Delovoy Peterburg
The government strives to accelerate transition to IFRS (International Financial Reporting Standards), yet only large public companies are, at this time, ready for that.
The IFRS standards are used in over a hundred countries across the world. In 2012, Russia joined them officially. So now, the government steers towards the transition.
Five years to IFRS
In November 2012, the government of the Russian Federation approved the measures directed towards accelerating the transition of Russia's companies to IFRS, as suggested by the Ministry of Finance, and towards expanding the area of the use of those standards. Late in February, at a conference in Berlin, Andrei Belousov, the Minister of Economic Development, stated that Russia's companies would switch to IFRS by the year 2018. According to the minister, investors complain about the Russian standards of financial reporting because they complicate the generation of business plans and the calculation of returns on their investments.
However, the talk of impending transition to IFRS is no news. As Igor Proshkov, a deputy general director of the AK City Center of Expert Evaluations said, "We have been witnessing this acceleration since the year 2004. Even then, the plans were for companies to switch to the international standards of financial reporting over 4 years. As is evident, they haven't switched. I am afraid, they will hardly switch to those standards sooner than over the next 5 years".
The large and the small
Transition to IFRS primarily concerns public companies.
"The acceleration, has so far been the concern of so-called socially significant companies, – says Zakhar Shalumov, a senior manager of the auditing department of the Grant Thornton company in Russia. – Now IFRS will also become mandatory for organizations whose debt instruments are circulating on stock markets".
This decision will not make much difference for large companies. According to Galina Ryltsova, a partner of PwC in Russia, "According to our information, 40% to 50% of the large companies preparing to switch to IFRS have already been generating reports according to international standards". Companies trading on foreign markets or preparing for IPO (Initial Public Offering) will have to supply reports made out according to international standards to their investors or partners.
Medium-sized companies that previously did nor prepare reports according to IFRS and now will have to do so will have a harder time. "Complete reporting according to IFRS includes comparative data for at least one previous year, – explains Maria Sukonkina, the methodology partner of BDO in Russia, which actually means the need for preparing reports for two years".
Most experts agree that Russia's joining WTO makes switching to IFRS inevitable. Yet all agree that this transition should be gradual, especially for small companies.
The difficulties of transition
Igor Proshkov believes that the principal fault of the existing situation is the necessity to conform to both Russian and international standards simultaneously. For instance, it should be enough for a small company whose shares are not traded anywhere to conform to Russian accounting standards. Yet as soon as contacts with foreign partners are established, there is no way around IFRS. Yet the Russian standards are also needed: our reports are made primarily for tax agencies. Hence there is the need for two sets of reports.
"Far from all small and medium-sized companies are ready for the transition, – Maria Sukonkina says. – For them the cost of reporting according to IFRSН may exceed its advantages".
There is also the shortage of skilled accountants supposed to prepare the reports. "The training of one such accountant at a training center costs 100 thousand rubles, – says Igor Proshkov. – Who will provide the financing? CEOs are not thrilled because accountants, having been trained, may quit.
IFRS reports must be checked by independent auditors with qualifications and experiences sufficient for such audits. These qualities are possessed by large companies whose services cost more than those of smaller firms.
Waiting for investors
IFRS reports are increasingly in demand. "Increasing risks of investing in Russian companies cause foreign investors to closely scrutinize Russian partners before investing in them, – says Galina Ryltsova. – What significantly affects their decisions is financial transparency and there being a developed system of corporate management". IFRS more objectively reflects the conditions of companies than Russian accounting standards do. Positive developments may be expected only if the government puts the legislation in order and creates an infrastructure for switching to IFRS, including affordable training centers.
