Parliamentary Hearing on International Accounting Standards in Russia
On May 29, 2000 the Parliamentary Hearing was held in the Russian State Duma on the issue of Russia’s transition to International Accounting Standards (IAS).
Officials from the International Accounting Standards Committee (IASC), the International Center of Accounting Reform (ICAR) business leaders and top-managers of leading international consulting firms explained the urgency of rapid accounting reform in Russia. Representatives from the Central Bank and the tax and finance ministries called for a gradual transition.
The State Program of Accounting Reform, which was approved by the government in March 1998, implies the development and approval of accounting regulations (standards) which incorporate the bulk of international standards requirements in two years. The International Center of Accounting Reform (ICAR) with the help of an International Accounting Standards Committee (IASC) members elaborated recommendations for accounting reform in Russia, which determine the goal for the nearest 3-5 years of the total replacement of Russian Accounting System (RAS) into IAS for all enterprises, except small businesses and private companies.
«The goal of the hearings is to speed up the conclusion of the problem,» said Ivan Grachev, State Duma Mortgage Credit Committee head who chaired the hearings.
Officials from ICAR and IASC affirmed that using Russian Accounting Standards, as currently set, the country is wasting its wealth, since non-transparent accounting system leads to inefficient nvestment resources’ allocation. «Russia must resolve this problem within less than five years, otherwise wealth will be wasted,» said David Damant, IASC Board member and Senior Advisor of ICAR. «IAS are needed to raise capital more quickly and at a lower cost,» he added.
Advocates of a fast conversion were confident that modifying IAS according to the Russian conditions is useless, since the greater part of Europe and the US are going to transfer in the next 5-7 years.
«We are not looking for a compromise between a country’s and International Accounting Standards,» said Damant. «I recommend Russia not to create new accounting standards for its major enterprises and financial institutions. The European Union announced that IAS would be required within five years, it will take somewhat longer than five years for US GAAP to converge with IAS,» he stated.
Damant admits that reform requires additional cost and said that, «there is an expense of changing the system – training of people concerned – all this costs money and time.»
Gazprom officials called for a gradual conversion, contending that fast transition is unrealistic due to the high costs and an insufficient amount of interested users of IAS reports of Russian companies. «I recommend we stick to the path of reviewing and adaptation [of IAS] to Russian conditions,» said Irina Bogatyreva, Gazprom Chief Accountant. Along with the advantages of IAS reporting she pointed to several objections of transforming to IAS, «We drew more than 9 billion dollars of additional investment and providing reports according to IAS was put by all credit agreements as compulsory condition. The negative side of providing IAS reports – it is labor consuming. Also, for the NYSE – it is necessary to provide additional information in order to enter the US capital market. IAS do not represent the complete accounting system, GAAP standards are of a great advantage [to IAS].»
Finance Ministry officials also spoke in support of adapting the IAS to the domestic features. «We can not agree with Mr.Damant, who as I see, demands IAS copying by us,» said Igor Lozhnikov, Ministry of Finance methodology department deputy head. «100 per cent compliance with the principals of International standards does not mean 100 per cent adequacy the exact text. We do not want to copy blindly,» he declared.
Professional organizations of accountants’ representatives stated the importance of fast transforming and pointed out that the issue also involves the topic of taxation. «The most serious problem is the conflict between tax legislation and financial reporting legislation – to change a tax law system is impossible in the short-run, that is why as a first step it is important to separate the tax accounting and financial accounting of enterprises» said Alexander Idrisov, Investment and Financial Analyst Guild President and Chairman of Pro-Invest Consulting, «This will allow us to convert to IAS as fast as possible,» he added.
The Tax ministry representative confirmed that RAS do not implement the function of fair financial reporting, and are completed only for taxation purposes. «Most [Russian] companies provide financial statements only to determine the taxable base, not for any other purposes,» said Karen Oganyan, Ministry of Taxes and Duties head of department.
Russian blue chip–LUKoil’s Deputy Chief Accountant Igor Kosyrev have been proving that RAS are poorly adapted for business analysis due to major drawbacks such as — RAS do not account for changes in purchasing power of ruble. «There is a large number of Russian companies that do the double calculation [by IAS and RAS],» he said, «not only because they want to raise capital, because they themselves need such reporting,» LUKoil’s Kozyrev added. He argued for a fast transformation to IAS by saying, «There is a major problem – the way of conversion to this system – either right away, or by Accounting Standards. The best variant – is right away. If we go step-by-step we will create a new system, which differs from IAS.»
Responsible for establishment of accounting standards for banking system, CBR officials are not likely to promote the fast move. Lyudmila Gudenko, Central Bank of Russia Chief Accountant said, «Step-by-step – is the most acceptable way [of conversion]. In 2201, 2002 or 2003 it [IAS conversion] will be very hard, although it is planed (but not finally approved by the CBR Board of Directors) that all commercial banks have to provide reporting according to IAS.
Main equity market players also spoke in favor of a fast transition, considering that it will bring much more transparency to the market. «Every investor in Russia is an interested user of IAS reports of Russian companies,» told the Russia Journal Kim Iskyan, analyst with Renaissance Capital. «Considering that RAS are misleading, today equity valuations include a high risk of uncertainty. The introduction of IAS will reduce this risk and bring more fair valuations of Russian companies’ stocks. It will give investors much better understanding. The sooner Russia will transfer, the better, but, of course, on the companies’ level it is troublesome, since it involves retraining of people. IAS are more accurate than RAS,» he added.
Prepared by Polina Veshinina, « The Russia Journal