Dear Editors!
I have taken great interest in Lew Burnham’s article «Critical Challenges Faced by International Enterprises» that was published in May 2000 Accounting Report (Volume 3.2). One can rarely find a comprehensive high quality review like that. The professional’s qualification and experience manifest themselves in the way issues are presented and classified.
However, I would like to elaborate on some issues of his article and provide a common Russian accountant’s view on the accounting reform in Russia.
The authors of this and other similar articles suggest the prompt adoption of IAS as a prerequisite for adapting Russian accounting to international standards. Dear Sirs, you can adopt as many Russian translations of IAS as you like but not a single one will work.
Firstly, you should take into account the inactivity of accountants as a whole, especially when company managers are not interested in the accounting reform. The lack of interest of most managers in providing accurate financial statements is due to the lack of efficient investment markets in Russia and distortions in the privatization system whereby managing directors in most cases became controlling interest owners of Russian enterprises.
Secondly, there is no well-defined methodical guidance which not only provides application guidance but also solves accounting issues for industry-specific enterprises. Now there is no organization that would take the lead in such a huge effort. In addition, so many documents [i.e. methodical guidance] cannot be created overnight. Moreover, as always, no funding is provided for such efforts.
Thirdly, problems arising in the course of the Russian accounting reform result from the lack of an operating center for accounting issues that would be similar to the IASC Standing Interpretations Committee. Unfortunately, current public accounting bodies are primarily involved in organizational and political issues rather than in accounting issues.
Fourthly, a hidden cause is the lack of technical means, i.e. chart of accounts and a set of book-entries required in specific cases.
Therefore, in my view, the Russian accounting reform should be performed as follows.
Firstly, there has been no explanatory campaign and promulgation of international standards. We keep coming across only commonplace statements of their usefulness and necessity. It is necessary to launch a wide campaign lobbying international standards in the press. These publications should be available to most accountants. Case-studies should clearly specify the difference between a Russian standard and a relevant IAS equivalent and explicitly demonstrate the way in which inaccurate accounting leads to wrong investment decisions. The press should provide fundamentals of IAS training, including IAS concept and easy examples.
At the same time, a similar promulgation campaign should be launched for managers. Of course, no one can guarantee the [favorable] outcome of such efforts but you should try to understand the following thing: accountants themselves will never get the accounting system moving forward. It is the manager who must realize the need of such reforms. When he or she realizes this, relevant decisions will be made: either a more professional accountant will be hired or an existing accountant will have to go through training. The next step will be the purchase of accounting software. Therefore, I believe that one of the top priorities of the accounting reform should be raising awareness of company managers.
In theory, «a transition period concept» should be developed for Russian accountants to move from the current accounting system [that they have got accustomed to] to International Accounting Standards. I support Lew Burnham’s idea in this respect. However, priorities of the reform should be identified for the transition period. Here are some proposed steps that represent the phased adaptation of the accounting system:
- In 2001 – move to comprehensive cost accounting. Give up the concept of «expenses payable out of net profit».
- In 2002 – move to the accrual basis of accounting for income. Fully implement the accrual basis of accounting for expenses. Introduce deferred tax treatment.
- In 2003 – implement international standards of tangible asset measurement (fixed assets, construction-in-progress, inventories, finished goods). Develop management accounting system.
- In 2004 – implement international accounting standards for investments and liabilities.
- In 2005 – implement international standards of capital measurement.
The current year task should be agreed upon with all interested agencies. Its solution should cover a set of sub-tasks such as drafting a standard, preparing its implementation guidance, providing a linkage between new regulations and old accounting and tax rules, discussing new regulations in the press and arranging feedback on accounting practices.
Another very important aspect of the reform should also be mentioned here. In my view, it does not make any sense to discuss the issue of whether some groups of companies should be identified that [unlike all the other groups of enterprises] would be required to move to new standards. The reform is to solve a fundamental accounting issue: we should move from an existing underlying static accounting concept to a dynamic one which is typical for developed economies. Two concepts cannot coexist in one country. This would be similar to creating two parallel autonomous accounting systems. First you should move the whole accounting system to a new concept and only then impose extensive or simplified requirements on different groups of enterprises.
Yours truly,
Natalia Dmitrievna Brovkina,
Teacher of the Economic Analysis and Audit Department,
Finance Academy under the Russian Government.