AUTOMATED ACCOUNTING SYSTEM. Simple Structures Simply Success

Transcription

1 AUTOMATED ACCOUNTING SYSTEM Simple Structures Simply Success

2 2 Differences between IFRS and Russian Accounting Standards 3 Approaches to IFRS Reporting in Russia 5 Transformation vs Parallel accounting 5 Choice of Accounting System 7 Possibilities of ITAN 8 Further Customization 13 How we can help you 16 Our Offices 17

3 3 In 1998, the Russian government started an initiative to harmonize national accounting standards with IFRS. Since then, more than twenty new accounting standards have been issued and implemented by the Ministry of Finance of the Russian Federation that aim to align local accounting practices with IFRS. Despite these efforts, differences between Russian Accounting Standards (RAS) and IFRS still remain. The major differences between RAS and IFRS originate from differing fundamental definitions and concepts. At the heart of the problem lies the question on the substance over form or form over substance concept. IFRS are laid out in a conceptual way and can be characterized as taking an substance over form"-approach to accounting. For example, they do not refer to debit- and credit-postings, they do not contain instructions on bookkeeping procedures, there is no predefined chart of accounts with fixed account numbers, no instructions on how transaction documents should look like. Neither do IFRS contain instructions on how often stock-taking should take place, nor do IFRS regulate who should bear and compensate the losses in the event an inventory difference is found. In Russia, accounting regulations have traditionally been very prescriptive and thus invite a form over substance -approach. In practice, accountants may be meticulous in ensuring that documents have the correct form. The form of a document may, however, inaccurately reflect the substance of a given economical fact. As accountants traditionally have little or no experience with the substance over form -concept, they may not be prepared to embrace and apply the differing IFRS approach. As one of the results of the particular Russian perspective on accounting, accrued expenses and accrued revenues - well-known to western accountants - are rarely applied. (The term accrual is hereinafter used as an abbreviation for the terms accrued expense and/or accrued revenue.) The Russian accountant will usually wait to receive documents from the client or supplier and will not do any postings before the necessary documents have been received. In effect, this approach may render the aim of an early and fast monthly closing unfeasible. Further key differences of RAS and IFRS are presented in the table below.

4 4 Table 1. Example of differences IFRS and RAS IFRS RAS Cash flow statement Correction of mistakes Direct and indirect methods may be applied Comparative information has to be recalculated Only direct method allowed Mistakes are corrected in the current period, no recalculation of comparative information Internally intangible assets created Cannot be recognized generally except capitalization of development costs in some cases Can be recognized in some cases Amortization of intangible assets with not-identified usage time and goodwill Depreciation of tangible assets No amortization Dismantling costs have to be included in an re-estimate of assets, if applicable (as change in initial estimation) Amortization about 20 years, but not longer than company s life Dismantling costs cannot be included in the initial costs Capital costs reconstruction Capitalized, if related to replacement of identified component, which will bring future benefits and can be reliably estimated Capitalized only if related to modernization and reconstruction; technical support and replacement are to be expensed Inventory costing Valuation at the lower of net realizable value or purchase costs Only purchase costs, revaluations are not common Effective interest rates This method is usually applied for different valuations (for financial instruments, etc.). Not practically applicable in Russia, in standards only from 2013 Deferred tax recognition Balance sheet method Based on Profit & Loss information

5 5 If companies with operations in Russia are obliged to present reports according to IFRS, they face the challenge to organize IFRS reporting for their Russian entity. Regularly, a company has to choose between two approaches for IFRS reporting: a) transformation/translation of the local balances/cumulative figures into IFRS vs. b) parallel IFRS accounting, where each document is posted not only in RAS ledgers, but also in IFRS ledgers. Transformation vs Parallel accounting Parallel accounting means maintaining two reporting data bases a RAS and a IFRS accounting data base. Usually, specialized accounting systems are implemented which allow to reflect each transaction simultaneously in both data bases. The parallel accounting approach requires big financial investments and investments in terms of time committed during the start-up implementation phase and during the ongoing support of the specialized accounting system. As in the overwhelming number of cases, companies set up in Russia have to follow RAS for Russian tax and financial reporting, companies are well advised to implement specialized accounting systems that are able to produce reports fittinglocal requirements and international requirements. Creating a workable combination, requires not only investment, but also highly qualified specialists with knowledge of both RAS and IFRS. IFRS transformation (or translation/restatement) is a periodical exercise to prepare IFRS reports for a certain reporting timeline. Any IFRS transformation is based on the reclassification of RAS financial reports and making adjustments to them. By definition, transformation means the preparation of a number of tables, which are able to clearly demonstrate the translation of RAS statements to IFRS reports. Please see below an example of a transformation table, which we implement for our clients (pic.1): Pic.1 Example of transformation table

