Accounting policy for microlending company

2020

 Russia

1 legal entity

TASK:

In 2019, Delovye Resheniya microlender lost its chief accountant. Thereafter, the company management requested BDO Unicon Outsourcing to audit their business and tax accounting practices. The service provider employees had to bring the customer’s accounting practices in compliance with the Central Bank standards and Russian legal statutes, adjust the accounting policy, and draft the missing regulations.

Solution:

The audit of the company’s in-house policies established that the client lacked the required by-laws, which led to errors in the statements and non-conformity thereof to the tax and accounting laws of the Russian Federation and Bank of Russia regulations and exposed the entity to the risk of fines and sanctions, in particular, revocation of the banking license.

To solve the problem, BDO:

1. Used its own resources to draft the business accounting policy in conformity with the Bank of Russia requirements applicable to microlenders and financial institutions;

2. Drafted the business accounting policy in conformity with the effective laws of the Russian Federation on taxes and charges;

3. Reviewed the company’s agreements for conformity to the requirements set out in Article 12 of Federal No. 151-FZ dated July 2, 2010 “On Microfinance Activities and Microfinance Organizations”.

“Lack of required by-laws leads to errors in the statements and non-compliance with the Russian Federation laws”

In addition, BDO Unicon Outsourcing reviewed the agreements valid in the audited period for conformity to the arm’s length principle. The client was provided with assistance in developing estimation tables and establishing the procedure to verify whether the interest rates fall within the range of market rates.

Upon completion of the review, estimation tables for depreciated value were developed using the straight-line and EIR method in compliance with the provisions of Bank of Russia Regulation No. 612-P. Concurrently, BDO experts developed the valuation rules for financial assets and financial liabilities and suggested options involving the maximum and minimum values of market rate ranges and mean rate within the range.

Furthermore, the service provider’s team drafted the impairment provision regulations subject to the requirements of IFRS 9 and Bank of Russia Regulation No. 612-P and delivered 2 estimation models for previously issued loans:

1. Using the migration matrix that adjusts default probabilities for prospective information.

2. Using the simplified estimation model for Trade Receivables based both on ICP (uniform claim portfolio) and on the estimated provision case by case.

Deliverables:

During the audit of accounting practices, BDO Unicon Outsourcing re-estimated the microlender’s ratios and statements for the audited period, identified and corrected errors in the relevant ledgers, statements intended for the Central Bank, and corporate income tax declaration.

The Service provider delivered in-house regulations for accounting policies to the client, developed estimation procedures for market rates, depreciated value, and impairment provisions, and assisted the client with follow-up adjustment of 1C.