Olga Rozhnova
The problem of perception of new Russian accounting standards is very complicated and requires comprehensive in-depth analysis. It should be noted that the perception process is influenced by many different factors, the level of economic development, communication, the users’ qualifications and the mentality of accountants being among them. A survey of 1,040 Russian business enterprises was performed in order to research the perception of new standards. The outcome of the survey provides the following evidence.
Almost one third of respondents (31%) feel that information disclosed in financial statements is not very useful for their enterprise. 43% believe them to be rather useful, and only 20% of respondents think that financial reports are very useful. In the opinion of 2% of respondents, financial statements are useless (although the questionnaire did not envisage this answer). So one third of respondents do not see any benefits in financial reporting. According to accountants, financial accounting data are used in their enterprises primarily for tax reporting purposes (93%) as well as for the safe-keeping of assets (33%). Less than 4% of respondents believe that data from financial statements can be regarded as a way of improving the attractiveness of enterprises. Were financial accounting to be separated from tax accounting, almost 60% of respondents would consider the preparation of financial statements a compulsory but wasted effort.
This attitude towards the role of financial statements provides evidence that when dealing with other enterprises, accountants do not take into account data from their financial statements as often as they should (the question «How often do you request financial statements from your existing and potential partners?» received the following answers: ‘seldom’ – 29%, ‘never’ – 36%, ‘usually’ – 21% and ‘always’ – only 13%, with 1% failing to provide any answer).
Most of the accountants (57%) believe that their own financial statements do not provide a true picture of the enterprise’s financial position. 14% failed to provide any answer (probably due to a reluctance to negatively assess their own work). As for the fair presentation of financial statements of other enterprises, 71% of accountants do not think that they adequately reflect economic reality, while others did not provide a definite answer.
When answering the question «What does the fair presentation of financial statements mean to you?», the vast majority of accountants said that the fair presentation of financial statements is the full compliance with Russian statutory accounting rules (49%).
The accountants surveyed gave many reasons for the lack of confidence in financial statements, including:
- inappropriate regulatory (tax and legal) framework – 88%;
- frequent changes in laws and regulations – 85%;
- deliberate misrepresentation of accounting records (reluctance of enterprises to disclose public information) – 51%;
- inappropriate accounting laws and regulations – 45%.
There also exists the issue of misrepresentation of data due to Russian accountants failing to understand new national accounting standards (PBUs) properly, and auditors not exercising due control. This is implicitly confirmed by answers to a question regarding work with PBUs. 98% of accountants have difficulty in understanding and applying PBUs. The difficulties arise primarily from inconsistencies between PBU rules and other regulations (91%) as well as from the lack of implementation guidance for accounting rules (89%). The perception of national [accounting] standards is difficult because of their inherent vagueness and ambiguity and lack of necessary explanations. For example, how should the depreciation method be selected, how should a probable economic benefit be estimated, what is the uncertainty relating to the receipt of assets, what is the basis for estimating a useful life of fixed asset items?
Russian accountants have become accustomed to working under detailed [prescriptive] instructions, and are not ready to make professional judgments regarding the economic position of their enterprises. The reluctance of accountants to assume responsibility for professional judgments is also evident in the answers given to a question regarding the need for unambiguous accounting rules. Most respondents (58%) would like to have comprehensive guidance that encompasses unambiguous treatment for economic events, assets and liabilities, and income and expenses, while 15% failed to provide any answer.
The survey proved that accountants are in no hurry to use alternative depreciation methods available for fixed assets. Firstly, since a straight-line depreciation method is used for tax purposes, accountants do not understand why they should take on the additional burden of applying a different depreciation method for financial accounting purposes. Secondly, the application of the matching principle is not clarified, so accountants do not know which guidelines should be used when selecting an accounting treatment and how future economic benefits derived from fixed asset items should be estimated.
On the one hand, PBU declares the substance over form principle. On the other, one of the revenue recognition criteria under PBU 9/99 «Income of an Enterprise» is the transfer of title from the seller to the buyer of products. So the understanding of PBU requirements is significantly impaired and certain statutory requirements are therefore treated as optional.
The vast majority of accountants (71%) believe that accountants in an enterprise do not maintain proper contacts with managers of other departments. The latter are not involved in discussions of accounting policies (79%). Consequently, accountants do not have a clear idea about the way assets are expected to be used and how elements of financial statements should be recognized. The contents of explanatory notes to financial statements are not discussed with enterprise managers (85%). According to many accountants, the publicity of financial disclosures has negative implications for enterprises: 73% of accountants believe that the publicity will not provide any benefit to their enterprise (24% failed to provide any answer).
More than half of respondents (57%) think that financial statements are not very useful for outside users either. The large percentage of those who failed to provide any answer to this question (26%) is to be expected given that enterprises neither record nor analyze outside users’ requests for their financial statements (89%), while they do request financial statements from other enterprises (95%). 58% of respondents do not deem it necessary to find out the exact information requirements of their financial statement users and 37% do not have an opinion on this matter. Consequently, the problem of additional disclosures by the enterprise is not considered important. Accountants (75%) believe that the best option is to provide only compulsory financial disclosures without including data on the strategy, risks, market position, prospective products, etc. and 23% do not have any opinion on this matter. Only 8% think it possible to derive benefits from business reporting on the Internet.
So the summarized results of the survey indicate a lot of problems arising from Russian accounting reform implementation:
- accountants do not have confidence in current financial statements. They are well aware that even a single issue, such as failure to practice inflation accounting, is a hindrance to obtaining a true picture;
- most enterprises do not see any benefit in financial reporting. This is due, on the one hand, to the lack of relevant users of financial statements and, on the other, to the perception of financial accounting as the necessary means of tax assessment and reporting to the tax authorities. Financial accounting is not perceived as a tool of adding value to the enterprise and improving its welfare. In the questionnaire answers, one can clearly see its inferiority to fiscal objectives;
- financial accounting data generally are not linked to corporate governance objectives. In most cases, accountants do not maintain any contact with managers of other departments;
- national accounting standards (PBUs) are difficult in terms of understanding and, accordingly, implementation. Inconsistencies in the regulatory framework and lack of necessary guidance for, and proper enforcement of PBUs result in their noncompliance.
Although this article does not cover all the questions of the survey, in summary, it should be noted that accountants are at a loss and psychologically depressed. To this end, when performing the national accounting reform, we consider it necessary to take into account the fact that we are responsible for achieving a well-educated and accurate understanding of economic reality.
Olga Rozhnova is an Associate Professor at the Finance Academy under the Government of the Russian Federation. She can be contacted by tel. (095) 215 2547.