6 6 Not all accounting systems applying parallel RAS and IFRS accounting are capable of producing a similarly clear-cut reconciliation between RAS and IFRS. This being said, one of the key points to base a company s choice for a particular transformation system on should be transparency of reconciliation bookings. However, any transformation system has its own restrictions which are rooted in the technical possibilities of the programs applied (for example, usage of EXCEL tables instead of accounting programs). One of the main drawbacks of the transformation approach is the fact that between reporting deadlines, preparing operational reports for the company s management and other interested parties is impractical. In general, financial reports produced as a result of transformation bookings are less reliable and bear a higher risk of mistakes as compared with parallel accounting. As a transformation is a simplified process, it relies heavily on professional assumptions and judgments. Furthermore, in case the final IFRS reports are prepared in any other currency than Russian rubles, it is practically impossible to correctly calculate the historical exchange rate rubelforeign currency exchange rate for incoming inventory without parallel accounting. In the table below we have prepared a comparison of both methods for IFRS reporting.

7 7 Table 2. Comparison of transformation and parallel accounting for IFRS reporting Parameter Transformation Parallel accounting Reliability of the information High risk of mistakes; includes assumptions High reliability of the information Launch time, investments needed (system, trainings, etc.) Very quick, external specialists or special providers are contracted Long launch time, trainings of inhouse personnel necessary System choice, development and upgrade Not needed Required Possibility to receive operational information Not possible Possible Choice of Accounting System One of the key elements of the parallel accounting is the choice of a specialized accounting system. For the accounting of their Russian operations, companies may follow two schemes: a) to implement one of the European systems which is used in the Headquarters or b) to implement locally developed programs and adjust it to their corporate standards. For each company, its individual case has to be analyzed from the point of view of local risks and chances arising connected to choice of a leading accounting system and the risks and chances arising on the corporate level.

8 8 Possibilities of ITAN For companies, which opted for the most commonly used Russian accounting software 1С as their leading accounting system for their Russian operations, the market offers, among others, the specialized module ITAN to solve the question on IFRS accounting. RUSSIA CONSULTING has implemented ITAN as an IFRS reporting tool for its clients, which allows parallel RAS and IFRS accounting in the standard version of the common local accounting program 1C. The ITAN module does not add complexity to the basic system and does not require frequent system upgrades (which are common with the basic accounting software 1C in Russia). Therefore, ITAN represents a specialized IFRS module which can be added to the standard 1C functionality at any time and includes: the corporate IFRS chart of accounts, which is flexible and can be tailored to fit the requirements of individual corporate standard (pic.2); the mapping which identifies interdependencies between the (standarized) Russian chart of accounts and the corporate IFRS chart of accounts; the opportunity to create a number of different parallel reports, e.g. apart from reports according to IFRS additional parallel management reports.. Pic. 2. Example of IFRS chart of accounts

9 9 Pic.3. Local document and created IFRS document The majority of the IFRS postings draw on the documents which trigger postings in the local RAS accounting. Thus, in the IFRS sub ledger, each local RAS document creates a parallel document IFRS transactions which is being posted to the corporate IFRS accounts according to the mapping rules. Mapping rules for the transfer of documents from the RAS chart of accounts to the IFRS chart of accounts are created in a special document Accounts mapping, which allows for different mapping rules. For instance, one Russian account may be mapped to several IFRS accounts, only the debit part of postings is reported in IFRS, restrictions are possible as to the provider to the IFRS account. Furthermore, the mapping definitions allow to save and add analytical details for cost and profit allocations (profit centers and cost centers for expenses); on counterparties for settlements with suppliers, etc.

