Russia s Accounting Revolution

Transcription

1 Issue 6 September 2012 RUSSIA BRIEFING The Practical Application of Russia Business Russia s Accounting Revolution ASIA B ASIA BRIEFING INCLUDING New Law on Accounting 2013: A Revolution in Russia?! Profile of an Accountant: Historical and Modern Q&A: What s left to do in 2012 to prepare for the new law on accounting? Introducing the New Online Bookstore In Cooperation with Scan this QR code with your smartphone to visit: RUSSIA BRIEFING - 1

2 Editor s Notes In this issue of Russia Briefing, we look at Russia s accounting revolution. The new Law on Accounting that passed the parliament in December 2011 and comes into force January 2013 is nothing short of revolutionary. Combined with the dramatic changes in accounting already underway in Russia, including the introduction of obligatory provision calculations in 2011 and automatic document exchange in 2012, the new law can be considered a breakthrough for further improvement in accounting in Russia. Ulf Schneider SchneiderU@russia-consulting.eu Managing Director RUSSIA CONSULTING Group Russia Ukraine Belarus Kazakhstan Poland - Germany SchneiderU@russia-consulting.eu All materials and contents 2012 Asia Briefing Ltd. No reproduction, copying or translation of materials without prior permission of the publisher. First, we discuss the key points of the contents of the new Law on Accounting, including a flow diagram for automatic document exchange, examples of an acceptance protocol document, a VAT Faktura Invoice, and free format accounting document. We also include comparison tables for: Russia Accounting Standards, Russia Tax Accounting, and International Financial Reporting Requirements (IFRS) Russia Accounting Standards and their Equivalent IFRS Standards Old Accounting Law and New Accounting Law Next, we paint a profile of Russian accountants why they are historically more tax experts than statutory accounting specialists and the characteristics that modern accountants should have; i.e. an understanding of business process, an awareness of automated document handover, and an understanding of international corporate structure. Finally, we address the question of what s left to do in 2012 to prepare for the new law on accounting. We hope this issue is helpful for your investments in Russia. Best regards, Asia Briefing Questions? Connect directly to professionals specializing in the topic at hand. Related Reading Find publications related to this topic at Regulatory Updates Keep current on regulatory changes in Asia with updates on Russia Briefing News Read related news and commentaries on International Perspective Learn about this topic in other Asian jurisdictions, including China and India. Podcasts Listen to an expert weigh in and provide an on-the-ground perspective. ASIA BRIEFING ASIA BRIEFING Introducing the New Online Bookstore Welcome to the new Asia Briefing Bookstore! 1 Customer-centric Design 2 Browse publications with ease, preview items before payment, and quickly navigate your cart and purchase history. Resource Sharing Capabilities 3 4 Share resources with contacts on Facebook, Twitter, LinkedIn, and more social platforms. Comprehensive Search Search publications and related multimedia. Plus, share your opinions with product reviews. Simple Payment Process An intuitive payment system for domestic and international customers. 2 - RUSSIA BRIEFING 2012

3 RUSSIA BRIEFING The Practical Application of Russia Business Issue 6 September 2012 Contents The new Law on Accounting is not a change of the 25 Russian Accounting Standards (PBU), but a fundamental improvement of how accounting should be organized in Russia. The law applies not only to Russian legal entities, but also to foreign companies with a representative office or branch in Russia. p.5 Electronic document exchange with an operator SELLER Document Sending & receiving confirmations New Law on Accounting 2013: A Revolution in Russia? Despite the millions of accountants in Russia, Russian Statutory Accounting Standards (RAS or, in Russian, PBU) are not widely used. The state authorities in Russia... p.9 Profile of an Accountant: Historical and Modern The significant recent changes in accounting legislation should also have an impact on the profile of an accountant. During Soviet times and in the nineteenth century, an accountant was mainly responsible for... Old vs. New Law on Accounting Accounting for Representative Offices / Branches p.11 Old Law Statutory accounting required New Law No statutory accounting, if full tax accounting Q & A: What s left to do in 2012 to prepare for the new law on accounting? To prepare for the new Law on Accounting, ask the following questions: Were provisions set up in the annual statement for 2011 and Q1/Q2 of August 23, 2012 July 27, 2012 June 25, 2012 June 19, 2012 June 18, 2012 News on Russia-Briefing.com Foreign Venture Capital Firms to Invest in Russian IT Market Russian Faces Unemployment Variations across Regions New Old President to Assure Global Investors with Old Promises Private Equity Funds Show a Growing Appetite for Russia Russia to Create Conditions to Attract More Qualified Foreigners Scan this QR code with your smartphone to download the Asia Briefing mobile application RUSSIA BRIEFING - 3

