Using International Financial Reporting Standards in Russia

Baker Tilly Russaudit, Ltd. and Financial Director magazine recently polled more than 200 Russian companies of various sizes and from different industries concerning their usage of International Financial Reporting Standards (IFRS) from 2009 through 2011, including actual applications, reasons for use, preparation timeframe and methods, and software used by the companies.

Preparation of financial statements in accordance with IFRS in 2009-2011
 

Preparation of financial statements in accordance with IFRS in 2009-2011

Despite the economic crisis and its consequences, the number of companies using IFRS has increased. Based on the 2011 results, more than 60 percent of the companies will prepare their financial statements in accordance with IFRS (in 2009, there were around 45 percent of such companies).

The IFRS market has seen the most rapid growth in the lower segment of midsized businesses (companies with revenues of up to 3 billion rubles). In 2011, almost half of the companies of this segment intend to prepare such financial statements (in 2009, only a third of companies of this group used IFRS).

Main reasons for using IFRS
 

Main reasons for using IFRS

Today, large companies (those with revenues of more than 15 billion rubles) are adopting IFRS to fulfill shareholder requirements—since many of these companies are public or intend to go public—and creditor requirements, with Russia’s major banks requiring businesses of this scope prepare their financial statements in accordance with IFRS.

Creditor requirements also largely determine why companies with revenues of 3 to 6 billion rubles are using IFRS as this allows them to raise funds and position themselves to be a more transparent business to banks oriented on world standards.

However, the main reason companies in the lower segment of midsized businesses (with revenues of up to 3 billion rubles) as well as those with revenues of 6 to 15 billion rubles have adopted IFRS is to attract investors. It should be noted that 75 percent of the companies in the latter group also carry out audit of IFRS-based financial statements, which is indicative of their sufficiently high availability to capital transactions.

Timeframe for financial statements preparation in accordance with IFRS
 

Timeframe for financial statements preparation in accordance with IFRS

In the past two years, the number of companies preparing their financial statements within a shorter timeframe—three months from the end of the financial year—has increased to 54 percent from 42 percent. The percentage is even more pronounced for the segment of companies with revenues of more than 15 billion rubles, where it doubled, with 59 percent expecting to prepare their financial statements within that timeframe vs. 28 percent from two years before.

For the group of companies with revenues of less than 15 billion rubles, there has been no significant change in their timeframe, which may be attributed to an absence of "best practices" with regard to nonpublic companies as well as a lack of tight requirements of banks to IFRS-based financial statements prepared by this segment of companies.


Methods of financial statements’ preparation and the software used

Methods of financial statements’ preparation and the software used

Companies are increasingly declining the services of consultants. Instead, they are seeking to prepare their financial statements on their own as the frequency of reporting increases—public companies are required to disclose information on a quarterly basis—and deadlines of financial statements issuance tighten.

The poll also found the majority of companies have yet to automate the process of preparing their financial statements, with Microsoft Excel spreadsheet software used most frequently in the preparation. However, the above factors are causing more companies to consider introducing state-of-the-art systems: 35 percent of companies are planning to use specialized software in 2012, while another 8 percent are still considering what they will be using.

Transitioning to specialized software is a high priority not only to companies with revenues of more than 15 billion rubles, but also to those with revenues of 6 to 15 billion rubles. Such a transition could result in increasing workability and, correspondingly, in decreasing the costs of preparing financial statements.