23.10.06

IFRS vs. RAS:
Russian Accountants Speak Out
Raushaniya Khazimuratova, Senior Accountant, Alinga Consulting Group

One of the most significant problems of the business environment in Russia today is that the country’s financial reporting standards are still designed to meet the needs of the tax authorities. International Financial Reporting Standards (IFRS) differ in that they first and foremost protect the interests of the shareholder, who invested his money into a company and balance sheet in hand wants to understand whether he made the right decision or whether he should have just kept his money in the bank.

Can financial statements prepared according to Russian Accounting Standards (RAS) answer this question?

Let’s start with the balance sheet. Fixed assets are deducted according to their acquisition price, less amortization, usually calculated according to tax norms. Does this reflect the real value of the assets? The RAS balance sheet does not answer this question. IFRS takes into consideration appraised value, which in most cases reflects market value.

Now let’s take a look at financial leasing. According to RAS it is possible to show this operation such that neither the property nor the liability are reflected. This would never happen with IFRS.

Next, the investment account. With RAS it does not matter at what price the company’s shares were acquired by another company, but with IFRS this does matter.

Another difference is in how bad debts are handled. According to IFRS they may be written off immediately; according to RAS this is only possible with documentation confirming the inability of the debtor to pay.

Of course this is only a small representation of the differences between RAS and IFRS.

Given these differences, the results of a recent study conducted by Romir Monitoring are very interesting. The study was conducted within the framework of the project “Implementing Reform in Accounting and Reporting in the Russian Federation,” funded by the European Union. The aim of the study was to collect representative, statistically reliable and accurate information on the opinion of Russian accountants, auditors, teachers of “Accounting and Audit” as well as students on subjects of:

• Applying International Financial Reporting Standards in the Russian Federation;
• Developments in Russian accounting;
• Demand for vocational training;
• Management accounting.

More than 2000 Russian financial professionals were polled for the survey and the results are interesting for those both within Russia and outside of Russia.

• 75% of respondents believe that financial reporting should reflect “economic reality,” rather than conform to pre-determined structure;
• 66% of respondents believe that tax accounting should be unified with financial accounting;
• 74% believe that the Ministry of Finance should be responsible for implementing IFRS in Russia;
• 66% believe that the Ministry of Finance should be responsible for regulating and enforcing IFRS in Russia;
• More than 60% of respondents would like to be professionally competent in the field of IFRS;
• More than 80% of respondents would like to improve their knowledge of consolidated reporting;
• 85% believe that implementing IFRS in Russia will raise the quality of financial reporting among Russian companies.

However, although information on IFRS is widely available, more than half of all auditors (62%) feel that IFRS training in their city is unsatisfactory or low.

This same poll was taken in 2004; there have not been any substantial changes in these numbers.

IFRS is of great interest because of the opportunities it offers for business development (attracting investment) rather than simply improving the quality and transparency of reporting. Basic advantages of IFRS were seen to be:

• Improvement in the quality of information available to managers (38%);
• Increase in the number of investors (28%);
• Increase in the ability to attract investment or loans (27%).

59% of respondents agree that Russian accounting should be based on IFRS. 55% of the supporters of IFRS believe that the standards should be implemented by 2009.

However, 61% feel that IFRS will improve the amount and quality of financial information in Russia if IFRS is modified to reflect certain aspects specific to Russia.”

The three main problems with implementing IFRS, in the opinions of the respondents, are as follows:

• Absence of legislative support - IFRS are not legally required in Russia (29%);
• IFRS is fundamentally different in theory from that of already accepted Russian standards (26%);
• IFRS is fundamentally different in practice from the norms already accepted in Russia (25%).

More than 60% of the respondents indicated that they would like to increase their knowledge of IFRS. If to speak of the short-term (2007), 71% of accountants in commercial organizations who indicate their desire to increase knowledge of IFRS, wish to reach an "intermediate" or "good" level, while other respondents indicated a desire to reach a “good” or “excellent” level. This desire to increase knowledge in the area increases if we look further ahead (to 2008). Then there is a greater tendency toward the goal of an “excellent” or “level of teacher” level of knowledge of IFRS.

Half of all respondents say that audit has a generally positive influence on the reliability of financial information in Russia. Furthermore, the overwhelming majority believe that audit can raise the reliability of financial information in Russia (76%), with teachers and students showing the greatest confidence in this category.

Russian accounting standards are constantly evolving and improving. Today there are two possibilities. Either maintain parallel accounts, using rather expensive software, or do transformation of accounts from RAS to IFRS. While the second option is less expensive, the results are less accurate. Regardless, if it is necessary to evaluate a company, then IFRS is a better source of accurate information – both for the owner of the business and for potential investors and clients.