4 New Law on Accounting: A Revolution in Russia?! Despite the millions of accountants in Russia, R u s s i a n A c c o u n t i n g Standards (RAS or, in Russian, PBU) are not widely used. The state authorities in Russia published accounting standards for the first time in the mid-1990s, and today there are 25 PBU. Many of these PBUs, though similar to IFRS, were ignored for quite some time. Accountants were more interested in making financial reports as close as possible to tax accounting. Yet in 2011 and 2012, dramatic changes are underway in accounting in Russia. These include the introduction of obligatory provision calculations in 2011, automatic document exchange in 2012, and finally the new Law on Accounting in 2013, all discussed here. Obligatory Provision Calculation In 2011, financial statements in Russia took a major step forward, as a requirement was introduced for obligatory calculation of provisions, such as unused vacation, guarantee cases, etc. This new requirement significantly hit the statutory profit of most companies in Russia, having an effect beyond the profit and loss statement. The requirement also had a major impact on the net assets and statutory rules about potential bankruptcy filing, as well as tax matters like thin capitalization rules, meaning deductibility of interest for tax purposes on intercompany loans. In practice, many accounting departments do not take the new requirement into consideration, brief checks by company management of the company are not usually very helpful in ensuring compliance, and not even all auditors raised the issue of compliance with the new requirement. While tax inspectors might not check for compliance with the new requirement right away, such requirements usually become an issue when the authorities want to catch a tax payer for another reason and use non-compliance with this requirement to support their real intention. Automatic Document Interchange Today, financial accounting in Russia is still very much tax- and document-driven. A key point here is that an invoice (outgoing or incoming) is not an official tax or accounting document and does not trigger any booking. Electronic document exchange with an operator Certification Authority SELLER Document (provides certificates) Document BUYER Operator Sending & receiving confirmations Electronic Archive Sending confirmation Electronic Archive Electronic Archive 4 - RUSSIA BRIEFING 2012

5 New Law on Accounting: A Revolution in Russia?! A simple example is the delivery of stationary. The stationary might be fully paid and delivered to your office, but no expense booking has been done and the payment is still shown as a prepayment. The acceptance protocol ( Nakladnaya ) must still be signed and stamped by both the seller and the buyer. Furthermore, in order to book the input VAT deductible, the seller has to send a special VAT Faktura Invoice to the buyer. Missing documents are the major reason for deviations between Russian accounting and IFRS or US-GAAP. Many transactions are not properly reflected in the income statement, as documents are missing. Therefore, proper document flow is of upmost importance to arrange a meaningful fast closing process for management and consolidation purposes. went to authorities themselves, or used inhouse couriers. So far the IT tools required for the automated document interchange system are still being tested. Automatic document interchange is to be organized with the support of a provider company, for example, TAXCOM. Such provider companies must have licenses from state authorities and belong to the range of the authorized operators of the Federal Tax Service. Acceptance Protocol New Law on Accounting 2013: A Revolution in Russia? The new Law on Accounting No. 402-FZ that passed the parliament in December 2011 and comes into force January 2013 can be considered a breakthrough for further improvement in accounting in Russia. The new Law on Accounting is not a change of the 25 Russian Accounting Standards (PBU), but a fundamental improvement of how accounting should be organized in In 2012, further improvements in accounting and tax matters were introduced, making automatic document interchange between business partners possible. Documents such as the acceptance protocol (required for each sale-purchase of goods or service) and VAT Faktura Invoice (required for input-vat deduction of purchased goods or services) can now potentially undergo automated document interchange between two business partners. The document flow between the tax authorities and the tax payer might still be further automated. Russia is already very advanced with electronic submission of financial statements and tax returns to relevant authorities. Now, it will be possible to submit most documents for tax audits to the tax authorities via to internet. This will not only save a lot of paper and printer cartridges, it will also save time for the Director, who has to sign many of the documents to be provided to the authorities. In addition, couriers and office managers will have fewer problems. Previously, professional courier services often refused to accept orders to go to the authorities, as getting the required stamps confirming receipt of documents was often very difficult. Therefore, accountants often VAT Faktura Invoice 2012 RUSSIA BRIEFING - 5

