The three-stage plan covers the period from the present up through the year 2010 and sets out the «objectives of accounting development» and the steps to be taken in adopting and implementing an «IAS compatible accounting system.» It also describes how those steps and the timing of their completion will apply to different categories of enterprises.
General Premises
The plan is based on the premise that accounting system development is an integral part of Russia’s overall move to the market economy. The separation of ownership from management in many enterprises has resulted in new groups of outside users of financial statements (e.g., shareholders) that seek fair and detailed financial information. The plan also states that the globalization of capital markets requires comparability of financial information worldwide and a set of national accounting standards (RAS) based on IAS will serve this requirement.
The plan states that one of its main factors, in achieving success of Russian accounting reform, is efficient implementation of accounting standards, enforced by both the capital markets (e.g., stock exchanges) and by regulators (e.g., securities commissions and other regulators). Auditors will also be an important element of the enforcement process.
Objectives of Accounting Development
These are set out in the plan as strategic objectives: creating an IAS compatible system, ensuring feasibility of implementing IAS as the only standards for securities issuers, and developing an accounting profession as an active accounting regulator. Other detailed objectives relate to a framework for enterprises based on ownership, size, and capital market exposure, in these categories:
I Public companies and other enterprises listed on international or Russian capital markets [exchanges]. Some of these are already using IAS or US GAAP, but also use RAS for statutory purposes. They would be allowed/encouraged to use only IAS (without filing RAS accounts).
II Non-listed public (open joint-stock) companies. RAS will be used for financial reporting, but these will be IAS-compatible, through the drafting and adopting of new RAS.
III Closely-held joint-stock companies and limited liability companies, except small businesses. These will also use RAS, but subject to less detailed financial disclosure requirements, which will be further evaluated to determine if additional revisions are necessary to RAS.
IV Small businesses, which will be subjected to similar rules as those in III, but with simplified bookkeeping and financial reporting, in keeping with tax requirements and management accounting needs.
Other detailed objectives relate to accounting education and certification, development of an accounting profession, and standards enforcement. Further details in the plan include the four major stages of its development up through 2010.
ICAR’s Comments on the Plan
ICAR’s review of the plan takes note of its positive features, including the clear-cut decision to achieve IAS adoption for public enterprises and IAS compatibility of RAS for the rest. Furthermore, prompt adoption of a tax reconciliation system (to allow accounting to be done solely on an IAS basis) and removal of accounting authority from the tax regulators, are significant. ICAR has suggested several other requirements it believes deserve further attention and specific incorporation into the plan:
- An obligation of commercial banks and state-owned enterprises to implement IAS and publish audited IAS financial statements.
- Beginning earlier in the plan, permit non-listed public companies and subsidiaries the option to adopt IAS in place of RAS and prepare IAS financial statements (and also use IAS exclusively as the basis for their management information and tax returns). This could also be a permitted option for small businesses.
- Require the preparation of audited IAS financial statements in connection with the sale (privatization) of state-owned shareholdings.
- Make the new (IAS-compliant) RAS obligatory only when they are complete and fully compliant, rather than follow the planned piecemeal approach. Better still, simply adopt IAS as the operative standards for all purposes, and concentrate reform efforts on developing interpretive and implementation guidance (similar to, but replacing, the plans to develop IAS-compliant RAS).
ICAR has also concluded that there will be the greatest difficulty, under current arrangements, to prepare all the IAS-compliant RAS, regulations, and guidance described in the plan. In part, this is because the plan sets out an immense work program (much of which may not be essential and some of which becomes obsolete as the plan progresses). More significantly, the plan does not indicate how funding, technical expertise, and other resources will be provided. Nevertheless, ICAR believes the plan is a step in the right direction, especially in specifying early adoption of IAS in some sectors and setting in motion the resolution of the current problems with tax accounting requirements, and desires to assist in its further refinement.
Readers who would like to see the full plan can get it from ICAR by sending request to e-mail publishing@icar.ru or fax (095) 937 5416.