Conversion of Russian reporting into group reporting standards
What accounting standards are applied in Russia?
When Russian companies prepare individual financial statements, they apply Russian accounting standards called federal standards. The current federal accounting standards have been developed based on IFRS approaches. The purpose of the next update of federal standards is to ensure that Russian accounting standards further converge with international practices.
Who is required to apply IFRS?
Russian public companies, which prepare consolidated financial statements, must apply IFRS. The text of most international standards has been subject to an expert review to determine whether or not they are applicable in Russia. They also have been translated into Russian and approved by the Russian Government.
Other companies are allowed to apply IFRS on issues not defined by Russian federal standards. In such cases, companies must specify accounting rules for specific operations in their accounting policies.
What is the difference between Russian Accounting Standards and IFRS?
One of the key differences between IFRS and Russian accounting practices is the priority of content over form:
The legal form of a transaction is sometimes more important for Russian accountants than its economic content. For instance, an equipment leasing agreement may provide that the purchased equipment is recorded in the lessor’s balance sheet until its repurchase. As a result, although the lessee actually uses the equipment, it will not be recorded in its assets, and such practice decreases the accuracy of the financial data of both parties to the transaction.
Another important difference is how assets are evaluated.
IFRS require recording at their fair value assets such as investment assets, fixed assets, intangible assets, financial instruments and other accounting items. This allows providing to users of financial statements the most current information about asset value.
Russian standards, as a rule, allow asset revaluation. For instance, a building recorded in accounting at acquisition price may be revaluated every year, thereby improving the quality of financial reporting. However, companies often do not do so because they do not wish to rely on the subjective opinions of appraisers, and they also wish to avoid any differences between accounting and tax accounting. As a result, users obtain financial statements in which the value of assets is not in line with their actual appraised value.
What reporting should foreign companies use for consolidation?
Russian companies prepare reporting for their foreign owners, and often such reporting is used for consolidation abroad. Company owners need to know whether the financial statements prepared by a Russian company according to Russian accounting standards can be used for consolidation. They also need to know what adjustments should be made so that such financial statements meet group requirements.
With an understanding of the activities performed by the Russian company and of its balance sheet structure, we can answer this question after conducting an analysis of the group accounting policy.
Based on our experience, we know that a Russian company’s qualitative financial data may, in most cases, be used to prepare reporting for founders, but they always require some adjustments according to group accounting standards.
How to adapt Russian companies’ accounting to the requirements of group standards?
We recommend drawing up Russian companies’ accounting policy based on the standards applied in their group. Russian accounting rules provide enough accounting options so that companies are able to choose an option not only suitable for them, but also in line with their group accounting policy.
What Accountor can help?
We offer services for preparation of financial statements according to IFRS or other standards applied by international groups of companies. In addition to converting reporting, we also assist in adapting the accounting policies of Russian companies so that they meet the accounting practices used by foreign business founders as much as possible.
If you would like to find out more about our reporting conversion services, please feel free to contact us.