6 New Law on Accounting: A Revolution in Russia?! Russia. The law applies not only to Russian legal entities, but also to foreign companies with a representative office or branch in Russia. The major impact will be in the following areas: Simplified accounting for foreign legal entities in Russia Quality control for Chief Accountants Responsibility of the Chief Accountant vs. CFO Signature rights of the General Director vs. Chief Accountant Internal controls as a must in each and every office Free format for accounting documents The new law should also affect HR matters, as accounting in Russia becomes more and more a task that requires not only a good professional knowledge and the willingness for communication and teamwork with other departments, but also a good understanding of business. The new Law on Accounting embodies this aspect of the accounting profession. Quality Control for Chief Accountants Currently, anyone can become an accountant, there are no regulatory educational requirements. The new law brings more quality control to the accounting profession. In the future, accountants who work for certain enterprises have to acquire a relevant university degree in accounting. Typically, this major at university is called Accounting, Taxes and Audit. In addition, 3-5 years work experience is required to become a chief accountant. These regulations apply so far only to open-jsc, investment funds management companies, accounting firms, etc. Making sure the accountant has the right professional knowledge is not easy, and there are some doubts that the new regulations are sufficient. It is recommended to check the professional knowledge of an accountant every time you make a job offer. Such checks should ideally consist of a written test, and case studies that are related to the real business of the enterprise. Responsibility of the Chief Accountant vs. CFO The Chief Accountant is legally the second most important person in a company, directly after the General Director, the Tsar of a Russian company. Organizationally, the company structure is often different, in particular in larger firms, who beside the General Director as CEO also a CFO and/or Finance Director, etc. In such a structure, the Chief Accountant reports to the CFO / Finance Director and not directly to the General Director. This could lead to some legal issues in case of conflicts between the CFO / Finance Director on the one hand and the Chief Accountant on the other. In a worst case scenario, the Chief Accountant could refuse to report to their boss, the CFO / Finance Director, and claim the boss is the General Director. However, within such an organizational structure, one should be cautious in changing the responsibility and status of accounting. The Chief Accountant might become less motivated loose esteem in the office; they might also work less attentively, feeling less business responsibility. Also, the company might want the person who has the best professional knowledge in accounting to be legally responsible; and that is the Chief Accountant. Chief Accountants often claim they carry very severe legal risks, being the responsible person for accounting. What is often not known is that realistic charges for mistakes put on a Chief Accountant personally are rather small (in the area of US$ ). However, more severe are risks that such penalties, independently from its amount, are recorded and Chief Accountants fear that they might be faced with higher interest rates when asking a bank for a loan. As banks sometimes have access to such information, this risk exists. Simplified Accounting for Foreign Legal Entities in Russia Foreign legal entities in Russia are usually in the form of a representative office, branch or as a simple tax registration of a foreign legal entity. The last form does not mean a Russian daughter company, rather it usually means Russian LLC (in Russia, OOO). This form often creates problems during the registration process, as authorities are not always familiar with this simplified approach. The new simplified accounting process for foreign legal entities is particularly relevant for construction and planning firms with projects in Russia, who previously had very different rules for accounting and tax purposes. The new Law on Accounting is also generally applicable for representative offices and branches of foreign legal entities. 6 - RUSSIA BRIEFING 2012

