financial statements under IFRS. Most PIEs must prepare their first full set of IFRS financial statements for the 2012 calendar year (with 2011 comparatives), deferred for three years in the case of issuers of traded securities which already prepare US GAAP financial statements, or which only issue bonds. Annual consolidated IFRS financial statements must be audited, presented to the shareholders and filed with the Federal Committee on Securities Markets (or the Central Bank for banks) within 120 days after the year end. The financial statements must also be published, for example, on the internet.
Most companies in Russia maintain their accounting records using IT systems tailored to the prescribed RAS chart of accounts and reporting formats. Management reporting is also often based on RAS, with quarterly or annual transformation to IFRS. Only larger companies have in-house capabilities to perform the transformation to IFRS and therefore this process is often outsourced to consulting firms, or at least performed with their assistance.