10 10 Pic.4. Mapping in ITAN ITAN automatically checks all translations and in case if a mapping rule does not exist, it displays translated bookings on special earmarked accounts 00ТС и ХХТС for further reference. ITAN also includes information on why the mistake has happened. By analyzing the earmarked accounts, translation mistakes can be corrected. The system also includes a number of instruments which allow to create transactions which are not recorded in RAS, but only apply to IFRS, such as: Periodical expenses, which allow for differing depreciation and amortization methods according to RAS and IFRS rules; Month-end closing in ITAN allows to calculate financial results not only for calendar month, but as well for periods with deviating lengths; Opening balances for IFRS accounting for the first adoption of IFRS standards; Reversals of temporary transactions (for example, accruals from previous periods).

11 11 The system allows to fix IFRS balances at a certain reporting deadline after the report date, while keeping the RAS balances open for correction and further postings after the corporate reporting deadline. Any corrections of local balances in RAS will be reflected in ITAN with document dates which lay after the report date. The mechanism looks as in the following (pic. 5): Pic.5 Mechanism of fixing IFRS balances ITAN allows implementing a special procedure for accruals postings, which are to be reversed in the next month after the corporate report has been submitted. The special document Reversal of temporary postings allows to define a number of flexible criteria for reversals of accruals posted in ITAN and to define a set of postings which should be reversed. RUSSIA CONSULTING developed the standard ITAN functionalities as to reversals even further by adding the possibility to define the model of reversal already in the accruals posting document. The reversal of the accrual then takes place automatically. ITAN includes a standard number of reports, which allow to analyze data according to different points of interests: trial balance, based on the chart of accounts, cost center information, etc..

12 12 Pic.5.Standard IFRS reports ITAN includes possibilities to form standard financial reports such as: Balance Sheet Profit and Loss statement Cash flow. The layouts of these standard reports are rather flexible and can tailored to the individual company s requirements using the standard system configuration, ITAN also includes the possibility to create multilanguages reports and to recalculate the reports in various preferred currencies. For the recalculation of the reports, various exchange rates such as spot exchange rates or average exchange rates may be used. ITAN includes special reports which allow to check whether all local transactions have been reflected in the IFRS reporting. Ensuring maximal transparency of the transformation bookings from RAS to IFRS, the ITAN module offers a report on the differences between RAS and IFRS bookings. As well, a report is available on postings which have been added in the RAS module after the reporting period in the IFRS module had been closed. As mentioned above, ITAN allows for the parallel setup of management reports. If required, second parallel mapping may be defined between the RAS chart of accounts and the company s corporate chart of accounts which caters for special reports, e.g. with regard to profit or cost centers. Within the mapping, the allocation of costs and revenues may be redefined from auxiliary cost centers to consolidating cost centers and profit centers according to set allocation keys. Therefore, ITAN may be used to locally produce flexible management reports.

13 13 One of the advantages of the 1C ITAN application is the possibility to upload financial data to corporate ERP systems, with which the 1C modules used for RAS accounting purposes are usually not integrated. Adapting a group s corporate ERP system to meet the numerous requirements of the Russian authorities may prove a complex task. Many companies with an extensive network of offices and subsidiaries around the world are faced with difficulties when attempting to implement at their corporate IT solutions for their Russian operations due to following factors: Predefined RAS chart of accounts - the RAS chart of accounts is defined on the government level, its structure is fixed and unified for all companies; Special unflexible paper templates for primary documents; Obligatory use of the Cyrillic alphabet in the primary documents; Differences in the rules and requirements of the Russian and international accounting standards; Separate tax accounting in parallel with the financial accounting; As companies have to cater to the local Russian standards, it is not always possible to adapt corporate ERP systems for Russian legal requirements in a short time and at low cost. RUSSIA CONSULTING has implemented a number of projects where 1C ITAN has been integrated with the corporate ERP system. In particular, RUSSIA CONSULTING has a wealthy experience in integrating 1C ITAN withthe leading corporate ERP-system SAP. We have developed various interfaces for data transfer in various formats (XML, XLS, CSV, TXT and others). Among the interfaces realized are data transfers from 1C ITAN to corporate ERP systems and vice versa from corporate ERP systems to 1C applications. The approach to exchange relevant data on postings between the local and the corporate leading system ensures compliance with local statutory requirements as well as and compliance with corporate reporting including for consolidation purposes within corporate the ERP system.

