RS Main Regulations to be replaced with Standards

Regulations to be replaced with Standards

March 2011

Considerable place in the text of the draft law On Accounting, adopted in the first reading by the State Duma on January 14, is given to the new guidelines for state regulation of accounting. Let us examine these guidelines in more detail.

Delineation of powers

The first thing that was done by the Russian legislators introducing the clause on regulation of accounting was to define the guidelines for such regulation. There are a total of six of them; however, we believe the following ones deserve special attention. Firstly, the draft law stipulates that the national accounting standards will be developed on the basis of the international standards. This means that the Russian legislators will continue with the policy of convergence in the mid-term of the Russian accounting standards and the IFRS introduced back in 2004 along with the adoption of the financial reporting and accounting development concept in the Russian Federation. This will help us make our reporting statements more apprehensible to foreign investors. Secondly, the draft law explicitly prohibits to any single governmental body to combine the responsibilities in development of accounting standards and of control standards regarding its maintenance (this is what is happening today when the Russian accounting regulations – which are essentially standards – are being developed and approved by the Russian Ministry of Finance which is also in charge of supervising accounting and all that is related to it).

This will help us make our reporting statements more apprehensible to foreign investors

Four levels of standardisation

All standards that are to be applied in respect of accounting, after the draft law takes effect as law, have been classified into four levels. The first is national standards, the second – industry standards, the third – guidelines related to accounting, and, finally, the fourth – economic entity standards. It is obvious that national and industry standards can be described as global scale standards as they are applicable to all organisations of the country (if national) or industry in question. Such standards are therefore mandatory for use.

With regard to the adoption of these mandatory standards, the legislators currently demonstrate a certainly liberal approach – the competence of the state authorities covers solely the adoption of the national standards. The right to approve industry standards is with other authorities duly empowered so to act by the federal laws. Such authorities are, however, not listed specifically by the law, yet it is obvious that among such cannot be any business associations, self-governing associations of employers and entrepreneurs, auditors, etc, since the draft law provides a different term in their respect – non-governmental entities in charge of accounting regulation. Their competence solely includes development of standards, under this draft law. This is applicable to standards of all levels, including national ones.

All standards that are to be applied in respect of accounting, after the draft law takes effect as law, have been classified into four levels

The guidelines related to accounting and economic entity standards are not mandatory. That said, guidelines related to accounting may cover areas such as the application of national and/or industry standards, the reporting documents form, the process of accounting, organization and execution of internal control activities in respect of the entity’s operations and accounting function, as well as the procedure for development of standards. The fourth level includes standards of an economic entity designed for organization and maintenance of its accounting function. These standards may be developed and approved at the entity’s level and in such case are regarded as mandatory for use by the entity.

When can the new standards be expected

This draft law provides a detailed description of the process of creation of national standards. And this process is rather lengthy. Thus, the right to develop draft national standards is with the non-governmental entities and governmental authorities that are in charge of accounting regulation. The project is subject to obligatory publication on the Internet and in printed media, and has to undergo public hearings with collection of relevant notes and suggestions, etc. Based on the public hearings for which a term of no less than 3 months is allocated by the law, all notes and suggestions are systematised properly, and then a revised version of the drat standard is published. Subsequently, a special governmental authority, also provided for by this draft law – the Council on Accounting Standards, shall make a resolution on recommending the standard for adoption or dismissal.

… the first standards will appear not earlier than a year after the project takes effect

As we can observe, the procedure related to the national standard can hardly be described as quick. Moreover, its introduction will require the creation of governmental authorities and organisations that will be in charge of this process. We therefore believe that the first standards will appear not earlier than a year after the project takes effect, whereas prior to the approval by the state regulatory authorities in charge of accounting, control over the national and industry standards provided for by the draft law, the current financial reporting and accounting rules and guidelines approved before the new law takes effect shall be applied.

Alexei Kraynev,
Exclusively for Russian Survey RS