Chapter 5. Main differences between Russian and international financial reporting standards

§ 1. Comparative analysis of Russian and international financial reporting standards

1.1. Principles of financial reporting

Although there are many similarities between the accounting policy options permitted under Russian and international accounting standards, the use of these options is often based on different underlying principles, theories and objectives. Discrepancies between the Russian accounting system and IFRS lead to significant differences between financial statements prepared in Russia and in Western countries. The main differences between IFRS and the Russian accounting system are associated with historically determined differences in the ultimate purposes of using financial information. Financial statements prepared in accordance with IFRS are used by investors, as well as other enterprises and financial institutions. Financial statements, which were previously prepared in accordance with the Russian accounting system, were used by government agencies and statistics. Because these user groups had different interests and different information needs, the principles underlying financial reporting evolved in different directions.

In accordance with the Federal Law “On Accounting”, the task of accounting in Russia was declared as the formation of complete and reliable information about the activities of the organization and its property status, necessary for internal users of accounting statements - managers, founders, participants and owners of the organization’s property, as well as external - investors, creditors and other users of financial statements. The concept of accounting in the Russian market economy interprets this goal more broadly, emphasizing that reporting should, first of all, meet the interests of its internal and external stakeholders for decision-making. Undoubtedly, the recognition of these goals is a significant step towards IFRS, although it should be noted that in practice, preparers pursue other goals, primarily fiscal.

For example, one of the principles that is mandatory in IFRS, but not always applied in the Russian accounting system, is the priority of content over the form of presentation of financial information. Under IFRS, the content of transactions or other events does not always correspond to what they appear to be based on their legal or recorded form. In accordance with the Russian accounting system, transactions are most often taken into account strictly in accordance with their legal form, and do not reflect the economic essence of the transaction. An example of where form trumps substance in the Russian accounting system is the lack of adequate documentation for the write-off of fixed assets, which does not provide grounds for their write-off, despite the fact that management knows that such items no longer exist at the stated book value.

The second main principle of international accounting standards, which distinguishes them from the Russian accounting system and leads to the emergence of multiple differences in financial reporting, is the reflection of costs. International accounting standards require the conformity principle, whereby costs are recognized in the period of expected revenue generation, while in the Russian accounting system, costs are recognized after certain documentation requirements are met. The need for proper documentation often does not allow Russian enterprises to take into account all transactions relating to a certain period. This difference results in differences in when these transactions are recorded.

In Russia, accounting principles are formulated in the Federal Law “On Accounting” dated November 21, 1996 (in the form of requirements for maintaining accounting records), Accounting Regulations “Accounting Policy of an Enterprise” (PBU 1/98) (in the form of requirements and assumptions) and “Accounting statements of an organization” (PBU 4/99), as well as in the adopted Concept of Accounting in a Market Economy. However, there are difficulties in implementing the declared principles in practice. This is the main problem that remains unresolved to this day.

Table 4 provides a comparative analysis of the conceptual foundations of accounting in international and Russian practice.

Table 4. Comparison of principles for preparing financial statements in international practice and in Russia

IFRS	Russian legislation	Source	A comment
I. Underlying Assumptions
1. Accrual method	Assumption of temporary certainty of facts of economic activity	Concept, clause 4.1; PBU 1/98, clause 6	IFRS uses a different term, the term “accrual method” in Russian practice is used in tax legislation
2. Going concern	Assumption of going concern of the organization		The Concept does not disclose the need to use and disclose a different reporting basis if the enterprise does not meet the going concern requirement
	Assumption of consistency in application of accounting policies	Concept, clause 4.1; PBU 1/98, clause 6; PBU 4/99, clause 9
	Assumption of property independence of the organization	Concept, clause 4.1; PBU 1/98, clause 6; Federal Law “On Accounting”, Art. 8, paragraph 3	IFRS does not have this assumption.
II. Qualitative characteristics of financial statements
1. Clarity			In Russia this requirement is not formulated
2. Relevance	Relevance	Concept,
2.1. Character		Concept,	No significant differences
2.2. Materiality	Materiality	Concept,	There are no significant differences; in Order of the Ministry of Finance of the Russian Federation dated July 22, 2003 No. 67n “On Forms of Accounting Reports,” an amount of 5% of the total can be considered significant
3. Reliability	Reliability	Concept, clause 6.3.	In IFRS, this characteristic is disclosed in more detail.
3.1. True representation	Objective reflection	Concept,	No significant differences
3.2. Priority of content over form		Concept, PBU 1/98, clause 7.	No significant differences
3.3. Neutrality	Neutrality	Concept, clause 6.3.3.; PBU 4/99, clause 7	In the Concept, this requirement does not apply to special-purpose reports.
3.4. Prudence	Prudence	Concept, PBU 1/98, clause 7	No significant differences
3.5. Completeness		Concept, clause 6.3.5.; PBU 1/98, clause 7; PBU 4/99, clause 6	No significant differences
4. Comparability	Comparability	Concept, clause 6.4.; PBU 4/99, clause 33	No significant differences
	Consistency	PBU 1/98, clause 7	IFRS does not provide for inconsistency requirements; the identity of analytical accounting data with the turnover and balances of synthetic accounting accounts on the last calendar day of each month is ensured through the truthful presentation of information
III. Limitations on the relevance and reliability of information
1. Timeliness	Timeliness	Concept, clause 6.5.1.; PBU 1/98, clause 7	In the PBU, this limitation is formulated as a requirement, and not a limitation on the relevance and reliability of information
2. Balance between benefits and costs	Balance between benefits and costs, rationality (according to PBU)	Concept,
3. Balance between quality characteristics	Balance between quality characteristics, rationality (according to PBU)	Concept,	This restriction in PBU 1/98 is formulated as a requirement of rationality, but this requirement is not disclosed in detail
IV. Reliable and objective representation
Ensured through the application of basic quality characteristics and accounting standards	Reliable and complete representation	PBU 4/99, clause 6	In the Federal Law “On Accounting” (Article 1, clause 3), one of the tasks of accounting is the formation of complete and reliable information about the activities of the organization and its property status

Summarizing the differences in the basic principles for preparing financial statements in accordance with IFRS and Russian legislation, the following conclusions can be drawn:

• According to the Law “On Accounting”, the main tasks of accounting, in addition to the formation of complete and reliable information, are to provide the information necessary to monitor compliance with legislation, compliance with standards and prevent negative results of business activities;
• In Russian practice there are 2 assumptions not provided for by IFRS;
• In Russian practice, most principles are disclosed in less detail than in IFRS;
• The structure of the principles in Russian legislation does not comply with IFRS (for example, the limitation of relevance and reliability is formulated as a requirement) and is not presented in a logical and consistent manner in any single Russian regulatory act;
• There are differences in terminology.

1.2. Elements of financial statements

Elements of financial statements are economic categories that are associated with providing information about the financial condition of an enterprise and the results of its operations: assets, liabilities, equity, income and expenses. Their definitions in accordance with IFRS were given above.

The Accounting Concept of the Russian Federation provides the same list of elements characterizing the financial position as in IFRS, however, the wording of the Concept is much shorter than in IFRS and does not contain explanations or examples.

Unlike the Concept, the legislative acts regulating accounting and reporting in the Russian Federation do not define the categories “assets”, “liabilities” and “capital”. The Federal Law “On Accounting” states that the objects of accounting are the property of organizations, their obligations and business transactions carried out by organizations in the course of their activities (Chapter 1, Article 1).

The Accounting Regulations “Accounting Statements of an Organization” (PBU 4/99) also do not include an interpretation of the assets and liabilities of the balance sheet as economic assets and their sources. At the same time, capital is considered as one of the types of liabilities (until recently, losses of previous years were generally considered in Russian legislation as assets).

Thus, the interpretations of balance sheet elements in domestic standards do not coincide with their interpretations in IFRS. The only document in which they are close to international standards is the Concept. However, the interpretation of assets, liabilities and capital stated in the Concept is not consistent with regulations; as a result, there is no mechanism for their implementation in practice.

Items are recognized only if they satisfy the recognition criteria, i.e. it is probable that any economic benefit associated with it will be gained or lost by the company, and the item has a cost or value that can be reliably measured.

The Russian Concept also specifies criteria for the recognition of assets and liabilities, but there is no interpretation of the recognition of capital, since there are no articles devoted to the concept of capital and the concept of its maintenance. The criteria for recognition of assets and liabilities in the Concept coincide with the requirements of IFRS. However, they remain proclaimed only in the Concept; in practice, not a single regulatory act even contains the term “recognition of reporting elements.” Reflection of elements in the balance sheet of Russian financial statements is carried out on the basis of primary documents drawn up in accordance with unified forms. In practice, it is not possible to use the professional judgment of accountants to determine the likelihood of obtaining or losing economic benefits. Thus, the approach to the recognition of assets, liabilities and capital proclaimed in the Concept, despite the similarity with IFRS, is only declarative in nature.

In accordance with IFRS, reporting elements can be assessed in accounting using the following methods:

• Actual acquisition cost or original cost;
• Current or replacement cost;
• Possible cost of sale or redemption;
• Discounted or present value.

The list of possible valuation methods established by the Concept coincides with the list in IFRS, however, their interpretation in the Concept, unlike IFRS, is given only for assets. The Concept does not mention the extension of these methods to obligations. There is no definition of discounted value in the Concept at all, so we can only assume that this method in the Concept is analogous to the method of the same name in IFRS.

Russian regulations contain various valuation methods for specific balance sheet items, such as, for example, the Regulations on Accounting and Financial Reporting in the Russian Federation. The most common is the actual cost, although in some cases other estimates are used, permitted by the legislation of the Russian Federation. It should also be noted that there is a greater degree of regulation of assessments of reporting elements in Russian legislation compared to the requirements of IFRS. In many cases, IFRS allows balance sheet items to be assessed based on the accountant's professional judgment, taking into account the characteristics of the enterprise, the interests of users and the underlying principles of IFRS. In domestic practice, the assessment of any balance sheet item is carried out strictly in accordance with the requirements of the Regulations. Currently, many of these requirements are significantly closer to the requirements of IFRS.

The elements that reflect the financial results of an enterprise are income and expenses. Income is an increase in economic benefits during the reporting period, occurring in the form of an inflow or increase in assets or a decrease in liabilities, which is expressed in an increase in capital not associated with contributions from shareholders. It is necessary to note the great similarity in the interpretation of enterprise income in the Concept, PBU 9/99 and IFRS.

