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Alinga Consulting Group was founded in 1999 by a small, international team of professionals that had been working in the Russian market since 1992. As foreign investment has increased demand for professional accounting and audit services, and as growing companies now require outstaffing and HR documentation services, Alinga has kept pace with a range of solutions for business in Russia. As a member of such organizations as IGAF, AmCham Russia, AEB, and the Moscow Audit Chamber, Alinga takes customer service as seriously as it takes the accuracy of its services. Explanatory Notes To Financial Reporting In The Russian Federation: A How-to Guide By Galina Belikova, Director Audit and Tax Department     About the Author Galina Belikova, Director  Audit and Tax Department   Galina Belikova graduated from the All-Russian State Tax Academy with an economic degree, specializing in accounting and audit. She is also qualified as a lawyer, having graduated from the Moscow Academy of Finance and Law, with a specialization in jurisprudence.   Ms. Belikova is a certified auditor. In 2009 she received the DipIFR certificate as a specialist on International Financial Reporting.   Ms. Belikova has also held the rank of tax service adviser of the third order with the Russian Tax Office. Before joining the Alinga Team, Galina worked for such companies as Eleks-Polus (part of the carmaker LADA) and the audit firm Константа.     Also on our Site: IFRS vs. RAS Debt Refinancing: Tax and Accounting Issues in Russia The Post-Merger Integration Process: The "Russia" Factor Thin Capitalization And Controlled Debt: Taxation And Legal Issues   Alinga Consulting Group +7 (495) 988-21-91 consult@acg.ru     Note: This article is an abridged translation. For the full article in Russian, click here.   Once again, it's time to prepare the annual financial statements. As a rule, explanatory notes are the source of most of the questions chief accountants have in this process.   What these explanatory notes should address is the subject of this article.   All businesses must present explanatory notes in their financial statements. Exceptions to this requirement are those registered as small businesses or those organizations which do not carry out business activities.   Because forms 1 through 5 of the financial statements do not always give full and detailed information about the financial condition of an organization, any one interested in the financial statements depends greatly on the explanatory notes   Explanatory notes must indicate that the report has been compiled according to the accounting and reporting rules of the Russian Federation.   To reflect all significant aspects of the financial condition of an organization on a given reporting date, the explanatory notes should contain the following information:   1. Basic information about the organization.   2. Information about the organization’s accounting policy: disclosure of accounting rules concerning assets and liabilities as defined by the accounting policy; explanations for any changes made to accounting policy; announcement of any changes to the accounting policy for the next fiscal year.   3. Information concerning assets and liabilities.   4. An analysis and evaluation of the financial statement structure and profit performance: a specification of the main activities of the organization for the accounting period; a short-term financial forecast, with calculations of financial ratios; a statement of current solvency; a long-term financial forecast;   5. Information on income and expenses.   6. Explanations of any essential items of the financial statements (this information is necessary if it is material and it is not already detailed in the financial statements).   7. An evaluation of the organization’s business activity: depth of the market for the product, including deliveries for export; evaluation of the organization’s reputation among its clients.   8. Changes made to beginning balances: the reasons for these changes (changes to the report content or forms, introduction of new accounting requirements, or reorganization of the business); value of the changes made to the beginning balances.   9. Affiliated persons and entities (as a rule this includes the organization’s head office, subsidiaries or dependent enterprises, and the founders and shareholders).   10. Contingent liabilities (legal proceedings, information about the existence of guarantees given by the organization and the size of those guarantees, liabilities stemming from promissory notes).   11. Information on joint activity.   12. Information about segments (needed in the case of consolidated reports and if there are subsidiaries and dependent legal entities and also if the company is a founder of trade associations, which were created on a voluntary basis, and which are part of the organization’s consolidated financial statements).   13. Events occurring after the reporting date: a description of character of the event; possible consequences of the event which may occur after the reporting date.   14. Information declared by joint-stock companies: amount of shares which have been issued and paid for; shares which have been issued, but not paid for or only partially paid for; the nominal value of all shares belonging to the joint-stock company, and the nominal value of those belonging to its subsidiaries and dependent entities.   15. The information reflected according to PBU 18/02: The contingent expenses and incomes  under the profit tax; permanent and temporary differences; the sums for permanent tax obligation, delayed tax assets and liabilities.   16. Other: basic characteristics reflecting the integrity, productivity and efficiency of the organization’s activities; information on market competition; information on credit policy, credit history, solvency; information on property received through mortgage, transfer, and received under trust management.   Explanatory notes should describe any instances where accounting rules have not been followed so as to more accurately reflect the status of the company’s assets and the results of the company’s business activities. The notes in this case should support the argument for this approach.