By Kliegman, Edwin J.
The CPA Journal , Vol. 66, No. 7
There have been tremendous changes in Russia since 1991 when I first taught American business methods to Russian entrepreneurs, directors of collectives, cooperatives, and government officials.
Although the government owned everything in 1991, the first inklings of privatization were beginning to be discussed. There were shortages of all products. Anti-social elements were everywhere, pick pocketing and molesting visitors and citizens alike.
Today, the lines for food and clothing have disappeared, street gangs and marauders have been substantially reduced in St. Petersburg, and a spirit of excitement for the future is evident.
Still, on an almost daily basis, the western media reports the bleakest news from Russia. Besides the uneasy political situ ation, the narratives indicate that crime is rampant, shortages are prevalent, and the business climate is tenuous, at best.
Having recently returned from Russia, where I taught "International Standards of Accounting and Auditing," "Reading and Understanding Financial Statements," and "Preparation of Business Plans" to Russian accountants, I can offer some personal observations about the business and general environment in Russia today.
One of the most dramatic changes in the St. Petersburg business population has been the growth of the professional accounting community. In 1991, the only recognized Russian accounting organization was "Inaudit," a quasi-government arm which verified information as the government directed. Late in 1991, I helped organize a join venture, International CPA Corp. (ICPA Corp.), which was the first privately held accounting firm in St. Petersburg. The firm has grown to be one of the largest and most respected accounting businesses in the city. Since 1991, approximately 150-200 other accounting companies have been established in St. Petersburg.
Recently, the Russian government decreed that accountants should be licensed. Accountants are now required to pass a test, similar to the CPA exam in the U.S., in order to obtain a license to practice. Although the central government promulgates the rules and regulations concerning accounting, auditing, taxation, and ethics, there is no question that Russia is moving toward acceptance of western accounting standards, procedures, and principles. I had the good fortune to have dinner with Andrew Krikunov, the head of the Russian Federation Department of Auditing, who is working on the updating of accounting and auditing standards. His observation is that it will take time, but the future of Russian accounting and auditing will basically comply with western methods.
At present, Russian auditing is primarily used to uphold and enforce the tax laws. Business es are audited for compliance with Russian law. Penalties for deviations are harsh. Most small, privately held businesses do not yet realize the importance of the profit-and-loss statement as a tool to their success. They are too concerned about the taxes and enforcement.
A Russian audit differs greatly from the American procedures. For example, the Russians examine every document for authenticity, signatures, stamps, and amounts. Sampling and materiality are usually not a facto in conducting an audit. The major concern is that the records comply with governmental regulations. An important question raised by Russian accounting practitioners is, "If a company is examined by the taxing authorities and a deficiency results after an audit has been completed by an accountant, should the accountant be liable for any penalties? …