The Actual Accounting magazine
Liliya supervises the legal services department that serves more than 100 clients – Russian and foreign companies with various forms of ownership. Liliya Khakimova has vast experience in providing legal support to various businesses, including company registration, accreditation of subsidiaries and representative offices for foreign companies, organization of contract work, and legal consulting. Liliya Khakimova graduated from the Department of History, Political Science, and Law at the Russian State University for the Humanities.
On January 1, 2013, the new accounting law goes into force*(1). It not just changes the way accounting must be organized but also enacts requirements to chief accountants.
It is not for nothing that the new accounting law is so ardently discussed among accountants. It does not only introduce a new definition of accounting and requires that it must be done by those who have not done it until now. It also introduces a number of new concepts we mentioned in our previous issue. Besides, the principles of the organization of accounting and requirements to chief accountants are now very clearly prescribed.
The principles of the organization of accounting
The new law gives a clearer picture of the way accounting must be done. CEOs, doing their duty as concerns the organization of accounting, now may select one of the following methods:
- doing accounting by the CEO personally;
- doing accounting by chief accountant or another employee;
- passing the performance of accounting onto a third party (organization or individual).
The selection of one of these methods will depend not just on the CEO's preferences but also on whether or not the entity in question is a financial organization or a small or midsize company.
Small and midsize companies will find themselves in a more advantageous position as compared with other organizations. Their chief executive officers may choose any of the above methods, including doing accounting by themselves. The law has no special preferences as concerns CEOs' qualifications as accountants. To assume the role of chief accountant, all the CEO will have to do is issue a directive to this effect. A reminder is in order that the Federal Labor and Employment Service *(2) requires that when the CEO does accounting personally, the fact must be reflected in a directive concerning the accounting policies of the organization. In this case, the organization does not have to establish the position of chief accountant.
For your information:
Small and midsize companies include consumer cooperatives, commercial organizations (excepting state-run and municipal unitary companies), individual entrepreneurs and farms meeting the following criteria *(3):
1) for legal entities: the combined shares owned by state-run or municipal organizations, foreigners, public and religious organizations which are not small or midsize companies, etc. not to exceed 25% of their authorized capitals;
2) the average number of employees (during the previous calendar year):
a) not to exceed 250 for midsize companies;
b) not to exceed 100 for small companies;
3) income from the sales of goods, work or services (not including VAT) or the residual value of fixed and non-material assets for the previous calendar year:
a) not to exceed RUR 400 million for small companies;
b) not to exceed RUR 1 billion for midsize companies.
In organizations other than small or midsize companies, accounting may be either entrusted to an employee of the company or outsourced to a second party, such as a company or an individual, under an agreement for doing the first party's accounting. The law does not specify categories of employees that may be entrusted with accounting. Such may be either the chief accountant or another officer of the company. There are no specific requirements to outsourcing companies either with the exception of the legal requirement to the qualifications of their personnel considered hereafter.
Legally, for financial organizations, there is only one method of organizing accounting. Financial companies must have chief accountants. No other employee may be entrusted with doing accounting for a financial company.
Requirements to persons doing accounting
One of the novelties introduced by the law is the list of qualifications accountants must legally have. These qualifications are important in the following cases:
- when accounting is entrusted to an employee of a company that belongs to a certain category of legal entities provided for in the law;
- when accounting is outsourced to a specialized company.
Therefore, if accounting is done by the CEO personally or by an employee of a company that is not one of those listed in the law, compliance with these requirements is not mandatory.
The list of organizations whose officers must meet the legal requirements is limited by the law and includes the following categories of legal entities:
- public corporations, excepting financial companies;
- insurance companies;
- non-governmental investment funds;
- joint-stock investment funds;
- companies managing mutual investment funds;
- other companies whose securities are allowed to circulate on public exchanges;
- other stock exchange operators, excepting financial companies;
- managements of state-run non-budgetary funds and state-run territorial non-budgetary funds.
Financial companies, such as banks or credit unions form a separate category and must meet the requirements established by the Central Bank of the Russian Federation.
Special requirements have been established for the chief accountants (officers) of the above mentioned categories of organizations (the following are the qualification requirements):
- higher professional education;
- the required length of service in a position related to accounting, compiling financial accounting reports and/or auditing:
1) at least three years of the latest five calendar years for persons with higher professional education as accountants or auditors;
2) at least five years of the latest seven calendar years for other persons;
- no convictions (uncancelled) for financial crimes.
This list of requirements to chief accountants is not exhaustive. The law allows to add more requirements but only if they are established at the level of federal law.
The said qualification requirements are always a must for outsourcing companies (outsourcers), regardless of whether or not the companies outsourcing their accounting to them belong to the list established by the law. Therefore, any companies, when concluding agreements for the provision to them of accounting services, must make sure that the outsourcing companies (outsourcers) they engage meet the mentioned qualification requirements, namely:
- an individual outsourcer must personally meat the established qualification requirements;
- an outsourcing company must have at least one employee on its staff (employed necessarily as per an employment and not a civil agreement) who meets the qualification requirements.
A remark is in order that the above described requirements do not have to be met by persons entrusted with doing accounting before January 1, 2013. If an employee was entrusted with accounting or an agreement for the provision of accounting services concluded with an outsourcer before that date, such persons do not have to meet the said qualification requirements.
Disagreements between the CEO and accountant
According to the new law, the chief executive officer (CEO) must organize accounting. However, even if the CEO charges someone else (an employee or an outsourcing company) with doing it, he still may influence the way accounting is done. CEO's directions as to how to do accounting become compulsory if they are given in the form of written instructions. Having received and complied with written directives from the CEO, the accountant is relieved from responsibility for the possible negative results of that.
In his turn, the CEO, having issued written instructions to the accountant, assumes solo responsibility for the contents of accounting documents, that is,
- for information contained in the accounting registers, if the data entered in the primary accounting documents were accepted and registered or not accepted and not registered as per the CEO's written instructions;
- for the reliability of the filed financial accounting reports, if an object of accounting was shown or not shown in the accounting reports as per the CEO's written instructions.
Therefore, if differences concerning accounting arise between the CEO and his/her accountant, the CIO's opinion has a priority but only if he/she issues written instructions as a confirmation of his/her assumption of responsibility for the decisions he/she makes.
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*(1) Federal Law N 402-FZ dated 06.12.2011
*(2) the letter from the Federal Labor and Employment Service N 2263-6-1 dated 28.12.2006
*(3) Article 4 of Federal Law N 209-FZ dated 24.07.2007
By Liliya Khakimova, Head of Law Department, BDO Outsourcing Division
