Russia To Implement IFRS - Starting 2004

Enabling Legislation Planned And Timeline Established

After several years of debate and extensive input from a broad range of interested parties, the Russian government recently approved a definitive plan for adoption of International Financial Reporting Standards (IFRS). At the same time, the Cabinet issued the outlines of a draft law, expected to be passed by the Duma later this year and become effective in 2004, that would drastically change the way enterprises prepare their financial statements. Under the general outline of that proposed legislation, IFRS would be applied first to all banks and enterprises whose securities are publicly traded (from 2004). Subsequently they would be applied to consolidated group accounts of other holding companies (from 2005) and lastly (2007) to most other businesses, with the possible exception of small private companies.

As one observer put it, «the train is at last leaving the station and it appears that just about everyone is on board.» In other words, those who have been involved in IFRS issues since they were officially recognized with the adoption of Decree 283 of 6 March 1998, have now joined (some enthusiastically, some reluctantly) in the process to make the widespread use of IFRS in Russia a reality.

As regular readers of Accounting Report are aware, ICAR has had a primary focus, from its inception in 1998, on the achievement of full IFRS adoption in Russia. We congratulate the many people whose persistent efforts, in which ICAR has had the privilege to participate, have been vindicated.

Urgent Actions Needed In Both Public And Private Sectors

Nevertheless, we recognize that much practical work remains to be done – and, in particular, many specific steps for IFRS adoption must be agreed and taken on a timely basis. These include the passage and implementation of complementary tax legislation, as well as changes in various regulatory rules and processes. The major «players» in these processes, in addition to the Duma, are the Central Bank, several Ministries involved in economic and fiscal matters, such as Finance, Economics, Taxation, and the Federal Commission for Securities Markets. Some of these have already announced their plans and potential actions.

The nature of the legal and regulatory infrastructure changes mentioned above has been known to Russian interested parties for quite a long time, although there have been many uncertainties about when and how they might be made. Fortunately, the «when» has now been decided and Russian enterprises and professional service providers can get on with enhancing their IFRS capabilities and the development of adequate management information systems.

For a long time, the managers of Russian enterprises and professional firms, as well as business schools were reluctant to commit significant resources to IFRS adoption, because they did not have a clear picture of what they would be adopting. Making large expenditures to design systems or train people in that uncertain environment did not make sense, but now it does.

Practical Matters For Enterprises And Professional Firms

With the decision for full adoption of IFRS, the previous uncertainties about gradual, piecemeal movement «towards-but-not-quite-to» international standards have been put to rest. Now, enterprises, professional firms, and educational institutions can go ahead with confidence to accomplish these major tasks:

• Refinement of training and re-training courses, not only on the international standards themselves but also on the practical aspects of using improved accounting processes and management information.
• Enhancing the capacity of accounting and auditing professionals, both through expanding their practical knowledge and capabilities to apply IFRS and through establishment of a united, self-regulated profession comparable to those in place in the West.
• Development and installation of comprehensive charts of accounts that not only fully incorporate IFRS, but serve all financial reporting, management information, tax, and regulatory/statutory requirements of the enterprise. For many enterprises, this will enable the combination of previously separate functions concerned with accounting, operations analysis, and regulatory compliance into a comprehensive, cost-effective function to serve all information needs.
• Installation of enhanced, cost-effective technology for all accounting processes – through design and development of comprehensive electronic systems to provide complete, reliable operating and decision-support information to management. These capabilities should also include timely, accurate information for governance, strategic planning, risk management, budgeting, cash management, and general control and accountability for business activities. Currently, in most enterprises, these functions cannot be performed adequately – either on a timely basis or at reasonable cost – by their accounting systems.

Time Is Short For All That Must Be Accomplished

For the majority of management of Russian enterprises and professional firms, who may not be concerned with the «first wave» of IFRS implementation in 2004, it may seem that there is plenty of time. However, even for them, 2007 is not that far away, considering all they must accomplish in the intervening years and the cooperative efforts that will be required of so many people and organizations.

Designing courses and materials, training/re-training large numbers of executives and staff, developing comprehensive charts of account, designing, programming and testing systems – and running them in «parallel mode» – will take a lot of time. If they are to be cost-effective, these tasks must be accomplished in an orderly sequence and the many details will have to fit together efficiently.

At ICAR, we are encouraged and excited by the benefits that we believe full, prompt IFRS implementation will bring to Russia. While we do not minimize the potential problems and the great amount of effort that will be required, we look forward to working with all of the other parties in this great process and providing our support to them.