According to IFRS, revenue is divided into income from ordinary activities (revenue) and other income. IFRS notes the conditional nature of assigning income to one group or another depending on the specific activities of the company and the uniform nature of various items of income by economic nature, since they all represent an increase in economic benefits.

Unlike IFRS, the Concept discusses the classification of income items briefly, and does not reflect the meaning of dividing income into income from core activities and others. The classification of income items in PBU 9/99 is given in much more detail. Similarly to IFRS, PBU 9/99 divides income into income from ordinary activities of the company and others. The principle of assigning income to a certain group is the same as in IFRS - based on the nature of the enterprise’s activities and its operations. Similar to IFRS, PBU 9/99 notes the conditionality of classifying income as income from ordinary activities for different enterprises: the same income can be basic for some enterprises and others for others (for example, rent, etc.). In PBU 9/99, other income is divided into three groups: operating, non-operating and extraordinary income, but their economic essence is not characterized. Instead of a strict definition of the criterion for assigning income to a particular group, PBU 9/99 provides an open list of examples of operating, non-operating and extraordinary income, while the principle of income grouping remains unclear, which may lead to different interpretations among different users.

The income recognition criteria in IFRS and the Concept are similar. According to PBU 9/99 (clause 12), the revenue recognition criteria include five points that apply to all types of revenue. (The only exception is revenue from the provision of assets for temporary use for a fee, the recognition of which requires the fulfillment of only three points out of five.). A comparative analysis of these criteria is given in Table 5.

Table 5. Criteria for revenue recognition in accordance with IFRS and Russian practice.

PBU 9/99	IFRS 18
1) the organization has the right to receive this revenue arising from a specific agreement or confirmed in another appropriate manner	1) the company has transferred significant risks and rewards associated with ownership of the goods to the buyer
2) the amount of revenue can be determined	2) the amount of revenue can be reliably estimated
3) there is confidence that as a result of a specific transaction there will be an increase in the economic benefits of the organization	3) it is probable that the economic benefits associated with the transaction will flow to the company
4) the expenses that have been incurred or will be incurred in connection with this operation can be determined	4) the costs incurred or expected to be incurred in connection with the transaction can be reliably estimated
5) the right of ownership (possession, use and disposal) of the product (goods) has passed from the organization to the buyer or the work has been accepted by the customer (service provided)	5) the company no longer participates in management to the extent usually associated with ownership and does not control the goods sold

In general, these definitions are similar, although with regard to the first criterion it should be noted that the moments of transfer of significant risks (IFRS) and transfer of legal rights (Russian practice) may differ. The PBU does not provide for an analysis of significant risks associated with ownership of goods.

The criteria for including expenses in reporting in IFRS and the Concept are comparable. The Concept contains an additional condition regarding the independence of expense recognition from the tax base. PBU 10/99 includes all the requirements for the recognition of expenses set out in the Concept, however, in addition to these requirements, PBU contains the additional condition that “expenses are recognized in accounting if the following conditions are met: the expense is made in accordance with a specific agreement, the requirements of legislative and regulatory acts , business customs." That is, unlike IFRS, an expense cannot be recognized solely on the basis of the accountant’s professional judgment about the reduction in economic benefits and must be supported by documentary evidence. Paragraph 18 of the PBU contains the possibility of recognizing expenses on the cash basis, which does not comply with IFRS.

Thus, despite the noticeable convergence of IFRS and Russian standards, some problems still remain unresolved, such as, for example, strict regulatory regulation of many issues of accounting for the financial results of an enterprise. Despite statements about the independence of the presentation of financial results in reporting from tax purposes, in practice the fiscal focus of accounting remains. Thus, significant problems remain today regarding the reflection of elements of financial statements in accordance with IFRS.

1.3. Composition of financial statements

Table 6 provides a comparison of the composition of financial statements that organizations must provide in accordance with IFRS and Russian legislation.

Table 6. Composition of financial statements according to IFRS and Russian legislation.

IFRS	Russian legislation
Balance sheet	Balance sheet (form No. 1)
Gains and losses report	Profit and loss statement (form No. 2)
Statement of capital flows	Statement of changes in capital (form No. 3)
Cash flow statement	Cash flow statement (form No. 4)
	Appendix to the balance sheet (form No. 5)
	Report on the intended use of funds received (form No. 6)
Accounting policies and explanatory notes	Explanatory note
	An audit report confirming the reliability of financial statements if they are subject to mandatory audit

The composition of reporting under Russian legislation is presented in accordance with the regulations of the Ministry of Finance of the Russian Federation. It should be noted that the Federal Law “On Accounting” provides for the following composition of financial statements:

• balance sheet;
• Profits and Losses Report;
• appendices to them, provided for by regulations;
• an auditor's report confirming the reliability of the organization's financial statements, if they are subject to mandatory audit in accordance with federal laws;
• explanatory note.

Thus, federal law considers the statement of changes in equity and the statement of cash flows as part of the appendices to the balance sheet and income statement.

It is interesting that the audit report was included in the reporting according to Russian standards. Many experts emphasize the incorrectness of such inclusion, since it turns out that the auditor’s report should contain an opinion, including about itself.

It is necessary to note the difference in terminology: international standards are financial reporting standards, while in Russian practice reporting is called accounting.

The issue of compliance with IFRS reporting requires special attention. Financial statements comply with IFRS if they are prepared in accordance with all standards and interpretations, as appropriate. The fact of compliance with IFRS must be reflected in the financial statements. At the same time, compliance with IFRS means that the reporting satisfies all the requirements of each applicable standard. Conversely, financial statements cannot be characterized as complying with IFRS if there are any material departures from the standards and their interpretations in relation to accounting and disclosure. The presence of national standards that contradict IFRS, as well as the disclosure of accounting policies and the inclusion of relevant explanations in the financial statements, are not considered to justify deviations from the requirements of IFRS.

However, it is provided that in exceptional situations it may be necessary to depart from IFRS. Such situations arise when the application of international standards may lead to distortion of information about individual business transactions. In this case, the financial statements must contain:

• the opinion of the company's management on the need for deviations from IFRS;
• a detailed explanation of why the application of these standards may lead to misstatements;
• a description of the rule prescribed by IFRS and the accounting scheme actually used;
• assessment of the impact of this deviation on the amount of assets, liabilities, capital, profit (loss) and cash flows for each period presented in the statements.

Knowledge of all facts of deviations from IFRS allows the user to form his own opinion on the statements and calculate the amount of amendments necessary to bring the statements into compliance with IFRS. An important role in the implementation of the described rule belongs to auditors, who are required to express an opinion on whether the statements are truly prepared in accordance with IFRS, i.e. verify and confirm that the reporting meets all the requirements of each individual standard.

In addition, IFRS establish a fairly strict approach to the choice of accounting policies. In this process, the company must follow the rules prescribed by IFRS. In the absence of such for individual transactions, the company's management develops an accounting policy, using which the financial statements will contain complete and unbiased information necessary for users to make decisions, reliably reflecting the results of operations and position of the company, as well as the economic substance of the transactions (and not their legal form) . In the absence of specific requirements for individual transactions, it is necessary to focus on the requirements adopted for similar transactions and the general principles of the IFRS system. It is also possible to use industry accounting rules and standards issued by other bodies, but only to the extent that their requirements do not conflict with IFRS. This makes it possible to apply, in particular, US GAAP, since the latter contains detailed accounting rules for many complex transactions.

The approach adopted in IFRS is designed to eliminate overly broad interpretations of standards, as well as situations where published financial statements indicate that they are prepared in accordance with IFRS, although in fact not all requirements of the standards are met. Most often, such situations arise in relation to disclosure requirements (related party transactions, geographic and operating segments).

1.4. Balance sheet

International standards do not provide for any standard form of balance sheet and only define the range of mandatory balance sheet items:

• fixed assets;
• intangible assets;
• financial assets;
• investments accounted for using the participation method;
• stocks;
• trade and other receivables;
• cash and cash equivalents;
• debts of buyers and customers and other receivables;
• tax obligations;
• reserves;
• long-term liabilities, including interest payments;
• minority share;
• issued capital and reserves.

In Russia, the form of the balance sheet is fixed by law (Order of the Ministry of Finance No. 67 of July 22, 2003 “On the forms of financial statements”). There are a number of differences in the disclosure of balance sheet items, which are listed below.

The key differences regarding fixed assets relate to depreciation. In accordance with international accounting standards, company management is allowed to independently determine the service life of fixed assets, depending on the period of time the company expects to use them. Although PBU 6/01 “Accounting for Fixed Assets” also states that the organization itself determines the useful life of fixed assets, in practice, organizations for accounting purposes continue to use depreciation rates established by Resolution of the Council of Ministers of the USSR of October 22, 1990 No. 1072 “ On uniform norms of depreciation deductions for the complete restoration of fixed assets of the national economy of the USSR." In connection with the adoption of Chapter 25 of the Tax Code, many enterprises use the new classification of fixed assets established by Decree of the Government of the Russian Federation of January 1, 2002 No. 1 “On the classification of fixed assets included in depreciation groups”, i.e. preference is given to tax accounting. The difference in service life leads to discrepancies in the residual value of assets, as well as in the amounts of depreciation accrued for a certain period, presented in accordance with the Russian accounting system and IFRS. In accordance with PBU 6/01 “Accounting for fixed assets”, depreciation can be carried out using one of four methods of depreciation charges:

• linear method;
• declining balance method;
• method of writing off value by the sum of the numbers of years of useful life;
• method of writing off cost in proportion to the volume of products (works).

IFRS 16 Property, Plant and Equipment provides three methods:

• uniform accrual;
• reducing balance;
• sum of items method.

However, in practice, Russian enterprises again mainly use the linear method prescribed by the Tax Code.

An important difference is that Russian accounting does not regularly review assets for impairment, while IFRS 36 Impairment of Assets applies to a large number of assets recognized on the balance sheet (intangible assets, fixed assets, investments). The main objective of this standard is to ensure that assets are measured fairly in financial statements by recognizing an impairment loss when the net carrying amount exceeds the recoverable amount. The loss is recognized in the income statement for the reporting period, and if the asset was previously revalued, it is included in the reduction of the revaluation reserve. IFRS 36 sets out a number of possible indicators of impairment, which an entity must test for at each reporting date using a range of external and internal sources of information. If at least one of them is identified, it is necessary to estimate the recoverable amount of the asset to determine the impairment loss.

