RAS, IFRS and U.S. GAAP in corporate Russia
At this time of year with numerous larger Russian companies publishing corporate results in both Russian Accounting Standards and either IFRS, or International Financial Reporting Standards, or U.S. GAAP (generally agreed accounting principles). Business RT spoke with Ilya Rudyak, Senior Manager, KPMG in Russia and the CIS about the key difference between RAS and global accounting standards.
RT: What are the major differences between Russian (RAS) and International (IFRS, GAAP) accounting standards?
“Examples of major differences for an average entity are following:
• There is no time value of money concept in RAS and long term monetary assets are accounted for at undiscounted amounts as well as capital lease and bonds.
• In practice there are no bad debt reserves in RAS accounting. This is because it is allowed to create them in RAS but it is not necessary so it’s subject to an accounting policy of an entity. The same situation is in place with some other provisions.
• Transactions are accounted for in accordance with their legal form rather than their substance. For example lease accounting is based on a contract terms rather than on transfer of substantially all risks and rewards.
• Not every entity has a consolidated statements – it is not necessary to compile it in accordance with RAS.
• When we are talking about a conversion from RAS to IFRS we also have a few problems related to so called first adoption process. For example in many cases it is necessary to revaluate fixed assets of an entity.”
RT: How much difficulty is there in translating RAS results into IFRS or GAAP
“The process of conversion depends on spectrum of differences, structure of a group and quality of Russian accounting and financial information system. For example if there are pensions in a company than it is necessary to involve an actuary, when an entity have a lot of acquired companies we need to apply purchase accounting based on independent valuation and for an oil company we have to estimate asset retirement obligation.
Usually it lasts a few months and need a team of at least 2-3 qualified persons. Now it is a common practice to create its own IFRS department in order to compile financials and involve a consulting company only at the first stage of a conversion project to discuss accounting policy choices, provide pro-forma of reports and trainings.”
RT: How much difference is there between Russian and international standards in the results?
“In many cases but not always assets will increase and income will decrease when we move to IFRS due to revaluation of fixed assets, recognition of lease assets, liabilities, posting provisions and making other adjustments (see list in the 1st paragraph for example). And also if a company does not have consolidated RAS financials it will be difficult to compare results of conversion.”
RT: Will we come some day to unified accounting standards?
“In Russia there is a project of a federal law to make consolidated financial statements in accordance with IFRS mandatory for a certain range of entities. It was created a few years ago but now its adoption is postponed and there are no clear terms or deadlines.”