Implementation of the International Financial Reporting Standards in Russia: Problems and Experiences

Abstract

Background and problem: After the break up of the Soviet Union, Russia has experienced a lot of turmoil and change both politically and economically. The country has struggled to get rid of its socialist past and it has now evolved to be a more and more important partner in international affairs and economics. The need to develop a modern accounting system has therefore been obvious and the country had two choices: to develop its own system or to adopt an existing one, like IFRS. Purpose: The main purpose of this thesis is to investigate how the process of IFRS adoption for the national accounting system develops in Russia. The additional purposes are to show how Russia works with reformation of its accounting system, how the national historic and economic development affected accounting and financial reporting, and to define obstacles and problems which the country in general, and separate companies, in particular, have come across in connection with IFRS implementation. Another purpose has been to contribute to Göteborg University with useful information with a subject that nobody has researched at the School of Business, Economics and Law before. Delimitations: As the field of study Russian non-banking companies which use IFRS were chosen. The study is delimited by description and analyse the general and common problems and obstacles for industrial companies they meet on their way of IFRS implementation. Method: The most important source of information was a conference about IFRS in Russia held in St. Petersburg in November 2005. The lectures given and interviews made with attendants from this conference provided the author with unique first hand material. People interviewed were auditors as well as financial managers at companies. Other printed information about IFRS in Russia was mainly found on the Internet as it is still a new subject with relatively little written about it. Analysis and conclusions: The Russian government works for a reformation of the accounting system and to encourage companies to shift to IFRS. The reasons why companies shift to IFRS are many. The strongest incentive is that this will more easily attract foreign investors and give them loans at a lower interest. The Bank of Russia also encourages this step and has demanded that banks use IFRS already from January 1, 2004. The transition is slowed because of the fact that a considerable part of the Russian economy is in the grey sector. IFRS introduction implies high costs for companies in form of education and IT. On the other hand, these investments help modernize the companies and improve their operational and strategic management. Factors that affect statement quality were also researched. Among them there are converging and transformation methods, degree of information disclosure and auditing. The fate of IFRS in Russia is, however, not clear yet because of problems with the translation and a fear of loosing political control.