|                                                                                                                                                                                     |  | Russia's Accounting Transition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsCustomsCornerPublicationsSourcesof FinanceFinanceLinkLeadsand EventsExchangeRatesState ExportsOtherSources** |  | February 1999by Philip H. de LeonFor U.S. companies looking to invest in Russian companies, assessing their financial performance remains a challenge
due to Russian accounting regulations (RARs).  RARs were drafted and used for tax calculation and bookkeeping purposes
and not designed for use by potential investors as a measurement of a company's financial performance.  As the need has
increased for understandable, comparable, transparent, detailed, and reliable financial statements to attract foreign investment,
the Government of the Russian Federation (GOR) has taken steps to promote accounting reforms.Significant international involvement in the reform process has included technical and/or financial assistance from the
U.S. Agency for International Development (USAID), the American Chamber of Commerce in Russia, the European
Bank for Reconstruction and Development (EBRD), the British Know How Fund, and the European Commission's
Technical Assistance for the Commonwealth of Independent States (TACIS) program.Steps in the Right Direction
The main goal of Russia's accounting reform program is to bring Russian accounting and auditing regulations into
conformity with international accounting standards (IAS).  The GOR has established an interagency government committee
for accounting reform to aid this transition, as well as recognized the independent International Center for Accounting
Reform (ICAR) in its official plan.  In addition, the GOR has adopted a resolution requiring audits on major Russian
enterprises, according to both RAR and IAS.Note: IAS, established by the International Accounting Standards Committee, should not be confused with U.S.
Generally Accepted Accounting Standards (US GAAP), which are issued by the Financial Accounting Standards Board
(FASB), even though the two systems are similar.ICAR
The International Center for Accounting Reform is a nonprofit, nongovernment Russian legal entity with a
limited life span.  It was created to develop a series of Russian national accounting standards that take account of the
Russian situation during the period of introduction of IAS and to help Russian enterprises embark on the transition
to IAS.ICAR's role is also to prepare practical instructions for the application of the reform program and to develop
training materials and retraining courses for practicing accountants.  Donald Beskine, CEO of ICAR, says "Russian
and international professional accountants are working together closely to devise an effective way for Russian
enterprises to start applying an IAS system."This past November, ICAR organized the first Russian conference on IAS, which drew over 500 participants
and during which the official translation of IAS was presented.  (See selection of translated terms on page 1.)  Most
importantly, there is now a norm for the translation of IAS terms into Russian, which will ease the transition to IAS
for Russian and foreign firms.  "One of the major constituents of the Accounting Reform Program is drafting and
approving 22 national accounting standards [regulations] in compliance with IAS," said A.S. Bakaev from the
Ministry of Finance at the ICAR conference.Existing Discrepancies
U.S. companies need to be aware that, until all Russian companies make the transition to IAS, interpretation of
financial statements prepared according to RAR can be misleading:The value of assets is based on their historical cost, not on their economic value (fair value);Revenues can be presented on a cash basis as well as on an accrual basis; andLoan loss reserves are more lenient under RAR.
     Although there has been some progress in moving toward IAS in Russia, the country still has a way to
     go in implementing the necessary changes for complete transition to IAS.  The following factors are
     the most pressing:broad acceptance by key decision-makerschanges in civil and tax legislationretraining Russian professional accountants under the IAS system.In addition, assessing fair market value will continue to be a problem while a barter economy of some sort
     exists in Russia.  According to Larissa Gorbatova of the Federal Commission on the Securities
     Market of the Russian Federation, "In some Russian enterprises, over 80 percent of all transactions
     are settled in nonmonetary forms, including barter and set-offs; assigning a fair value in these cases is
     not possible.  We need to recognize that since we do not have reliable market prices for most financial
     assets, fair value accounting is still a big question mark."Several Russian companies such as Gazprom and Rostelecom are already using IAS in their
     consolidated financial reports.  Russia's need to attract foreign investors and enter the international
     markets as exporters and investors will continue to be a major incentive in this direction.For further information on ICAR's activities, contact ICAR at [email protected] and check the IASC
     web site at: www.iasc.org.uk.ICAR is located at 4/17 Pokrovsky Blvd., Building 1, office 19, Moscow, 101000; tel.: +7 (502) or
     (095) 937-7046, fax: +7 (502) or (095) 937-7040.Philip H. de Leon is the BISNIS Banking/Finance Specialist in Washington, D.C.This report is provided courtesy of the Business Information
     Service for the Newly Independent States (BISNIS)