Russian rules do not provide for the recognition of such losses. PBU 6/01 provides for the markdown of fixed assets based on the results of revaluation, and the amount of the markdown is credited to the account of retained earnings (uncovered loss) or to the reduction of the organization’s additional capital formed from the amounts of the revaluation of this object carried out in previous reporting periods. However, Russian standards do not aim to regularly analyze assets for impairment and recognize losses in the reporting year.

The definitions of intangible assets according to IFRS 38 “Intangible Assets” and PBU 14/2000 “Accounting for Intangible Assets” are generally consistent with each other, although there are some differences. The first is that, according to PBU, intangible assets (IMA) must be used for a long time, i.e. have a useful life of more than 12 months. IFRS does not provide time criteria for the recognition of intangible assets, i.e. suggests a more flexible approach. The second difference is that, according to paragraph 3 of the PBU, in order to recognize intangible assets, it is necessary to have properly executed documents confirming the existence of the asset itself and the organization’s exclusive right to the results of intellectual activity (patents, certificates, other security documents, agreement of assignment (acquisition) of a patent, trademark sign, etc.). IFRS 38 does not require legal rights because the main criterion is the ability to control future economic benefits from the use of intangible assets, because the entity can control these benefits in other ways (IFRS 38.13).

As a result of the inconsistency of definitions, there are a number of differences in the recognition of certain intangible assets in accounting. For example, PBU 14/2000 classifies organizational expenses as intangible assets. In accordance with IFRS 38, organizational expenses are not recognized as intangible assets, because they are not directly related to the receipt of economic benefits from them. Despite the fact that the costs of establishing an organization are made with the aim of obtaining future economic benefits, there is no real likelihood of receiving them at the time of creation of the company - the company may, for example, turn out to be unprofitable.

In the Russian accounting system, assets created by the enterprise itself, such as the cost of its own created software, know-how, and exclusive right to a trademark, can be reflected as intangible. According to IFRS, assets created by the enterprise itself must satisfy the following criteria: the asset must be potentially profitable in economic terms, and the value of the asset must be reliably determined. Internally created trademarks should not be recognized as part of intangible assets at all, since the costs for them cannot be distinguished from the costs of developing the company as a whole.

PBU 14/2000 classifies the business reputation of an organization as intangible assets. IFRS 38 distinguishes between internally generated goodwill and goodwill arising in a business combination. Internal business reputation is not recognized as intangible assets and is generally not reflected in accounting as an asset, since it is not an identifiable resource and cannot be reliably measured. Business reputation as an asset arises and is reflected in accounting only when purchasing another company entirely as a property complex. In this case, the organization absorbs all the assets and liabilities of the acquired company by paying a certain fee for it. The difference between the amount paid and the value of the assets and liabilities acquired is goodwill. Although IFRS 38 clearly requires goodwill to be recorded as a depreciable asset, goodwill is shown as a separate line item in the non-current assets section. Unlike IFRS 38, PBU 14/2000 does not distinguish between internally created and acquired business reputation.

Another important issue is accounting for the costs of research and development work. Research work is original and planned research conducted in order to obtain new scientific or specialized knowledge. Development is the application of the results of scientific research or other knowledge in developing a plan or project for the production of new or substantially improved materials, devices, products, technologies, systems or services, before commencing commercial production or use. According to IFRS, research and development expenses must be accounted for as expenses in the period during which they are incurred, unless the following conditions are met (in which case they must be accounted for as intangible assets):

• the technical feasibility of the product or process can be demonstrated;
• the company intends to manufacture, sell or use the product or process;
• it can be demonstrated that there is a market for the product or process, or, if it is intended for internal use rather than for sale, its usefulness to the company;
• sufficient resources exist, or can be demonstrated to be available, to complete the project, sell or use the product or process;
• costs allocated to a product or process can be reliably estimated.

In Russian accounting, R&D costs can be capitalized both as R&D and R&D if there is a positive result. Since the presence of a positive result does not clearly mean the possibility of using or selling the results of research and development, it is necessary to recognize a significant difference in the qualification of these objects in Russian accounting from the requirements of IFRS. Therefore, when preparing financial statements in IFRS format, you should write off those costs as expenses for the relevant period that do not fall within the definition of research and development costs under IFRS.

Also, Russian legislation does not yet have any clearly defined procedures for accounting for combinations of companies (purchase and merger of interests) and reflecting the positive or negative business reputation (goodwill) that arises in this case. According to PBU 14/2000, goodwill is the difference between the purchase price of an organization and the balance sheet value of all its assets and liabilities. IAS 38 defines goodwill as the excess of the purchase price of the acquiree over the fair value of the assets and liabilities acquired. Fair value by international standards is the amount for which an asset could be exchanged in a transaction between knowledgeable, willing parties. The fair value of assets may differ significantly from their carrying amount. Thus, the difference between the fair and book value of the assets and liabilities of the acquired organization leads to different estimates of the value of goodwill in Russian and international standards.

Similar to fixed assets, Russian accounting does not provide for regular analysis of intangible assets for possible impairment (IFRS 36). Also, the list of disclosed information in IFRS reporting is wider than in Russian accounting.

Thus, with regard to intangible assets, there are differences between Russian and international standards in almost all indicators. Perhaps the Russian national standard should not be a complete copy of the corresponding international one. However, the interaction of domestic organizations with foreign partners requires an understanding of the reporting of our companies by a foreign user. Intangible assets are one of the most complex accounting objects; their intangibility, problems with identification and evaluation can lead to ambiguous interpretations of reporting.

A number of differences can be identified when accounting for inventories. Inventory accounting is regulated by IFRS 2 “Inventories” and PBU 5/01 “Accounting for inventories”. PBU 5/01 prescribes assessing inventories at actual cost. And at the end of the reporting period, inventories must be revalued: “Inventories that are obsolete, have completely or partially lost their original quality, or the current market value, the selling price of which has decreased, are reflected in the balance sheet at the end of the reporting year, less reserve for reduction in the value of material assets.” Based on this definition, it is somewhat unclear how inventories should be valued, the sales price of which in one reporting period was lower than the actual cost, and in the next reporting period increased above the actual cost. According to IFRS 2, inventories must be measured at the lower of cost and net realizable value. Moreover, in accordance with IFRS, the possible sales price is calculated minus sales expenses (which is not provided for by PBU).

Further, when the same types of inventory are received and written off with different actual costs, it becomes possible to use several methods for calculating the current cost of a unit of inventory. The cost of inventories (except for goods in trade, accepted for accounting at sales prices and IBP) according to Russian legislation can be made in the following ways:

• at the cost of each unit;
• at average cost;
• at the cost of the first inventory items acquired (FIFO method);
• at the cost of the most recent acquisition of inventories (LIFO method).

Unlike Russia, international practice provides 3 methods:

• FIFO method (basic accounting procedure);
• Weighted average method (basic accounting procedure);
• LIFO method (acceptable alternative accounting treatment).

The LIFO method will be phased out in the near future as part of the IASC's project to improve the quality of standards.

Investments can be classified as short-term or long-term. Current investments by their nature are easily realizable and are designed for a period of no more than one year. Long-term investments are investments designed for a period of more than one year. The Russian accounting system requires that both current and long-term investments be presented on the balance sheet at their cost of acquisition. In contrast, international accounting standards allow long-term investments to be accounted for depending on their nature:

• at cost (i.e. including acquisition costs such as brokerage and bank commissions, fees, duties);
• at revalued value;
• at the lower of two values: cost and market value.

Under international accounting standards, short-term investments may be stated on the balance sheet at market value or at the lower of cost and market value (i.e., the amount that would be received by selling the investment on the stock market). The profit (loss) arising as a result of such assessment must be reflected in the income statement.

If the value of a long-term investment, which is not estimated to be short-term, declines in value, its carrying amount is reduced. Such decline in the value of long-term investments, other than temporary declines, is recognized in the income statement. An increase in the carrying amount of long-term investments resulting from the revaluation of long-term investments should be credited to the change in the value of investments as a result of revaluation in the shareholders' equity section. To the extent that a decrease in the value of an investment offsets a previous increase in the value of the same investment that was credited to the investment revaluation account and was not subsequently reversed, the decrease is credited to the investment revaluation account. In all other cases, the decrease in carrying amount should be recognized as an expense.

There are differences in the approach to creating a provision for doubtful accounts receivable. When creating a reserve, Russian enterprises are mainly guided by Article 266 of the Tax Code, as a result of which this approach suffers from formalism. Russian accounting and reporting standards provide for the creation of reserves only in respect of specific debts. IFRS allows for the possibility of creating a general reserve for all accounts receivable, for example, as a percentage of net sales. In practice, when Russian enterprises prepare financial statements under IFRS, the reserve for doubtful debts amounts to a very significant percentage and significantly reduces profit figures.

1.5. Gains and losses report

International accounting standards require compliance with the principle, according to which costs are reflected in the period of expected receipt of income, and in the Russian accounting system, costs are reflected after certain documentation requirements are met. The requirement for proper documentation often does not allow Russian enterprises to take into account all transactions relating to a certain period. The fundamental principle of IFRS that the content of the financial statements is more important than the form in which the information is presented or extracted is in conflict with the requirement that sufficient documentation be available to record the transaction. Differences in the timing of accounting for transactions for which there is insufficient documentation in accordance with the Russian accounting system leads to numerous discrepancies between IFRS and the Russian accounting system in the income statement. The most common example of a discrepancy is that many Russian enterprises recognize revenue not by the date of shipment, but by the date of the invoice, which can be issued 2-3 weeks after the date of shipment (when, for example, the price of products is calculated based on some indicator for the period time before and after the invoice date).

One of the significant differences in the approach to the income statement in Russia and international practice was eliminated during the reform. As is known, until recently, the moment of product sales could be taken as the moment of payment for the product or the moment of its shipment, and the vast majority of enterprises used the first, so-called “cash” method of accounting. Since January 1, 1996, in accounting, the moment of sale of products is determined, as a rule, only by the moment of shipment, as in international practice.

Another difference between the new Russian form of income statement and the IFRS income statement is the reflection of depreciation and labor costs. According to IFRS, if companies disclose their income statement using the cost basis method, i.e. according to the functional basis of expenses (the most widely used in practice), then they must additionally disclose data on depreciation and labor costs. In Russian practice, these expenses are disclosed in the Appendix to the balance sheet (Form 5).

