Andrew R. Buck
Editor«s Note: This article is based on a project, begun in 1998, to develop an IAS-compliant financial management system for a Russian printing company. It is of interest as an example of an early IAS »pioneering" effort, undertaken shortly before the August 1998 financial crisis, and presents the benefits of basing management information on the economic reality of IAS. It also demonstrates some of the problems of converting financial information from Russian accounts to an IAS basis in a timely, economic
manner.
In early 1998, the author, an expert with British Executive Services Overseas (BESO), was invited to help the Russian printing company, FORT, Novosibirsk, modify its management information and financial reporting to an IAS basis. FORT had obtained a loan from EBRD to finance the purchase of a highly sophisticated printing press. The company also wanted to obtain further financing from potential foreign partners for the enterprise, including EBRD and Framlington Western Siberia Venture Fund (FWSVF). In order to proceed, FORT knew it needed both an improved management information system and financial reporting based on
IAS.
Prior to 1998, FORT had not prepared any IAS accounts, so the initial work involved familiarizing the financial director with the IAS format and principles, and then applying these in preparing a usable budget for management control purposes, cash flow statements, and related management information. The analysis and restatement of the company's Russian accounts disclosed many problems, including the fact that much of the needed information was not available or not considered reliable. However the restatement exercises served as means to teach the finance director and some of the staff the basic IAS principles and accounting adjustment
processes.
The desired management information included, in addition to budgets and cash management, basic analyses for control of printing operations, decision support, costing and cost management, and break-even analysis. FORT also was looking for assistance in assessing its present systems, improvement of data collection, design of reporting formats, and development of criteria for selecting computer
software.
On the basis of the system and information problems disclosed by the initial work, the assignment goals were established
as:
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identification of a number of key elements of management information in the initial restatement of the accounts,
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development of a flexible spreadsheet model for budgeting 1999 and subsequent years,
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identification of the budget for the major equipment purchase and combining it into the corporate budget,
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preparation of cash flow projections,
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design of budget/actual comparison processes, report frequency, formats, and content (for management reporting and EBRD), and a process for analyzing and comparing actual production costs with estimates.
The output of the project included detailed recommendations on many different types of accounting information to be developed, analyzed, and reported. A variety of management reports were specified, based on management needs for daily, weekly, monthly, and quarterly information. The monthly and quarterly information included IAS-style income statements and balance sheets (with the option to include budget/actual information in the external reports to EBRD and FWSVF) along with key ratios based on those financial
statements.
The next stage of the project included refinement of the management processes and reports, along with more detailed discussions with department heads (particularly production, administration, and marketing). It was recognized that the full participation of these executives would be essential to the future success and credibility of the budgets and other management
information.
This project demonstrates that analysis and restatement of Russian accounts to an IAS basis is possible in a relatively straight-forward situation like that of FORT (a single enterprise in a single line of business). It also reveals the difficulties of the restatement approach and reinforces the desirability of having the accounts themselves maintained according to IAS. This is particularly true for decision support and other management information needed on a daily, weekly, or real-time basis, where it is not economical or practicable to restate, so frequently, the accounting information that is being maintained according to Russian accounting
regulations.
Mr. Andrew Buck is an Expert of the British Executive Services Overseas (BESO), an independent British organization, which provides highly qualified UK specialists to Russian small and medium-size companies. British experts provide gratis consulting services in investments, technology and operations, financial and general management, IT and other in response to the local needs. Further information on BESO activities can be obtained by
phone (095) 958 27 40 or via BESO«s website http://www.beso.org.ru.