About the Author
Yulia Mazur holds a degree from the Ryazan State Radio Technical Academy in Accounting, Financial Control, and Business Analysis. She has advised the Ryazan Duma on tax legislation on several occasions.
With more than ten years experience, Yulia has worked as a chief accountant for construction, entertainment, and retail companies. She has been with Alinga for more than five years.
Ms. Mazur is a Certified Professional Accountant.
Alinga Consulting Group
+7 (495) 988-21-91
Don't neglect your accounting policy
Our experience developing accounting policies for enterprises of various industries, taxation systems and business structures makes our clients feel protected.
What is an accounting policy?
An accounting policy is not only a set of rules and regulations which, when applied in practice, ensures that all employees of a company correctly process financial information, but also a legal instrument.
As a legal instrument, an accounting policy is necessary to make an informed decision (and formalize it) from a number of options established by law. The correct decision will allow you to regulate many of your business processes, increase the effectiveness of the company’s resources, avoid easily preventable mistakes, lower the risks of disputes with the tax authorities, and make your accounting report more transparent and your business more attractive for investors.
Why is an accounting policy necessary?
Ensures consistency when processing financial data;
Lowers the risks of disputes with the tax authorities;
Preserves the integrity of the information representing the internal controls section of the accounting policy;
Reduces costs by enhancing transparency and consistency;
Optimizes the audit process;
Is a required document for regulating the application of Chapter 25 of the Tax Code and RAS.
What should a business’s accounting policy contain?
To a large extent, the accounting methods selected depend on the specifics of the company’s business, and the accounting policy, among other things, contains information about these specifics. However, most of the methods offered are universal and pertain to all types of business.
An accounting policy is developed once as a starting procedure when an organization begins work and should be established no later than 90 days from when the business is registered with the government as a legal entity. However, if there is a significant change in the business conditions or a change to Russian legislation and/or regulatory acts on accounting, the organization is obligated to make changes to its accounting policy.
The accounting policy should regulate the maintenance of the accounting as well as tax accounting. Therefore, it is helpful to divide it into two respective parts.
The following may be added to the basic rules for maintaining company tax accounting and should be reflected in the internal accounting policy:
Tax accounting registers developed by the organization itself based on the requirements of the Tax Code;
Classification criteria for allocation of costs as direct or indirect for the purpose of calculating profit tax, method of assessing inventories;
The method for evaluating inventories when they enter the production process or are otherwise disposed of, as well as in the sale of purchased goods for tax accounting purposes (on the value of units of inventory, or at average cost, or by the value of items first purchased [FIFO], or the most recent acquisitions [LIFO]). The LIFO evaluation method (on the cost of the most recently acquired inventory) will no longer be able to be applied as of 01.01.2015; therefore, those taxpayers who have used the LIFO method should make the necessary changes to their accounting policy before the start of 2015;
The procedure for assigning equity to material expenses should be done at the same time as it is put into operations or, as of 01.01.2015, during the course of at least one reporting period, taking into account its useful life or other economically feasible indicators at the taxpayer’s discretion;
Methods for property depreciation accrual (linear or non-linear);
The procedure for using (or not using) special multiplying (or decreasing) coefficients to the depreciation rate;
The use (or non-use) of the right to include in the cost accounting (tax) period for the purpose of calculating income tax expenses, a capital investment of up to 10% of the initial cost of fixed assets (for individual pieces of property – up to 30%);
A procedure for creation and use of various reserves for the purpose of calculating profit tax, if the decision is made to create them;
The procedure for establishing the production cost of goods (or purchased goods) for tax purposes in accordance with the provisions of Articles 319 and 320 of the Tax Code of the Russian Federation;
Procedure for recognizing costs for the purposes of calculating rationed costs for the profit tax, such as entertainment, costs for voluntary medical insurance, etc. Approved corporate recognition of such costs should be within the limits set by the Tax Code;
Organizations working in the IT industry need to determine whether they will classify computer equipment as depreciating property for tax accounting purposes or use the right to count expenses on acquiring such equipment as material expenses.