It is also worth highlighting some differences in the composition of cost of goods sold. In accordance with IFRS, selling expenses and, in general, general business expenses (depreciation of management buildings, costs of maintaining management staff, support services) are not considered as directly related to the acquisition and production of goods, and, therefore, are not included in the cost of production. In accordance with the Russian accounting system, selling expenses and general business expenses may be included in the cost of goods sold if this is provided for by the accounting policy. Therefore, for example, the entry for writing off general business expenses to the cost of production (debit 20 - credit 26) is not entirely correct, and it is necessary to make adjustment entries, disclosing these expenses separately. Separately, you should pay attention to the reflection of taxes, other than income tax, in the income statement. In Russia, these taxes are usually included in different lines: for example, customs duties, the tax on road users (now abolished) are reflected in the line of administrative or commercial expenses, while property tax and advertising tax are usually included in other expenses. Also, the Russian income statement does not include export customs duties (they are excluded from revenues and costs) and excise taxes, so users of the statements are not able to estimate the amount of duties, which can be very significant for some companies. According to IFRS, excise taxes are shown separately as part of revenue; duties may also be shown as part of revenue if this is provided for by accounting policies.

The accounting of barter is of great theoretical and practical interest. In the Russian economy, barter plays a much more important role than on an international scale. For example, the share of barter in the revenue of RAO UES of Russia in 2002 was 22%. According to IFRS, if goods or services are exchanged for other homogeneous and similar goods or services, such a transaction is not recognized as a sale. This situation occurs when suppliers exchange goods, moving them between different regions in order to respond in a timely manner to local changes in demand (for example, mutual supplies of petroleum products). In cases where dissimilar goods are exchanged, for example, trucks are exchanged for rolled steel, revenue should be measured at the fair value of the goods or services received, adjusted for the amount of cash or cash equivalents transferred. If it is impossible to estimate the fair value of the goods (services) received, revenue is measured at the cost of the goods (services) transferred, adjusted by the amount of cash or cash equivalents transferred. In the Russian accounting system, barter transactions are always considered as sales, and the case of exchange of homogeneous and dissimilar goods is not considered. Consequently, when exchanging goods for similar goods, such transactions should be excluded from sales determined in accordance with international standards.

In accordance with Russian standards, income and expenses received and incurred for various transactions are reflected in detail: transactions with securities, materials, fixed assets, exchange rate and amount differences, taxes payable, fines and penalties payable or receivable, etc. d. According to IFRS 1 (clause 36), revenue and expenses for non-core activities should be shown on a gross basis. Therefore, for the purpose of transforming financial statements, it is necessary to obtain a breakdown of the indicated lines by type of expenses and income and collapse only those income and expenses that relate to the same operations: as a rule, this applies to operations for the sale of fixed assets, materials, as well as to exchange rate and amount differences.

1.6. Cash flow statement

In international practice, the profit and loss statement is prepared in accordance with IFRS 7 “Cash Flow Statements”, in Russia - in accordance with Order of the Ministry of Finance of the Russian Federation dated June 28, 2000 N 60n “On methodological recommendations on the procedure for generating indicators of an organization’s financial statements.” To conduct business, fulfill obligations and ensure profitability, a company needs cash. The ability to generate cash flows is the most important indicator of financial health. The cash flow statement provides information that allows you to evaluate these indicators, as well as understand changes in the company's net assets, its financial structure (including liquidity and solvency), and the ability to regulate the timing and density of cash flows in the face of constantly changing external and internal factors . Incorporating a cash flow statement into financial statements allows modeling of the present value of future cash flows for comparative valuation of companies.

According to IFRS 7 Statements of Cash Flows, the statement of cash flows reflects changes not only in cash, but also in cash equivalents. Cash equivalents are short-term, highly liquid investments that are freely convertible into a known amount of cash with little risk of fluctuation in value. Investments recognized as cash equivalents are held on the balance sheet not so much to receive investment income or control over the activities of the investee, but to ensure the fulfillment of short-term obligations. This is a kind of money management technique. Cash equivalents include investments with short maturities, typically less than three months to maturity. With longer maturities, the underlying investments generally do not meet the requirement that the risk of fluctuations in value be insignificant.

In Russian practice there is no concept of cash equivalents. The rules for drawing up a cash flow statement refer to funds accounted for in the organization's cash register, in settlement, currency and special accounts. Short-term deposits in banks are included in short-term financial investments. There is no requirement to disclose restrictions on the use of reported funds, as well as the composition of funds.

There are significant differences in the methods of preparing information - Russian rules provide only the direct method (on an accrual basis from the beginning of the year), and IFRS - direct and indirect. The indirect method is more common in world practice as a method of preparing a cash flow statement. It includes elements of analysis, since it is based on a comparison of changes in various balance sheet items for the reporting period, characterizing the property and financial position of the organization, and also includes an analysis of the movement of fixed assets, their depreciation and other indicators that cannot be obtained solely from the balance sheet data . As a result of applying the indirect method, the financial result (net profit) of the organization for the period is converted into the difference between the amounts of funds at the disposal of the organization as of the beginning and end of the reporting period. It should be noted that when preparing consolidated financial statements, the direct method is of little use, because requires large expenses to obtain the necessary information for each of the consolidated enterprises.

According to IFRS, when cash flows are reflected in a foreign currency, their value is recalculated into the reporting currency at the rate accepted on the date of the cash flow. According to Russian standards, in the event of the presence (movement) of funds in foreign currency, a calculation in foreign currency is first made for each type of currency. After this, the data for each calculation made in foreign currency are recalculated at the exchange rate of the Central Bank of the Russian Federation as of the date of preparation of the financial statements. The data obtained for individual calculations is summarized when filling out the corresponding report indicators.

There are differences in how data are classified by activity. According to IFRS 7, financing activities are those activities that result in changes in the amount and composition of the company's equity and debt, while investing activities are the acquisition and sale of long-term assets and other investments that are not cash equivalents. According to Russian standards, investment activity is activity related to capital investments of an organization in connection with the acquisition of land, buildings and other real estate, equipment, intangible assets, other non-current assets, as well as their sale; with long-term financial investments in other organizations, issuing bonds, other long-term securities, etc. Financial activity is the activity of an organization related to the implementation of short-term financial investments, the issuance of bonds, other short-term securities, the disposal of shares, bonds, etc. previously acquired for a period of up to 12 months. Based on the definitions discussed, in Russian practice, cash receipts when issuing short-term bonds are classified as financial activities, and long-term ones - as investment activities. In IFRS, funds raised as a result of the issue of bonds are classified as financing activities.

Table 7 shows the main differences in approaches to classifying activities.

Table 7. Classification of certain types of activities of the income statement according to IFRS and Russian standards.

Flow of funds	IFRS	Russian practice
Receipts from owners (shareholders) in the form of deposits	Financial
Payment of dividends to owners	Financial	Investment
Receipts from owners (shareholders) for strictly intended use	Financial	Investment
Receipt and repayment of long-term loans and borrowings (including bonds) of a targeted nature, as well as payment of interest on them	Financial	Investment
Receipt and repayment of short-term loans and borrowings (including bond loans) of a targeted nature, as well as payment of interest on them	Financial	Financial
Receipt and repayment of short-term loans and borrowings (including bond loans) that do not have a strictly targeted nature	Financial

Thus, with regard to the cash flow statement, significant differences also remain between Russian and international financial reporting standards.

1.7. Other differences

Consolidated (summary) reporting. One of the key differences between IFRS and the Russian accounting system is the differences in the preparation of consolidated or consolidated statements. The term “consolidated” is used in IFRS, “consolidated” - in Russian legislation. The need to prepare consolidated financial statements is provided for by the Regulations on maintaining accounting records and financial statements in the Russian Federation (Order of the Ministry of Finance of Russia dated July 29, 1998 N 34n). It states that if an organization has subsidiaries and dependent companies, in addition to its own accounting report, consolidated financial statements are also compiled, including indicators of the reports of such companies located on the territory of the Russian Federation and abroad, in the manner established by the Ministry of Finance of Russia.

This procedure is established by the Methodological Recommendations for the preparation and presentation of consolidated financial statements (approved by Order of the Ministry of Finance of Russia dated December 30, 1996 N 112). Paragraph 1.3 of the recommendations defines three conditions under which the financial statements of a subsidiary are included in the consolidated financial statements:

• the parent organization owns more than fifty percent of the voting shares of the joint-stock company or more than fifty percent of the authorized capital of the limited liability company;
• the parent organization has the opportunity to determine decisions made by the subsidiary in accordance with the agreement concluded between the parent organization and the subsidiary;
• if the parent organization has other ways of determining decisions made by the subsidiary.

An enterprise may not prepare consolidated financial statements if the following conditions are simultaneously met:

• consolidated financial statements are prepared on the basis of IFRS;
• The Group has ensured the reliability of the consolidated financial statements prepared on the basis of IFRS;
• The explanatory note to the consolidated financial statements contains a list of applicable accounting requirements, discloses methods of accounting, including estimates that differ from the rules provided for by regulations and guidelines for accounting of the Ministry of Finance of the Russian Federation.

IFRS are focused primarily on the preparation of consolidated statements, because only consolidated financial statements ensure the fulfillment of the main purpose of reporting - providing reliable and objective information about the financial position of the company, the financial results of its activities and changes in them. It is the consolidated statements that give a clear idea of ​​what assets are actually controlled by certain shareholders, taking into account subsidiaries. Typically, individual financial reporting is primarily required by regulatory authorities.

Russian recommendations do not address a number of important issues that arise when preparing consolidated reporting. The Ministry of Finance of the Russian Federation considers one of its top priorities to be the development of PBUs for consolidated reporting, which should eliminate most of the existing differences.

Under IAS 22 Business Combinations, there are two methods of accounting for business combinations: the purchase method, which identifies the buyer, the purchase price and allocates the determined value to identifiable assets and liabilities, and the pooling of interests method, which is used in those rare situations where the buyer does not can be determined. The choice of method does not depend on the legal form of the transaction. For example, in a reorganization in the form of a merger of two independent companies, the purchase method is used if, in substance, the transaction is a purchase and meets the definition provided by IFRS. Russian rules have not yet addressed the issues of combining the activities (business) of two or more companies. At the same time, it should be noted that the IASB plans to abolish the pooling of interests method as part of the project to improve the quality of IFRS. It is obvious that in order to develop a Russian PBU it will be necessary to analyze these changes, which will be made in the near future.

According to the recommendations (Order of the Ministry of Finance of Russia dated December 30, 1996 N 112, paragraph 1.8), some parent companies may not prepare consolidated statements in cases that are not provided for in IFRS. Russian standards do not stipulate rules for the consolidation of so-called specialized companies. This issue is currently very relevant due to the widespread use of such companies. As a rule, special purpose vehicles are offshore companies created to carry out complex financial transactions. Manipulation in the reflection of such transactions was widely used in the cases of Enron and Parmalat. The IASB and the American Financial Accounting Standards Board are currently working to revise the accounting standards for special purpose entities.

