Legislative framework of IFRS adoption in the Russian Federation

The worldwide tendency towards a common economic space leads to a fair need for unified requirements for financial reporting. Having entered into the WTO Russia, as one of the largest members of the international trade, faced the implementation of the International Financial Reporting Standards.

"Russia has an opportunity to introduce high quality financial reporting which will significantly improve the functioning of capital markets and make inward investment more attractive”, Geoffrey Mitchell, The European Federation of Accountants, United Kingdom.

The idea of implementation of the IFRS in Russia first appeared in early 90s. Ever since the government has been on its way to a complete transition to financial reporting in accordance with the international financial reporting standards. One cannot say that implementation of the international reporting standards in Russia is smooth and easy. The difficulties of the transition to the IFRS are caused by a number of fair reasons: the significant differences between the requirements of the RAP and the IFRS, contradictory Russian legislation, high cost of the transformation process.

In December 2011 there was a crucial event for the financial experts – in accordance with the Order of the Ministry of Finance of the Russian Federation dated 25/11/2011№ 160н and upon confirmation with the Federal Department for Financial Markets and the Central Bank of the Russian Federation after its official publication the International Financial Reporting Standards and the Interpretations thereof have come into force in the territory of the Russian Federation.

According to the Resolution of the Government of the Russian Federation dated 25.02.2011 № 107, prior to the enactment of the IFRS documents there had been the assessment for the implementation thereof in the Russian Federation, it had been carried out by the expert committee – the NOIFRS Fund (the National Organization for the International Financial Reporting Standards). The assessment was completed on October 10, 2011.

The copies of the IFRS were registered at the Ministry of Finance of Russia on 05/12/2011 and published in the annex to the journal “Accounting” № 12, 2011. By with the Order of the Ministry of Finance of the Russian Federation dated 22.11.2011 г. № 156н they have been defined as the official publication in order to publish the Standards and the Interpretations. The copies of the IFRS are also made available on the web site of the Ministry of Finance and in the reference databases.

On the one hand this event is viewed as a formal one due to the fact that it was a few years late. The official translation into Russian was made available on the web site of the IFRS Fund and many Russian companies have started regularly to apply the IFRS for preparation of the financial statements.

Official enactment of the IFRS in Russia automatically launches the enactment of the Federal Law № 208-ФЗ dated 27.07.2010 "On Consolidated Reporting", according to which a company shall prepare, submit and publish its consolidated financial statements under the IFRS, starting from reporting for the year following the year when the IFRS had become applicable on the territory of the Russian Federation, i.e. starting from reporting in 2012. Considering the fact that the required Standards for reporting the data for one year minimum, the obligation to prepare reporting under the IFRS in fact is retrospective i.e. as from the year of 2011.

The consolidated financial statements must be prepared in full compliance with the IFRS. That is the standards must be applied directly and in all the aspects of reporting, including: the choice and application of reporting policy; defining the members of the group, consolidation methods, the rules of recognition, classification and assessment; compliance with the structure of submission and requirements on disclosure of information and the like.

According to new provision a listed company is exempted from preparing the consolidated statements in compliance with International Financial Reporting Standards if it publishes the consolidated financial statements with other internationally accepted accounting rules, for instance, US GAAP. These specified companies had to comply with International Financial Reporting Standards no earlier than 2015. Among these companies are Cherkizovo Group, Gazpromneft, Mobile TeleSystems, MGTS, NLMK, LUKOIL and others.

Moreover, it should be noted that companies are not relieved from the obligation to do book-keeping and preparing individual reporting under the Russian rules. They are vested with additional obligation to prepare an extra set of consolidated report which requires the mandatory auditing.

For companies that are in transition towards the IFRS there is First-time Adoption of the International Financial Reporting Standards in force from 2004. It aims at minimizing the costs for preparation of the first time IFRS statements and simplifying re-calculation of data of the comparative periods in financial statements.

Application of IFRS 1 First-time adoption is the right of companies that prepare accounts under the IFRS and they can use the full versions of the IFRS. It should be noted, however, that the exceptions contained in IFRS 1 First-time Adoption are acceptable only when preparing the first official reporting under the IFRS.

The first-time reporting under the IFRS shall be only the reporting that contains for the first time a statement of irrevocable application of the IFRS. Application of IFRS 1 First-time Adoption incomplete version does not mean failure to comply with the requirements of the IFRS.

Companies must indicate whether they choose to apply IFRS 1 as well as their choice of certain exceptions in the explanatory notes to the first-time accounts prepared under and in complete compliance with the IFRS.

Russian legislation does not have a similar document that allows to minimize the human and time resources when preparing the first-time Russian accounts for companies which usually work under other accounting systems.

All in all, nowadays the following types of companies are obliged to prepare IFRS reports:

• •    credit institutions;

• •    insurance companies;

• •    companies whose securities are admitted for organized trading by inclusion in a quotation list;

• •    companies which are otherwise obliged by federal laws or constitutive documents to prepare consolidated financial statements. For example, in accordance with the Federal Law “On the Securities Market” where a prospectus has been registered or in other cases mentioned in the above Law, the issuer should disclose certain information, including its IFRS consolidated financial statements.

• •    non-state pension funds;

• •    managing companies of investment funds, unit investment funds and nonstate pension funds;

• •    clearing organizations.