Organizations performing business activities which are subject to VAT, as well as those whose business activities are not subject to VAT, should be mindful of the composition of direct expenses for each type of activity and the method for allocating indirect expenses. This is necessary in order to correctly apply the right to deduct the entire input VAT in the tax periods in which the share of expenses on activities not subject to VAT is less than 5% of the total amount of expenses.
In terms of the accounting records, this part of the policy should contain:
- A working plan for the organization’s accounts;
- A form for Notes to the Balance Sheet and Profit and Loss Report;
- Procedure for grouping information on estimated liabilities and contingent liabilities and methods for calculating estimated liabilities according to type;
- Procedure for exercising the right not to disclose in exceptional circumstances information on estimated liabilities, contingent liabilities and contingent assets to the extent that this is prescribed in RAS 2/2010;
- Procedure for disclosing (or not disclosing) information on a contingent obligation in the accounting report if a reduction in the organization’s economic benefits is unlikely as a result of it as of the reporting date. This is known as the criterion of “unlikelihood;”
- Classification of cash flows;
- Organizations that are not issuers of publicly offered securities should determine whether or not they will apply RAS 12/2010 “Segment Information”;
- Determining the basis for division of segments if the organization decides to apply RAS 12/2010 “Segment Information” (specifically, the basis may be: products produced, purchased goods, work performed, services rendered, major purchasers [customers], geographic regions in which business activity is carried out, structural division of the organization) as well as a list of reporting segments;
- Classifying the organization’s income and expenses as income (expenses) from ordinary activities and other income (expenses), factoring in the specifics of the organization’s business activities;
- The materiality level of mistakes based on both the magnitude and nature of the corresponding article(s) of the accounting report;
- The procedure for fixed assets revaluation in accordance with Article 15 of RAS 6/01 “Fixed Asset Accounting” or reporting that fixed assets are not revaluated at the company;
- Methods for accruing amortization on fixed assets in accordance with Article 18 of RAS 6/01 “Fixed Asset Accounting;”
- Procedure for determining the useful life of fixed assets according to the Classification established by Government Resolution №1 dated 01.01.2002;
- Procedure for determining the useful life of intangible assets;
- Methods for accruing amortization on intangible assets in accordance with Point 15 of RAS 14/2007 “Intangible Asset Accounting;”
- The procedure for evaluating inventory (with the exception of goods recorded at their selling value) when it enters the production process or is otherwise disposed of can be done based on the value of each unit, at average cost, or by the value of the inventory items purchased first (FIFO);
- A small business should decide whether or not to apply RAS 18/02 “Expense Account on Profit Tax of Organizations” and RAS 8/2010 “Estimated Liabilities, Contingent Liabilities and Contingent Assets.”
It should go without saying that this list is not exhaustive. In order for an accounting policy to be truly effective, a systematic approach is necessary, as well as a thorough analysis of tax and accounting legislation. Taking into account the amount of material and specifications contained in Russian tax legislation, as well as its complex application in practice, developing an internal accounting policy takes quite a bit of time and energy and should be entrusted to specialists.
An accounting policy should be individualized
We study the specifics of your business in order to develop an internal accounting policy for your Company: the characteristics of your industry, investor demands, your Company’s long-term and short-term management plans, and a number of other factors.
An accounting policy should be as flexible as possible
We cite the Company’s local corporate laws (conditions) in the accounting policy and assist in their development.
An accounting policy should make maximum use of rights stipulated by the law
We describe and link together all the implications of the Accounting Regulations, Chapter 25 (Profit Tax) of the Tax Code, and any other legislative regulations that may affect your business, which is especially important for companies working in tightly regulated industries such as pharmacology.
An accounting policy should be well-founded
We always cite the corresponding normative acts when we propose solutions for you.
- Accounting policy
- Tax accounting policy
- Local corporate conditions - appendices to the accounting policy
- Documents can be in both Russian and English.