According to Russian rules, the valuation of the participation of the parent organization in a subsidiary that is a bank or other credit institution may be reflected in the consolidated financial statements in the manner established for reflecting investments in a dependent company. The validity of this is confirmed by an independent auditor. That is, if the Group includes a bank (and this is a very common occurrence for large industrial groups), then its results are not consolidated into the results of the Group on a general basis. According to IFRS 27, excluding a subsidiary from consolidation because its activities differ from those of other group companies is unjustified, since the reporting of subsidiaries and the disclosure of additional information about their various activities in the consolidated financial statements provide better information.

Accounting for inflation. IAS 29 Financial Reporting in Hyperinflationary Economies requires that the financial statements of an entity reporting in the currency of a hyperinflationary economy be presented in units of measurement in effect at the reporting date. That is, information for the reporting period and comparative data for prior periods are restated to take into account changes in the overall purchasing power of the currency in which the financial statements are denominated.

Signs of hyperinflation:

• The majority of the population prefers to keep their savings in non-monetary form or in relatively stable foreign currency. Funds in local currency are immediately invested to preserve purchasing power;
• The majority of the population expresses monetary amounts not in local currencies, but in relatively stable foreign currencies. Prices may be quoted in this foreign currency;
• Sales and purchases on credit are made at prices that compensate for the expected loss of purchasing power during the term of the loan, even if this period is short;
• Interest rates, wages and prices are linked to a price index;
• The cumulative increase in inflation over three years approaches or exceeds 100%.

Until 2003, Russia met these criteria; accordingly, the reporting had to be adjusted in accordance with the requirements of IFRS 29. In 2000-2002. the inflation rate (calculated based on the consumer price index) was 20.1%, 18.8% and 15.1%, respectively. Thus, over 3 years, inflation amounted to 64.3%. Other signs of hyperinflation also do not fully correspond to the state of the Russian economy. This means that starting with reporting for 2003, IFRS 29 may not apply to Russian companies.

Russian rules do not provide for adjustment of financial reporting data for the level of inflation, which is one of the reasons for its incomparability with IFRS; there is no requirement to recalculate financial reporting data of subsidiaries expressed in the currency of a country with a hyperinflationary economy.

Accounting for exchange rates. In Russia, the procedure for accounting for transactions in foreign currency is defined in PBU “Accounting for Assets and Liabilities, the Value of which is Expressed in Foreign Currency” (PBU 3/2000), and in IFRS it corresponds to IFRS 21 “The Impact of Changes in Exchange Rates”. There are several main differences between these standards.

According to PBU, transactions in foreign currency are recalculated into rubles at the official rate of the Bank of Russia; IFRS does not specify at what rate the transaction should be recalculated (i.e., it allows the use of the average rate).

IFRS provides a valid alternative treatment for exchange rate differences that arise from a significant decline in the value of a currency that affects the amount of liabilities arising from a recent acquisition of assets for foreign currency. Such exchange differences must be included in the carrying amount of the asset if certain conditions are met. PBU 3/2000 does not stipulate such cases in any way.

PBU 3/2000 specifically stipulates the procedure for accounting for exchange rate differences associated with the formation of authorized (share) capital. Such exchange rate differences should be included in the “Additional capital” account.

IFRS provides for a special procedure for currency translation in relation to the financial statements of foreign subsidiaries included in consolidated financial statements. To do this, it is necessary to recalculate all assets and liabilities of the company at the final rate, and items of expenses and income - at the rate on the date of the transaction. The resulting exchange rate differences should not be attributed to the expenses or income of the reporting year, but to the company’s own capital until the sale of the net investment. This procedure is not provided for in PBU 3/2000.

§ 2. Problems of transforming Russian reporting in accordance with IFRS

The transformation of financial reporting in accordance with IFRS requirements is becoming increasingly relevant. However, it should be noted that there is no single methodology for transforming reporting. According to experts, reporting in accordance with IFRS can be obtained in 3 ways: the method of transformation of statements, the method of translation of transactions and the method of parallel accounting.

The first two methods are the simplest, however, they can give an error of 10% to 50%. As a rule, they are based on the construction of special transformation tables for the main accounting areas. For example, when compiling the consolidated statements of RAO UES of Russia for 1998, 28 such tables were developed. There are five main transformation tables:

• Summary table of ruble corrective (transformation, correction) entries;
• Summary table of currency adjusting entries;
• Summary table of balance transformation;
• Summary table of adjusting entries for the regrouping of income statement items;
• Income statement transformation summary table.

The tables are transcripts of financial statements prepared on the basis of Russian standards in a form that allows you to automatically make a number of amendments to bring the data into an international format.

The main methods used in reporting transformation:

• Detailing of balances is necessary for the correct classification of balances for IFRS purposes (for example, classes of fixed assets), identifying intra-group balances eliminated during consolidation.
• Reclassification of balances - represents the distribution of Russian accounting data in IFRS format (for example, highly liquid investments are reclassified as cash equivalents);
• Revaluation of balances is an adjustment of the balances of balance sheet accounts, entailing simultaneous changes in equity: profits and losses of the reporting year, retained earnings (accumulated loss), additional capital and other items of equity (for example, write-off of non-liquid inventories or inflation adjustments).

The disadvantages of this transformation method, in addition to possible errors, include the fact that information prepared according to IFRS can only be obtained at the end of the period, and after completion of the main transformation process it is necessary to make “manual” adjustments.

Parallel accounting (otherwise known as the double accounting method) is carried out using special software. To maintain parallel accounting, the system uses two working charts of accounts: Russian and international. When setting up standard transactions, both Russian and international posting templates are recorded. The entered operations are automatically distributed among various modules, which provides maximum detail of information. At the same time, it is necessary to take into account a number of features during the automated transformation of financial statements.

• different degrees of detail in Russian and international charts of accounts;
• various methods and rates of depreciation of fixed assets;
• features in the documentary recognition of debt and cash (for example, according to Russian standards, cash accounts are updated on the basis of a bank statement, and according to IFRS - on the basis of payment orders);
• setting up operations when maintaining records in two currencies.

Since the list of differences between Russian accounting and IFRS related to the transformation of financial statements remains significant, this problem requires special attention from a wide range of accountants and consultants.

One of the most popular questions that arises among users of financial documents: how is IFRS reporting done? Particularly interested in the response to this question are professional participants in commodity and stock markets, non-state pension funds, clearing enterprises, joint-stock investment funds and management companies.

General information

Financial documentation is maintained according to different rules. IFRS standards are international norms. They regulate the preparation of publicly available documents. IFRS and PBU differ primarily in the range of end users. Domestic rules are aimed at state statistics and management bodies. IFRS are standards established for the preparation of documentation used by investors, financial institutions and enterprises.

History of creation

In 1973, to improve the use of financial documentation, public auditing and accounting associations formed a non-governmental international organization, the IFRS Committee. Since 1981, it has been completely autonomous in the implementation of rules and in the discussion of norms. In 2005, the European Commission decided that all firms listed on European exchanges must prepare consolidated accounts. IFRS are aimed at reducing differences and choosing the method of providing documentation, improving the quality and comparability of information, and unifying rules.

Development procedure

It includes several stages:

1. The advisory group analyzes the problem, evaluates the application of the fundamental reporting principles, and presents the issue at the meeting.
2. A study of national requirements and experience is carried out, and views are exchanged with domestic structures responsible for developing rules.
3. Consultations are being held with the Board and trustees of the fund to include the issue on the agenda.
4. A working group is being created to provide information support to the Council.
5. A Discussion Paper and a draft standard are published for discussion.
6. The “Grounds for making a decision” and the opinions of Council members who have objections are made public.
7. Comments received within the specified deadline will be considered.
8. Public hearings and testing of the applicability of the standard are held.

The standard is approved by at least 9 votes. After this, the standard is published along with the reasons for the decision.

Specifics

A mandatory rule of IFRS is the priority of content over the form of information provided. If we talk about the domestic model, this principle is often omitted. In practice this manifests itself as follows. Under PBU, preferred shares are considered as part of the capital of the enterprise. However, if we talk about their economic nature, there are very few differences from bonds. This circumstance is taken into account in IFRS. This means that international standards consider the similarity of preferred shares to bonds as a sufficient reason not to include them in the capital of a company.

Implementation goals

The key objective of IFRS is to unify the process of generating financial documentation and providing information about the activities of an enterprise. You can select a list of securities that are subject to international standards. Such documents include:

1. Balance sheet.
2. Statements of losses and profits, cash flows, changes in capital and other similar transactions.
3. Financial policy.

In addition to these acts, enterprises can also create reviews for management. They reflect the key performance indicators of the enterprise, profit volumes, and so on.

Compound

International standards are presented in the form of a set of documents. These include:

1. Preface to the provisions.
2. Explanations regarding the fundamental principles of preparation and forms of presentation of information.
3. Standards and interpretations.

Each document has its own special meaning. However, in practice, all elements included in the IFRS system are used. The tools provided for by international standards make it possible to decipher individual transactions performed within the framework of the company’s core activities and reflected in financial documentation.

Key elements

It should be noted that international standards created before 2001 were called International Accounting Standards. Since 2001, some new rules have been approved - International Financial Reporting Standards. The following main IFRS IAS are in force today:

IFRS

Since 2001, the following international standards have been in force:

Advantages

Accounting according to IFRS has many advantages. First of all, international rules make it possible to create financial documentation that is understandable for different categories of external users. Compliance with IFRS benefits:

1. For financial analysts and investors. The documentation is clear, transparent, and the information in it is reliable and reliable.
2. Companies. The IFRS report allows you to reduce the costs of capital raising activities and eliminates the need to reconcile information. In addition, a uniform procedure is established in both external and internal documentation.
3. Auditors. Since uniformity is established in accounting principles, specialists can participate in deciding on the adoption of standards.
4. Developers. As part of the work to create standards, there is a large-scale exchange of experience. A basis for future national regulations is being developed, and existing rules are being adjusted.

Specifics of the transition to the international system

The implementation of IFRS standards at domestic enterprises is accompanied by a number of organizational and technical problems. Company managers need to provide special training to their financial specialists. Accountants must have a professional knowledge of the basics of the IFRS system. At the same time, managers themselves should be really interested in providing objective and truthful information. Within the framework of the financial activities of an enterprise, it is necessary to clearly distinguish between tax and accounting. The importance of moving to international rules is determined by the fact that they act as a compromise solution between key record keeping systems around the world.