14 14 Standard data interfaces following the below structure: In this approach, 1C RAS is the leading system for local accounting requirements and ensures compliance with: Preparation of all required primary documents: Delivery note VAT- invoice Invoice Expense reports Payment orders Special paper forms for Fixed assets and Inventories movements (including stocktaking documents) Payroll calculation and payroll documents Calculation of VAT: fulfillment of purchase ledger fulfillment of sales ledger fulfillment of tax register for VAT preparation of outgoing and incoming VAT invoices journals

15 15 Profit tax calculation preparation of required tax registered applicable for tax check up preparation of supporting documents for tax check up Property and transport tax calculation Submission of statutory and tax reporting in a special electronic format accepted by tax authorities Usually, postings from 1C RAS are uploaded to 1C ITAN on monthly basis for the transformation of the RAS financial reports to IFRS reports. After the transformation process is finished, the adjusted data are uploaded into the leading corporate ERP system of the HQ, for example, SAP. In addition, ITAN offers the possibility to additionally upload separate sales reports and stock reports from 1C to SAP. For the data upload, several models as to the aggregation of data of postings may be considered and implemented. The uploading file may contain data on single postings, allowing for maximal transparency and a non-restricted follow-up analysis of composed financial results. As well, during the creation of the uploading file, data on single postings may be aggregated with the effect to save on the volume of the uploading file and on the number of transactions carried over to into the leading corporate ERP system. In summary, 1C ITAN, combined with a data interface to the leading corporate ERP system offers the following benefits: Automation of parallel accounting under RAS and IFRS; Fast and accurate management reporting; Minimizing double entry of information; Transparency and control.

16 16 RUSSIA CONSULTING has a team of accountants with extensive expertise in RAS and IFRS accounting and IT experts experienced in the implementation of interfaces between different ERP systems. We will be pleased to provide you with: Analysis of the requirement to IFRS reports; Recommendations as to the choice of a leading accounting system; Overview for possibilities to integrate the accounting system of your localentity into your global ERP system; Report templates; Support during external and internal audits of your local entity. Please feel free to contact us to discuss your individual IFRS reporting requirements. PRIMARY CONTACTS: Alexey Kozlov IT Director KozlovAA@russia-consulting.eu Anne Richter Senior Manager - ERP Business Development RichterA@russia-consulting.eu

17 17 Moscow , ul. Bakhrushina, 32/1 T + 7 / 495 / Ulf Schneider Managing Partner SchneiderU@russia-consulting.eu Lars Flottrong Director & Partner FlottrongL@russia-consulting.eu Mike Allen Director & Partner AllenM@russia-consulting.eu info@russia-consulting.eu St. Petersburg , Finlyandskiy pr. 4a T +7 / 812 / Andreas Bitzi, Director & Partner BitziA@russia-consulting.eu Kiev 01601, vul. Shovkovychna T +380 / 44 / Sven Henniger, Director & Partner HennigerS@ukraine-consulting.eu Minsk , ul. Surganova, 29 T +375 / 17 / Polina Meleshko, Head of Office MeleshkoPS@belarus-consulting.eu Warsaw , Al. Jerozolimskie 81, T +48 / 22 / Piotr Linke, General Director LinkeP@poland-consulting.com Almaty , ul. Zheltoksan 111 A T + 7 / 727 / Kirill Afanasyev, General Director AfanasyevKV@kazakhstan-consulting.eu Aktau , Mangistauskaya oblast District 14, BC Zvezda Aktau T +7 / 7292 / Kirill Afanasyev, General Director AfanasyevKV@kazakhstan-consulting.eu Hamburg 20095, Burchardstraße 19 T +49 / 40 / Ulf Schneider, Managing Partner SchneiderU@germany-consulting.de

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