Russia's Accounting Moves West
Enthoven, Adolf J. H., Strategic Finance
As soon as the USSR ceased to exist, the unified Soviet system of accounting that had been developed over many decades to monitor a centrally planned economy began to disintegrate. An essentially new Russian accounting system has come into being characterized by crucial changes in the National Chart of Accounts and accounting regulations, including a greater adherence to international standards.
In the USSR, accounting was used as a tool to safeguard socialist property and fulfill the state's central plans. These objectives were realized by strict control and monitoring of the financial results of business activities by and for the corresponding higher management bodies and the central government agencies. Control activities included monitoring the care and retention of assets, the use of factors of production, and compliance with norms concerning the amount and composition of current assets and the production of goods and services, as well as ascertaining the cost of production and financial profit and its use.
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In 1991 three events crucial in accounting development occurred: publication of the mostly new Chart of Accounts, production of a new set of financial statements similar to those used in Western accounting, and the beginning of preparations for radical change in accounting and auditing regulation and methodology.
The principal normative documentation in Russian accounting - "Regulation on Accounting and Reporting in the Russian Federation" - was approved by decree of the government on February 16, 1992. Most of the work of transforming the accounting system is being done by the Ministry of Finance with the assistance of experts of some international institutions such as the United Nations, the European Union, the World Bank, and the major international accounting firms.
Today, Russian accounting principles agree with international accounting standards (IAS) in the following respects:
* Use of a double entry bookkeeping system;
* Balance sheet continuity;
* Recording of assets on the basis of the original cost of acquisition;
* General consideration of the going-concern principle; and
* Valuation of foreign currency assets and liabilities using the market exchange rate prevailing at the balance sheet date, as established by the Central Bank of Russia (CBR).
Several other accounting concepts also have moved toward Western principles, such as the recognition of sales and the matching of expenses and income. One significant exception to Western standards is the use of a fund accounting system for liabilities. Specialized funds may be set up using annual profits. For example, the reserve fund is to be used against expenses or losses during a fiscal year when other resources of the enterprise are unavailable.
Another important exception is that certain expenses aren't considered deductible in computing profit before taxation but are instead taken as a debit to after-tax profits. A significant difference also arises because general and administrative overheads associated with production are capitalized in inventory rather than taken as costs of the period, as would be the case under Western principles.
Because Russian accounting methodology traditionally has been uniquely financial oriented, internal operational management systems consisted of a collection of very different methods independent of each other. "Management accounting" didn't exist as we know it, although cost accounting and cost analysis have been practiced extensively, mostly by enterprise administrators. Activity-based costing barely exists, and the absence of true pricing often makes costs useless. Barter is a favorite form of doing business.
Since Soviet times, Russian accountants have been collecting an immense amount of information about their companies. But they never used the data to provide comprehensive analyses, nor were they willing to make results accessible to outsiders. …