Galina Ryltsova, PwC Russia partner and member of the Russian Ministry of Finance's Interagency Working Group for IFRS Implementation, looks at recent developments in Russia's adoption of IFRS.
The use of IFRS is expanding rapidly in Russia and, based on the government's plans, may expand further still. Russian credit institutions, insurance companies and companies whose shares are admitted for trading will need to issue a full set of IFRS consolidated financial statements by 2012. Entities that issue securities through subscriptions involving a group of over 500 individuals are also required to prepare IFRS consolidated financial statements.
The official date of transition for those companies not already reporting under IFRS is January 1, 2011. IFRS consolidated financial statements need to be audited and filed by April 30, 2013 and published by May 31, 2013 (see box below).
Around 1,000 more companies are expected to be required to prepare IFRS consolidated financials statements in future, although approximately 200 of the largest companies in Russia already prepare IFRS consolidated financial statements.
The deadline is looming
The IFRS transition activity in entities affected by the law has been rather slow to date. Activity levels are expected to rise as the year-end approaches and the deadline of April 30, 2013 moves closer.
The slow start could be a result of lack of detailed descriptions in the new law, a number of cross-references to other federal laws, and lack of clarity over fines and penalties to comply. Fines and penalties also seem low, compared to the cost of adopting IFRS. However, consistent with the experience of other countries in adopting IFRS, delays in starting creates challenges in meeting the reporting deadline for all parties. This deadline is just nine months away.
Further IFRS developments
Plans for the further development of accounting and financial reporting in Russia based on IFRS have been adopted for 2012-2015, including:
- adoption of IFRS by professional participants on the securities market, incorporated investment funds and their management companies, non-state pension funds, clearing agencies, commodity exchanges, stock exchange brokers and some unitary enterprises, among others;
- preparation of individual financial statements under IFRS; and
- a differentiated approach to accounting reporting for different types of entities.
Non-public companies are expected to be able to choose between reporting under Russian GAAP or IFRS following suggestions from the Russian government in April this year for revoking requirements to submit financial statements prepared under Russian GAAP for non-public companies. In addition, the president issued an order in May related to simplifying financial reporting for certain types of economic entities.
- Early 1990s: Russian companies looking for global capital markets started preparing IFRS financial statements on a voluntary basis.
- 2005: Mandatory for banks to prepare their financial statements under IFRS.
- From 2005 to date: Russia moves toward adopting IFRS, while amending and developing Russian GAAP along IFRS-based lines.
- From 2011: The Ministry of Finance requires credit institutions, insurance companies, companies whose shares are admitted for trading and entities placing securities through open or closed subscription involving a group of over 500 individuals to issue IFRS consolidated financial statements by 2012.
- From 2012: Those entities not already reporting under IFRS must do so for annual periods beginning on or after January 2011. IFRS consolidated financial statements need to be audited and filed by April 30, 2013 and published by May 31, 2013.
- From 2015: Entities that have traded shares or bonds that are already reporting under other internationally recognized rules move to IFRS for consolidated financial statements.
The rules apply to foreign companies' subsidiaries that are listed on the Russian stock exchange as they do to all Russian entities.
Galina's contribution to IFRS adoption in Russia
IFRS adoption in Russia has taken many years, and a lot of people have been involved in this process. Galina Ryltsova is one of those who played an important role in seeing it through to its current stage. Galina and her team have made a significant contribution to examining and adopting standards as members of the country's national expert bodies.
Galina has been a member of the National Organization for Financial Accounting and Reporting Standards (NSFO) since 2003. The NSFO acts as an expert body and works to promote the further development of IFRS in Russia. It includes representatives from all sides: those who prepare and use financial statements, auditors and members of regulatory bodies. The NSFO makes recommendations to regulatory bodies on different aspects of consolidated financial statement reporting, including governing bodies' competence, submission and publication, supervision and other issues relating to practical application.
Galina is also a member of the Interdepartmental Working Group on IFRS Application (the Group), set up by the Ministry of Finance in 2012. Its objective is to summarize application practice for the federal law, On Consolidated Financial Statements, and other regulations on the application of IFRS. As part of implementing the group's decisions, the Ministry of Finance can publish the corresponding regulations and instructions, and the group can publish its views on IFRS application practices.
The group first met on July 3, 2012. Galina will be tackling the critical issues relating to its future work, including:
- standard forms for audit reports issued under the law, On Consolidated Financial Statements, and references to IFRS vs IFRS as adopted in Russia in audit reports;
- additional requirements for auditors and audit organizations providing audit services relating to IFRS financial statements prepared under the above law;
- approval of IFRS consolidated financial statements by the shareholders;
- auditor approval of IFRS consolidated financial statements;
- periods of IFRS reporting for newly listed companies; and
- implications of the early adoption of IFRS that are not yet approved for application in Russia.
These activities allow us to stay one step ahead of the legal developments in the law.
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