Tasks of reforming the domestic model

The introduction of reporting according to international rules solves many pressing problems. Reform of the current system is aimed at:

1. To facilitate entry into global capital markets for enterprises from different countries.
2. Strengthening the comparability of information, increasing the transparency of information for external users.

Russian companies that use the IFRS report in their activities will be able to understand the goals and objectives of their foreign partners. Through closer interaction with foreign enterprises, domestic firms will strengthen their positions in markets and become more competitive. This, in turn, will allow companies to realize their potential on international platforms. As practice shows, the use of the IFRS system has a positive effect on the state of management accounting. The implementation of international rules ensures high-quality updating of information and increases staff motivation. It is worth noting that today attracting foreign investment without preparing financial documentation in accordance with IFRS standards is very difficult. It does not matter which source the enterprise turns to: a foreign bank, stock market clients, or individuals. Documentation compiled according to PBU rules is poorly understood by external users. It is more expedient to formalize it according to international standards accepted throughout the world and successfully used by many companies.

Application in different countries

International rules are binding in several European countries. In most countries, financial documentation in accordance with IFRS is prepared by enterprises whose shares are listed on stock exchanges. The US uses its own US GAAP rules. In 2008, in August, the Securities and Exchange Commission presented a preliminary draft for the transition to IFRS. In 2011, the process was suspended. The work was resumed again in 2014. In Russia, measures to reform accounting began in 1998. Since 2005, all banking and credit organizations are required to prepare financial documents in accordance with international rules.

Federal Law No. 208 was introduced in July 2010. According to its provisions, the IFRS system is mandatory for the consolidated reporting of socially significant enterprises. In addition to credit companies, these include insurance companies, as well as other organizations whose securities are admitted to trading on stock exchanges.

In 2011, the Regulations on the recognition of international rules and explanations thereto on the territory of the Russian Federation were approved. At the same time, financial departments did not plan to completely abandon the domestic system of record keeping. IFRS was supposed to be introduced for consolidated reporting. Federal regulations were planned to be extended to documents drawn up by legal entities. Currently, more than 140 enterprises in Russia prepare and publish reports in accordance with international rules.

International financial reporting standards came to us in 2012, but even today the question constantly arises in organizations about how to prepare reports in accordance with IFRS. In this regard, we will help you understand the basics of standardization, draw up consolidated statements using the example of an industrial enterprise and present their differences from conventional financial statements.

IFRS: SCOPE AND COMPOSITION

International standards began to be developed in 1973 to create unified principles of accounting and reporting in different countries. International standards came to Russia in full only in 2012 with the adoption of Order of the Ministry of Finance of Russia dated November 25, 2011 No. 160n “On the implementation of International Financial Reporting Standards and Explanations of International Financial Reporting Standards on the territory of the Russian Federation.”

The main difference between Russian accounting standards (RAS) and international ones is that IFRS is not a set of requirements and laws, but advisory regulations with a number of requirements for the structure of financial reporting.

Important point: the application of IFRS does not cancel RAS.

According to paragraph 2 of Art. 3 of Federal Law No. 208-FZ dated July 27, 2010 (as amended on July 3, 2016) “On Consolidated Financial Statements” (hereinafter referred to as Federal Law No. 208-FZ) consolidated financial statements of the organization are prepared along with the accounting(financial)reporting of this organization, compiled in accordance with Federal Lawdated 06.12.2011 No. 402-FZ(in ed. from 05/23/2016) « About accounting».

Often, organizational specialists have difficulty distinguishing between IFRS/IAS and IFRS/IFRS (International Accounting Standards) and IFRS/IFRS (International Financial Reporting Standards). Until 2001, the standards were called IAS, and after 04/01/2001 the name IFRS appeared, so both standards are united under the concept “IFRS”.

Sometimes accountants, for ease of understanding, refer to IAS as accounting standards, and IFRS as financial reporting standards.

Who should apply IFRS on the territory of the Russian Federation

Federal Law No. 208-FZ disclosed scope of application of international standards,which applies to:

• credit organizations;
• insurance organizations (with the exception of medical insurance organizations operating exclusively in the field of compulsory medical insurance);
• non-state pension funds;
• management companies of investment funds, mutual funds and non-state pension funds;
• clearing organizations;
• federal state unitary enterprises, the list of which is approved by the Government of the Russian Federation;
• joint stock companies whose shares are in federal ownership and the list of which is approved by the Government of the Russian Federation;
• other organizations whose securities are admitted to organized trading by including them in the quotation list.

IFRS documents consist of:

• International Financial Reporting Standards (IFRS);
• International Financial Reporting Standards (IAS);
• Interpretations prepared by the International Financial Reporting Interpretations Committee (IFRC);
• clarifications prepared by the previously existing Standing Committee on Interpretations (SIC).

Composition of International Financial Reporting Standards (IFRS)

IFRS (IFRS) 1 « First application of International Financial Reporting Standards»

The objective of the standard is to ensure that an entity's first IFRS financial statements and its interim financial statements for that portion of the period covered by those financial statements contain information of high quality that:

• is transparent to users and comparable across all periods presented;
• represents the necessary starting point for accounting in accordance with International Financial Reporting Standards;
• can be prepared at a cost that does not exceed the benefits obtained from it.

First financial statements according to IFRS for an organization is the first annual financial statements for the preparation of which the organization adopts International Financial Reporting Standards and confirms this by including in these financial statements an explicit and unambiguous statement of its compliance with IFRS.

The organization must prepare and submit introductory report on the financial position under IFRS as of the date of transition to IFRS, thus creating a starting point for accounting in accordance with International Financial Reporting Standards.

IFRS (IFRS) 2 « Share-based payments»

The purpose of the standard is to establish financial reporting procedures for an entity that engages in share-based payment transactions. This standard requires an entity to recognize in profit or loss and the statement of financial position the effects of share-based payment transactions, including costs associated with transactions that grant share options to employees.

IFRS (IFRS) 3 « Business combinations»

Business combination- a transaction or other event in which the acquirer gains control of one or more businesses. Transactions that are sometimes referred to as “true mergers” or “mergers of equals” are also business combinations.

The purpose of this standard is to improve the relevance, reliability and comparability of the information that a reporting entity presents in its financial statements about a business combination and its consequences. To achieve this objective, IFRS 3 sets out principles and requirements for how an acquirer:

• recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree;
• recognizes and measures goodwill (an asset that represents future economic benefits resulting from other assets acquired in a business combination that are not separately identified or recognized) acquired in a business combination, or the gain on a bargain purchase;
• determines what information to disclose that enables users of financial statements to evaluate the nature and financial consequences of the business combination.

IFRS (IFRS) 4 « Insurance contracts»

The purpose of the standard is to establish a procedure for reflecting insurance contracts in the financial statements of an organization entering into such contracts as an insurer (the party obligated under the insurance contract to pay compensation in the event of an insured event), which will remain in effect until the board completes the second phase of its project under insurance contracts. In particular, the standard requires:

• limited improvements in the way insurers record insurance contracts;
• Disclosures that identify and explain the amounts recorded in an insurer's financial statements for insurance contracts and help users of those financial statements understand the amount, timing and uncertainty of future cash flows for insurance contracts.

IFRS) 5 « Non-current assets held for sale and discontinued operations»

The purpose of this standard is to prescribe the accounting for assets held for sale and the presentation and disclosure of discontinued operations. In particular, the standard requires:

• measure assets held for sale at the lower of book value and fair value less costs to sell, and discontinue depreciation on such assets;
• Present assets held for sale separately in the statement of financial position and results of discontinued operations separately in the statement of comprehensive income.

Discontinued operations is a component of an organization that has either been disposed of or has been classified as held for sale and represents a separate major line of business or geographic area in which the activities are carried out.

IFRS (IFRS) 6 « Exploration and evaluation of mineral reserves»

The purpose of IFRS 6 is to determine the treatment of exploration and evaluation activities for mineral reserves in financial statements. In particular, the standard requires:

• limited improvements to existing practices in accounting for exploration and evaluation costs;
• entities that recognize exploration and evaluation assets, testing those assets for impairment in accordance with this IFRS and measuring any impairment in accordance with IAS 36 Impairment of Assets;
• disclosures that identify and explain the entity's financial statement amounts related to exploration and evaluation activities and help users of those financial statements understand the amount, timing and certainty of future cash flows from any recognized exploration and evaluation assets .

IFRS (IFRS) 7 « Financial instruments: information disclosure»

The purpose of the standard is to establish requirements for entities to disclose information in their financial statements that enables users to evaluate:

• the impact of financial instruments on the financial position and financial performance of the organization;
• The nature and extent of the risks to which the entity is exposed during the period and at the end of the reporting period in connection with financial instruments, and how the entity manages those risks.

IFRS (IFRS) 8 « Operating segments»

An entity must disclose information that enables users of its financial statements to evaluate the nature and financial consequences of the activities that the entity engages in and the economic environment in which it operates.

IFRS (IFRS) 10 « Consolidated financial statements»

The purpose of this Standard is to prescribe principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

IFRS (IFRS) 11 « A jointentrepreneurship»

The purpose of this standard is to establish principles for the preparation and presentation of financial statements of entities engaged in business activities that are controlled jointly (that is, joint ventures).

IFRS (IFRS) 12 « Disclosure of participation in other organizations»

The purpose of this Standard is to require an entity to disclose information that enables users of its financial statements to evaluate:

• the nature of its involvement in other entities and the risks associated therewith;
• the impact of such participation on its financial position, financial results and cash flows.

IFRS (IFRS) 13 « Fair value measurement»

fair value- an assessment based on market data rather than an organization-specific assessment. Observable market transactions or market information may exist for some assets and liabilities. There are no market transactions or market information for other assets and liabilities. However, the purpose of measuring fair value in both cases is the same - to determine the price at which an orderly transaction between market participants to sell an asset or transfer a liability would occur at the measurement date in current market conditions.

Composition of International Financial Reporting Standards (IAS)

IFRS) 1 « Presentation of financial statements»

This Standard establishes a framework for the presentation of general purpose financial statements to ensure that an entity's financial statements are comparable with its historical financial statements and with the financial statements of other entities. This Standard sets out general requirements for the presentation of financial statements, guidance on their structure and minimum requirements for their content.