7 New Law on Accounting: A Revolution in Russia?! Internal Controls as a Must in Each and Every Office Traditionally, internal controls are not well known to accountants. In certain cases, companies had a separate position as financial controller; however, communication between the accountant and the financial controller was often not the best. The new Law on Accounting briefly states that internal controls have to be introduced to each legal entity, and representative offices and branches of foreign companies. Details are not yet provided, and it is expected that further regulations will be issued by the Russian Ministry of Finance. It will be interesting to see whether auditors will make comments in the audit reports for 2012 on a company s preparation level to have reasonable internal controls regulations in place for Free Format for Accounting Documents As of 2013, the format for forms required by legislation can be chosen. However, when changing forms, one has to make sure that all current information is still available on the new form. This sounds good in theory, however, in practice this might be difficult to implement. Changing to forms that can be exchanged in electronic form could lead to additional manual work, as electronic interchange might not work. Also, policemen might have problems with non-standard forms. Trucks are obliged to carry certain delivery papers with them and if these forms are changed to a company s corporate style, the company risks more issues with local policemen. It indeed makes a lot of sense to change some pure internal forms, such as the business trip forms that all parties visited have to sign (in Russian: Командировочное удостоверение). If a sales manager visits clients who may be competitors, these clients can see on this form who the sales manager previously visited. For confidentiality reasons, one should change a single business trip form to separate forms. Получатель / Empfänger / Recipient: ООО «Русский Консалтинг» ИНН/КПП / Steuer Nummer / Tax-ID s: / Банк / Bank / Bank: ЗАО «ЮниКредит Банк» г.москва БИК: Корреспондентский счет / Korrespondenzkonto Nr. / Correspondent account: Расчетный счет / Konto Nr. (RUR Konto) / Bank account Nr. (RUR): Счет на оплату / Rechnung / Invoice 3348 от / vom / from Поставщик / Auftragnehmer / Provider: ООО «Русский Консалтинг» / RUSSIA CONSULTING OOO Покупатель / Auftraggeber / Customer: ООО "ABCDEF Рус" / ABCDEF Договор / Vertrag / Agreement: РС от Товары (работы, услуги) Benennung der Dienstleistung Name of the service 1 Подбор персонала на вакантную должность Офис-менеджер/Персональный ассистент/ Staff recruitment for the position Office Manager/Personal assistant/ Staff recruitment for the position Office Manager/Personal assistant Итого / Summe Netto / Sum net НДС / USt / VAT 18% Всего к оплате / Summe Brutto / Sum gross Сумма прописью по-русски (в рублях) Ausgeschriebene Summe (in Rubel) Total in words (in Roubles) Согласно договору счет подлежит оплате в течение 10 дней с момента выставления Bitte begleichen Sie die Rechnung gemäß Vertrag innerhalb von 10 Tagen nach Ausstellung In accordance with the contract please pay within 10 days after issuing of the invoice Руководитель / Geschäftsführer / General Director Уполномоченное лицо по доверенности от / i. V. vom / p.p. from Nuzhny A.P./ Нужный А.П. РУБ/RUB Сумма Summe Sum XX XXX,XX XX XXX,XX X XXX,XX XX XXX,XX Signature Rights: General Director vs. Chief Accountant Currently, quarterly and annual reporting and financial statements are signed for by the General Director and the Chief Accountant, with most tax returns signed only by the General Director. In the future, only the General Director should sign all of these documents. It s worth noting that the legal responsibility for accounting stays with the person in charge of accounting. Aktau Almaty Hamburg Kiev Minsk Moscow St. Petersburg Warsaw Berlin Beijing Brugge Dusseldorf London New York Paris Tokyo Vienna Zurich 2012 RUSSIA BRIEFING - 7

