David Damant
Tacis contractor KPMG has recently published two draft accounting standards on EQUITY and on CASH FLOWS.
These Drafts are a commendable step towards a market oriented financial reporting system in Russia, and the proposals can be seen in the context of a process leading to the introduction of full International Accounting Standards (IAS) in Russia with additional provisions to cover elements specific to the Russian economic and legal situation.
As regards the Draft Equity Standard, the approach of the International Accounting Standards Board (IASB) has been, and it is likely to continue to be, one which defines the Equity component in a balance sheet as the residual of Assets less Liabilities. Only limited rules currently govern the breakdown required within the Equity section: otherwise countries may act as they wish. The Framework of Reporting Principles laid down by the IASB give scope for national legal and other considerations to be accommodated (Framework Paragraphs 65-68).
Perhaps (for example) as the international moves towards fair values continue, and when the IASB addresses the question of the effects of inflation on company reporting, some elements within the Equity section will be specified by IASB. But with these limited reservations about the future the proposals of this Draft are in line with what is usually expected within a national jurisdiction, showing as it does the different classes of capital and reserves in Russia. It is of course important that proposals concerning the national elements within the Equity Section must be legally correct, and clear to an investor.
The proposed Draft on the Cash Flow Statement represents a considerable move towards the International Accounting Standard (IAS7). Some variations in layout are proposed (as compared with IAS7) but it should be noted that there is no mandatory layout of the Cash Flow Statement in IAS7. The layouts in the Appendix to IAS7 are only possible examples. Indeed, it is not at present the policy of the IASB to introduce standardised formats for any part of the financial statements, which gives flexibility to individual countries.
If the IAS7 format (whether mandatory or not) is reviewed by the IASB in future, Russia may have a useful contribution to make. In the Draft now under discussion, it is proposed to move (substantially) towards IAS7, and to supercede the present Russian format as currently set out in the Order from MinFin № 4N of 13 January 2000. In this Order, an analysis into three vertical columns is specified, allocating each item between current, investment and financing activities. Such an approach solves some problems – for example, where (logically) to put the tax figures. In a layout such as that in the Appendix to IAS7, with a single column for each year, the problem of allocating tax (etc.) is less easy. But for the moment the draft is correct in moving towards a system which will make international comparisons easier.
The proposals in these Drafts are well considered and deserve detailed discussion by the interested parties. These documents are obtainable from KPMG at the forllowing e-mail address: www.tacis.acc.reform@kpmg.ru.
David Damant is a member of the IAS Standards Advisory Council. He is a former IAS Board Member, and a past President of the European Federation of Financial Analysts Societies. He is a Senior Advisor to ICAR.