A complete set of financial statements includes:

• statement of financial position as at the end of the period;
• statement of profit or loss and other comprehensive income for the period;
• statement of changes in equity for the period;
• cash flow statement for the period;
• notes, which consist of a summary of significant accounting policies and other explanatory information;
• comparative information for the previous period;
• statement of financial position at the beginning of the previous period if the entity applies any accounting policy retrospectively, retrospectively restates items in its financial statements, or reclassifies items in its financial statements.

An organization may use names for these reports other than those used in this International Standard. For example, the title “Statement of Comprehensive Income” may be used instead of the title “Statement of Profit or Loss and Other Comprehensive Income.”

IFRS (IAS) 2 « Reserves»

The purpose of the standard is to determine the accounting treatment of inventories. The key issue in accounting for inventories is determining the amount of cost that is recognized as an asset and carried forward until the corresponding revenue is recognised.

The standard provides guidance on determining cost and its subsequent recognition as an expense, including any write-down to net realizable value. It also provides guidance on the costing formulas that are used to allocate costs to inventory.

In accordance with IAS 2, inventories are measured at the lower of cost or net realizable value without selling expenses.

FOR YOUR INFORMATION

In the Accounting Regulations “Accounting for Inventories” (PBU 5/01), approved by Order of the Ministry of Finance of Russia dated 06/09/2001 No. 44n (as amended on 05/16/2016), there is no such method.

IFRS (IAS) 7 « Cash flow statement»

The purpose of this standard is to require information about historical changes in an entity's cash and cash equivalents in the form of a statement of cash flows that classifies cash flows for the period as flows from operating, investing and financing activities.

IFRS (IAS) 8 « Accounting policies, changes in accounting estimates and errors»

The purpose of this standard is to establish criteria for selecting and changing accounting policies, together with accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates, and corrections of errors.

The standard is intended to improve the relevance and reliability of the information contained in an entity's financial statements, as well as the comparability of those financial statements over time and with the financial statements of other entities.

IFRS (IAS) 10 « Events after the reporting period»

The purpose of the standard is to specify when an entity must adjust its financial statements to reflect events after the reporting period.

The standard contains requirements for the information that an entity must disclose in relation to the date the financial statements are authorized for issue and events that occur after the reporting date.

Events after the reporting date are those events that occur between the reporting date when the financial statements are authorized.

IFRS (IAS) 11 « Construction contracts»

The purpose of this standard is to prescribe the accounting for revenue and costs associated with construction contracts. Due to the nature of the activities carried out under construction contracts, the date of commencement of such activities and the date of completion of such activities generally fall within different reporting periods. Thus, the main objective of accounting for construction contracts is to distribute the revenue and costs associated with the contract across the reporting periods in which construction work is carried out.

IFRS (IAS) 12 « Income taxes»

The purpose of this standard is to determine the accounting treatment for income taxes. A key issue in income tax accounting is how to account for current and future tax consequences:

• future reimbursement (redemption) of the carrying amount of assets (liabilities) that are recognized in the statement of financial position of the organization;
• transactions and other events of the current period recognized in the financial statements of the organization.

IFRS (IAS) 16 « Fixed assets»

The purpose of the standard is to specify the accounting treatment of property, plant and equipment so that users of financial statements can obtain information about an entity's investments in property, plant and equipment and changes in those investments.

The main issues in accounting for fixed assets:

• asset recognition;
• determination of the book value of assets;
• depreciation;
• impairment losses.

Fixed assets are tangible assets that:

• meet asset recognition requirements;
• intended for use in production, performance of work, provision of services, for rental, for administrative purposes;
• intended to be used for more than one period.

IFRS (IAS) 17 « Rent»

The objective of this Standard is to prescribe appropriate accounting policies and disclosures for leases for lessees and lessors.

IFRS (IAS) 18 « Revenue»

The purpose of the standard is to determine the accounting treatment of revenue arising from certain types of transactions and events.

The main question when accounting for revenue- determine the moment when it needs to be recognized. Revenue is recognized when it is probable that future economic benefits will flow to the entity and those benefits can be measured reliably. This Standard specifies the conditions under which these criteria will be satisfied and, therefore, revenue will be recognized. This standard also provides practical guidance on the application of these criteria.

According to RAS, income can be shown only in the event of a transfer of ownership of goods; for IFRS this is not a determining factor. As for expenses, for IFRS, unlike RAS, it is not necessary to document expenses.

IFRS (IAS) 19 « Employee benefits»

This Standard establishes rules for an organization's accounting and disclosure of employee benefit information. The purpose of the standard is to establish such rules. IFRS 19 requires an entity to recognize:

• obligation in the case where the employee provided a service in exchange for remuneration payable in the future;
• an expense when an organization uses the economic benefit resulting from the provision of a service by an employee in exchange for compensation.

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance

This standard should be applied when accounting for and disclosing information about government grants and other forms of government assistance. According to IFRS 20, government grants include government assistance in the form of transfers of resources to certain companies in exchange for past or future compliance with the conditions associated with the provision of the subsidy.

FOR YOUR INFORMATION

An analogue of the IAS 20 standard in Russian legislation is the Accounting Regulations “Accounting for State Aid” (PBU 13/2000), approved by Order of the Ministry of Finance of Russia dated October 16, 2000 No. 91n.

IFRS (IAS) 21 « Impact of changes in exchange rates»

An organization can conduct foreign exchange transactions in two ways: enter into transactions denominated in foreign currencies or own foreign subsidiaries. In addition, an organization may present its financial statements in foreign currencies.

The purpose of this Standard is to determine how foreign currency transactions and the performance of a foreign operation should be reported in an entity's financial statements and how to translate the financial statements into the presentation currency.

IFRS (IAS) 23 « Borrowing costsm»

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are included in the cost of that asset. Other borrowing costs are recognized as expenses.

IFRS (IAS) 24 « Related Party Disclosure»

The purpose of the standard is to provide disclosure in financial statements of information necessary to address the possibility that the existence of related parties, transactions and balances, including contractual obligations for future transactions with such parties, may have an effect on the financial position, profit or loss of the entity. .

IFRS (IAS) 27 « Separate financial statements»

The purpose of this Standard is to prescribe accounting and disclosure rules for investments in subsidiaries, joint ventures and associates when an entity prepares its separate financial statements.

IFRS (IAS) 28 « Investments in associates and joint ventures»

The purpose of this standard is to define the rules for accounting for investments in associates and the requirements for applying the equity method when accounting for investments in associates and joint ventures.

An associated organization is an organization over whose activities the investor has significant influence and which is neither a subsidiary nor an interest in a joint venture.

IFRS (IAS) 29 « Financial reporting in a hyperinflationary economy»

In a hyperinflationary economy, presenting an organization's performance and financial position in local currency without conversion is not helpful. Money is losing purchasing power at such a rate that comparing amounts from transactions and other events that occurred at different times, even within the same accounting period, is misleading.

IFRS (IAS) 32 « Financial instruments: presentation»

The purpose of the standard is to establish the principles by which financial instruments are presented as liabilities or equity, and by which financial assets and financial liabilities are offset.

The standard aims to enhance users of financial statements' understanding of the significance of financial instruments to an entity's financial position, results of operations and cash flows.

A financial instrument is any contract that simultaneously creates a financial asset for one entity and a financial liability or equity instrument for another.

IFRS (IAS) 33 « Earnings per share»

The purpose of this standard is to establish principles for the determination and presentation of earnings per share to facilitate comparisons of the performance of different entities within the same reporting period or of the same entity across different reporting periods.

IFRS (IAS) 34 « Interim financial statements»

The purpose of the standard is to define the minimum content of an interim financial report and to establish recognition and measurement principles in complete or condensed financial statements for the interim period.

IFRS (IAS) 36 « Impairment of assets»

The purpose of this standard is to specify the procedures that an entity must use to account for assets to ensure that their carrying amount does not exceed their recoverable amount.

IFRS (IAS) 37 « Provisions, contingent liabilities and contingent assets»

The objective of this Standard is to ensure that the appropriate recognition criteria and measurement basis are applied to provisions, contingent liabilities and contingent assets, so that sufficient disclosure is made in the notes to the financial statements to enable users to understand their nature, timing and amount.

IFRS (IAS) 38 « Intangible assets»

This standard requires an entity to recognize an intangible asset only when specified criteria are met. The standard also establishes procedures for measuring the carrying amount of intangible assets and requires certain disclosures about intangible assets.

IAS 39 Financial Instruments: Recognition and Measurement

The purpose of this standard is to establish principles for the recognition and measurement of financial assets, financial liabilities and certain contracts for the purchase and sale of non-financial items.

The standard defines such a concept as hedged item which is either an asset, a liability or a firm commitment that exposes the entity to changes in fair value or future cash flows. Hedging of financial instruments consists of partial or full compensation of changes in the fair value or cash flows of hedged (protected) items of financial instruments.

IFRS) 40 « Investment property»

The purpose of the standard is to establish the accounting treatment of investment property and related disclosure requirements.

This Standard should be applied by entities to all types of financial instruments when recognizing, measuring and disclosing investment property.

Investment property is property (land or building) held by the owner or lessee under a finance lease for the purpose of receiving rental payments, capital gains, but not for use in the production or supply of goods or services or for administrative purposes, or for sale in the normal course of business.

IFRS (IAS) 41 « Agriculture»

The purpose of the standard is to establish accounting procedures, financial reporting and disclosure requirements for agricultural activities.

PREPARATION OF CONSOLIDATED REPORTING

In accordance with Federal Law No. 208-FZ, consolidated financial statements mean systematized information reflecting the financial position, financial performance and changes in the financial position of the organization.

Let's consider an example of compilation and analysis of consolidated reporting according to IFRS standards using the example of the enterprise Alfa JSC, which controls the activities of two enterprises - Beta JSC and Gamma JSC, engaged in the production and maintenance of units and spare parts for cars.

The statement of profit or loss and other comprehensive income (statement of comprehensive income) (Table 1) is similar to the statement of financial results (Form No. 2) of financial statements under RAS.

Table 1. Consolidated statement of comprehensive income for 2015 and 2016, thousand rubles.
Index	2016	2015	2016 to 2015
			thousand roubles.
Cost of sales
Gross profit
Selling, general and administrative expenses
Formation of a reserve for impairment of fixed assets, goodwill and intangible assets
Other operating income/expenses, net
Operating profit
Financial income/expenses, net
Positive/negative exchange rate differences
Profit before tax
Income tax
Profit for the reporting period

In addition to this type of consolidated report, it is possible to provide more detailed information on some items, for example, on sales revenue (Table 2).