8 New Law on Accounting: A Revolution in Russia?! Russia Accounting Standards, Tax Accounting and IFRS Russia Accounting Standards Russia Tax Accounting IFRS Bad debt ~ Vacation and annual bonuses ~ Guarantee services ~ Audit and year-end closing Contingent liabilities Inventory devaluation Financial assets devaluation X X X X Key: Obligatory ~ Possible X Not Possible Russia Accounting Standards and IFRS Equivalents RAS IFRS PBU 1/2008 Accounting policy of an organization IAS 8 Accounting policies, changes in accounting estimates and errors PBU 21/2008 Changes in accounting estimates IAS 8 Accounting policies, changes in accounting estimates and errors PBU 2/2008 Accounting of construction contracts IAS 11 Construction contracts PBU 3/2006 Accounting of assets and liabilities in foreign currency IAS 21 The effects of changing in foreign exchange rates PBU 4/99 Financial statements of an organization IAS 1 Presentation of financial statements PBU 5/01 Accounting of stocks IAS 2 Stocks PBU 6/01 Accounting of tangible assets IAS 16 Property, plant and equipment PBU 7/98 Events after balance sheet date IAS 10 Events after the balance sheet date PBU 8/01 Provisions, contingent liabilities and contingent assets IAS 37 Provisions, contingent liabilities and contingent assets PBU 9/99 Organization revenues IAS 18 Revenue PBU 10/99 Organization expenses X X PBU 11/2008 Information on related parties IAS 24 Related party disclosures PBU 12/2000 Information on segments IFRS 8 Operating segments PBU 13/2000 Accounting of governmental grants IAS 20 Accounting for government grants and disclosure of government assistance PBU 14/2007 Accounting intangible assets IAS 38 Intangible assets PBU 15/2008 Accounting of loans and borrowing expenses IAS 23 Borrowing costs PBU 16/02 Information on discontinued business activities IFRS 5 Non-current assets held for sale and discontinued operations PBU 17/02 Accounting of expenses due to scientific construction IAS 38 Intangible assets and technological works PBU 18/02 Accounting of corporate income tax IAS 12 Income taxes PBU 19/02 Accounting of financial investments IAS 39 Financial instruments: recognition and measurement IFRS 7 Financial instruments: disclosures IAS 32 Financial instruments: presentation PBU 20/03 Information on participation in joint ventures IAS 31 Financial reporting of interests in joint ventures PBU 22/2010 Correction of mistakes in accounting and reporting IAS 8 Accounting policies, changes in accounting estimates and errors PBU 23/2011 Cash flow reporting IAS 7 Cash flow statements PBU 24/2011 Accounting of expenses for natural resources development IFRS 6 Exploration for and evaluation of mineral resources 8 - RUSSIA BRIEFING 2012