Table 2. Revenue analysis for 2015 and 2016, thousand rubles.
Index	2016	2015	2016 to 2015
			thousand roubles.
Revenue
Unit repair
JSC "Beta"
JSC "Gamma"
Maintenance
JSC "Beta"
JSC "Gamma"
JSC "Beta"
JSC "Gamma"

From the presented analysis it is clear that for all types of activities considered, enterprises have an increase in revenue, with the exception of JSC Gamma in terms of repair of automobile units. This drop occurred due to the fact that based on the percentage of readiness of one contract of Gamma JSC, the main revenue was recognized in the 2015 financial statements.

The statement of financial position is very similar to the balance sheet under RAS. According to regulatory data the statement of financial position under IFRS must include items representing the following amounts:

• fixed assets;
• investment properties;
• intangible assets;
• financial assets;
• investments accounted for using the equity method;
• biological assets;
• stocks;
• trade and other receivables;
• cash and cash equivalents;
• the total amount of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with IFRS 5 Non-current assets held for sale and discontinued operations;
• trade and other accounts payable;
• estimated liabilities;
• financial obligations;
• current tax liabilities and assets as defined in IAS 12 Income Taxes;
• deferred tax liabilities and deferred tax assets as defined in IAS 12;
• liabilities included in disposal groups classified as held for sale in accordance with IFRS 5;
• non-controlling interests represented in equity;
• issued capital and reserves attributable to the owners of the parent organization.

The organization must represent additional items, headings and subtotals in the statement of financial position, when such representation is relevant to understanding its financial condition.

Let's consider an example of preparing a report on the financial position of Alfa JSC (Table 3).

Table 3. Statement of financial position, thousand rubles.
Index	2016	2015	Change
			thousand roubles.
Assets, total
Fixed assets
Intangible assets
Accounts receivable
Advances issued
Other assets and investments in other organizations
Accounts receivable for taxes and fees
Cash and short-term deposits
Deferred tax assets
Equity, total
Authorized capital
Extra capital
retained earnings
Liabilities, total
Credits and loans
Liabilities for finance leases, pension plans
Deferred tax liabilities and other provisions
Accounts payable
Advances received
Debt on taxes and fees

NOTE

The form of the balance sheet according to RAS is clearly stated in the Order of the Ministry of Finance of Russia dated 07/02/2010 No. 66n (as amended on 04/06/2015) “On the forms of financial statements of organizations”, while the form of the statement of financial position according to IFRS is missing (there is only a number rules and articles that should be displayed in the report).

The amount of assets (293,491 thousand rubles) must be equal to the amount of liabilities (equity + liabilities = 293,491 thousand rubles) similar to the preparation of the balance sheet.

At the stage of preparing consolidated financial statements, it is customary to calculate EBITDA(profit before interest expenses, taxes and accrued depreciation) (Table 4).

Table 4. Calculation of EBITDA, thousand rubles.
Index	2016	2015	2016 to 2015, %
Unit repair
JSC "Beta"
JSC "Gamma"
Maintenance
JSC "Beta"
JSC "Gamma"
JSC "Beta"
JSC "Gamma"
Total EBITDA

This indicator has recently become especially popular among investors and lenders. This indicator can be calculated only if the company keeps records in accordance with IFRS standards. Our standards do not provide for the calculation of this indicator, but nevertheless, the calculation formula for Russian practice has been slightly adapted, and EBITDA in this case will be equal to the sum of profit from sales and depreciation charges.

It is important to calculate debt to EBITDA ratio (Code), which reflects the ability of the enterprise to meet its obligations, characterizing its solvency:

Code = Liabilities / EBITDA.

Code 2015 = 220,794 thousand rubles. / 69,145 thousand rubles = 3.19;

Code 2016 = 157,435 thousand rubles. / 54,352 thousand rubles = 2.90.

The higher this indicator, the more problems the company has with debt obligations and the less ability it has to pay off these obligations at the expense of its own profits.

INSTEAD OF CONCLUSION

Having considered the features of preparing consolidated financial statements, it is worth noting the similarities with Russian financial statements. In the example considered, the Alpha company controls the activities of several enterprises, which generate their own individual reports. Next, it prepares consolidated statements, combining data from the enterprises under its control. At the same time, the accounting policies of all enterprises should be similar in basic issues.

Most often, in practice, so-called management companies release their version of the accounting policies to the enterprises under their control, on the basis of which the subsidiaries must adjust their own version.

A. N. Dubonosova, Deputy Managing Director for Economics and Finance

IFRS reporting for 2016 compiled by firms either compulsorily or on a voluntary basis. From our material you will learn about the nuances of registration and the basic requirements for such reporting in 2016.

Voluntary and mandatory reporting under IFRS for 2016

Firms reporting in IFRS format for 2016 can be divided into 2 groups:

• legally bound;
• volunteers.

The first group of companies is listed in the Law “On Consolidated Financial Statements” dated July 27, 2010 No. 208-FZ and since 2015 has been as follows:

• credit, clearing and insurance organizations (except for medical insurance organizations in the field of compulsory medical insurance);
• Management companies IF, mutual funds and non-state pension funds (management companies of investment funds, mutual funds and non-state pension funds);
• included in the legislatively approved special list of Federal State Unitary Enterprises (federal state unitary enterprises);
• JSCs whose securities are owned by the state (according to the list approved by the Government of the Russian Federation);
• companies whose owners have specified in their charter the obligation to submit and publish reports in accordance with IFRS standards;
• generating consolidated financial statements according to GAAP (USA) standards of the company;
• other companies whose securities are traded at organized auctions (included in the quotation list).

This list is presented in a generalized form, since it does not detail federal state unitary enterprises and joint-stock companies, for which the preparation of financial statements in accordance with IFRS is mandatory. Let's look at this in more detail.

IMPORTANT! The list of federal state unitary enterprises and joint-stock companies for which reporting in IFRS format is mandatory was approved by Decree of the Government of the Russian Federation dated October 27, 2015 No. 2176-r.

The above-mentioned order names 6 federal state unitary enterprises (Russian Post, ITAR-TASS, Goznak, etc.) and 18 joint-stock companies (Transneft, Rosneft, Russian Railways, Almaz-Antey, Rosagroleasing) , “Rosgeologiya”, “RUSNANO”, etc.).

The second group is those firms that voluntarily took on the task of preparing financial statements in accordance with IFRS standards for their own internal reasons, among which are:

• desire to attract foreign partners and investors;
• the desire to increase the level of information content of its reporting;
• other incentives.

The number of companies in this group largely depends on their financial capabilities, since reporting according to IFRS standards requires considerable costs (on staffing or hiring third-party IFRS specialists, setting up and maintaining special software, etc.).

Requirements for reporting under IFRS in 2016

The first and main requirement that financial statements under IFRS must meet is the reliability of the information displayed in it.

IMPORTANT! Reliable information is considered to be information that truly reflects the consequences of the firm's transactions, events and conditions in accordance with the definitions and criteria required by IFRS.

In order to provide users with reliable statements, it is necessary (clause 17 of IFRS 1 “Presentation of Financial Statements”, put into effect by Order of the Ministry of Finance of Russia dated December 28, 2015 No. 217n):

• ensure compliance with the requirements of all applicable IFRSs;
• draw up accounting policies in accordance with IFRS 8 “Accounting policies, changes in accounting estimates and errors” (enacted by Order of the Ministry of Finance of Russia dated December 28, 2015 No. 217n) and consistently apply it;
• provide information with the following properties: understandability, relevance, reliability and comparability;
• disclosing, where necessary, additional information (if compliance with the requirements of individual IFRSs does not allow us to sufficiently assess the impact of events and transactions on the financial position and results of operations of the company).

Reliable reporting allows its users to predict the future cash flows of the company (including the likelihood and periods of their occurrence), as well as make effective management decisions based on it.

When preparing financial statements, it is necessary to take into account an important assumption (in addition to the rest of the assumptions) - the assumption of continuity, that is, the ability of the company to continue its activities continuously. If there is uncertainty in this matter or the company plans to liquidate (without other alternative solutions), it is obliged to disclose these circumstances in the reporting.

In assessing a firm's ability to continue as a going concern, management must consider all available information about the future for at least (but not limited to) 12 months. It may be necessary to analyze a broad range of factors including:

• to current and future profitability;
• debt repayment calendars;
• potential sources of financing, etc.

When preparing information for reports, you must remember 2 groups of IFRS requirements:

• materiality (separate breakdown of significant indicators);
• nuances of netting (prohibition on reporting assets and liabilities, income and expenses on a net basis, except for situations permitted by IFRS).

Firms are required to submit financial statements in accordance with IFRS at least once a year. The company is obliged to reflect the fact of a change in the end date of its reporting period and the presentation of reports for a period less than or greater than a year, as well as to disclose the nuances of the use of such a reporting period (at a minimum: the basis and lack of full comparability of the amounts presented in the report).

Composition of financial statements under IFRS in 2016

Financial statements according to IFRS includes (clause 10 of IFRS 1):

• 4 reports (OFP, OPU, OIK and ODDS);
• notes;
• other explanatory information;
• comparative data for the previous period.

OFP, OPU, OIK and ODDS are abbreviations for the names of reports, respectively:

• about financial situation;
• profit or loss and other comprehensive income;
• change in capital;
• cash flow.

At the same time, IFRS allows the possibility for a company to use its own report names, in contrast to domestic reporting that is strictly regulated in name and structure. For example, “statement of profit or loss and other comprehensive income” may be shortened to “statement of comprehensive income.”

In addition to these reports, companies can provide users with:

• financial reviews (about sources of financing, resources of the company not recognized in the general financial statement, etc.);
• explanatory reports (for example, on added value);
• official bulletins (on environmental issues, etc.).

Example of IFRS reporting can be seen on the websites of reporting firms or in the public domain on the Internet.

Read about the nuances of reporting according to international standards in the following materials:

How to generate financial statements according to IFRS?

Reporting in IFRS format can be obtained in two ways:

• transformation of indicators formed on the basis of national accounting requirements (transformation);
• carrying out simultaneous accounting of business transactions, income and expenses, assets and liabilities in accordance with national requirements and IFRS (parallel accounting).

Transformation of reporting can be:

• external;
• internal.

These types of information transformation are based on reporting data generated in accordance with the requirements of national accounting and additional necessary information collected by the company. This set of indicators is adjusted using special programs (usually Excel spreadsheets) in accordance with the requirements of IFRS (external transformation), or the required data is generated using special correction algorithms built into the accounting process (internal transformation).

The reporting provided must be reliable, useful, relevant and comparable.

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