9 P r o f i l e o f a n A c c o u n t a n t : Historical and Modern The significant recent changes in accounting legislation should also have an impact on the profile of an accountant. During Soviet times and in the nineteenth century, an accountant was mainly responsible for making reports to state authorities based on tax accounting. Statutory rules hardly existed and, when accounting standards were introduced for the first time in the mid-1990s, they were not popular and not enforced. Accounting was considered a purely technical job; applying the rules of the tax authorities by gathering all available company documents and entering them into the accounting system 1C. The accounting situation began to change as more and more Western investors entered Russia. Western investors wanted to better understand their company s financial status, and requested special management reports or transformation to IFRS or US-GAAP, as the Russian accounting books did not allow any meaningful analysis. Often a separate person, first called the economist, later the financial controller, was responsible for this management reporting. However, this person was often missing the detailed understanding of the Russian data and could not properly prepare the reports for management. Hence, accountants step gradually took over management reporting by doing a transformation from Russian tax accounting to corporate standards. The understanding for cost center and profit center developed rather slowly, which is understandable, because the nature of Russian accounting is quite contrary to such analytical requirements. Today, if you ask an accountant who they prepare the balance sheet for, they will usually still answer for the tax authorities. Company management is usually more interested in Management Information Systems Reporting (MIS-Reporting) and banks only want to see the accounts done according to International Financial Reporting Standards (IFRS). In coming years, accountants will have to pay more attention to the PBU. Profile of a Modern Accountant Considering all these changes in accounting regulations, it is not easy to find qualified accountants. Below are some thoughts on new and/or important characteristics that an accountant should have (beside professional knowledge, which is certainly a must): Understanding of business processes An accountant has to understand business processes, not only to organize a good document handover within the company, but also to fully understand what to do if documents cannot be immediately provided, because fast closing does not allot waiting time. The new regulations no longer accept I did not receive the required document, therefore could not do the booking as an excuse. The new regulations on provisions make it a must for the accountant to understand more of the nature of the business itself. Awareness of automated document handover Automated document handover between business partners opens new possibilities for the increase in accounting efficiency. This might be a painful process for some accountants; however, the new legislation will put some pressure on accounting departments to organize everything faster and more efficiently. Not all accountants have this topic on their agenda yet. Understanding of international corporate structure In the past, most accountants were responsible for tax matters, in particular tax compliance. As of 2012 Russia has new transfer pricing rules, which apply mainly between related entities. To apply the new regulations requires more economic, business and analytical understanding of internal processes in a group of companies. Moreover, it requires the full understanding how the Russian legal entity is embedded into the entire international corporate structure. This will be a quite new requirement for accountants if they want to keep the matter of taxation under their control RUSSIA BRIEFING - 9

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11 Further Resources Q & A What s left to do in 2012 to prepare for the new law on accounting? To prepare for the new Law on Accounting, ask the following questions: Were provisions set up in the annual statement for 2011 and Q1/Q2 of 2012, as this was obligatory for Russian statutory accounting? If yes, check whether this one time set up effects provisions to deal with severe issues regarding equity regulations. Are there any tax issues with thin capitalization rules in the case of shareholder loans, because of lower equity and the 3:1 rule for loan to equity? Has the headquarters internal control department been involved in or at least informed about the new regulations on internal controls in Russia? Related Reading: Payroll and Employment Law, Russia Briefing Magazine, March 2012 Complimentary download Have discussions taken place with business partners for the mutual introduction of automated document handover and document exchange? Have decisions been made about forms that potentially should have a different format in the future? Questions on doing business in Russia? info@russia-consulting.eu Selected questions will be answered here or at Accounting for Representative Offices / Branches Responsibility for accounting Qualification requirements towards accountants Old vs. New Law on Accounting Old Law Statutory accounting required Chief accountant is 2nd person in company, provided accounting is administered in-house No regulation New Law No statutory accounting, if full tax accounting CFO, Financial Director or Financial Controller, etc. can be responsible for in-house accounting Regulation affects OAOs, insurance companies, management companies, accounting companies: Final degree in accounting/controlling Relevant professional experience (3-5 years) No unresolved economic criminal act More flexibility with format requirements Fixed form sheets (e.g. AKT) Customized form sheets, as long as they contain all necessary information Signatures and filing duties Chief accountant co-signs financial statements Only director signs financial statements. Finance authorities can claim balance sheets, etc. Compulsory internal controls No regulation Each company is obliged to perform internal controls Tasks of the self-regulatory organs No regulation Self-regulatory organs take on tasks such as elaborating recommendations for new/altered RAS 2012 RUSSIA BRIEFING - 11

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