The transition period for reporting in accordance with international practice was introduced in Russia by Order of the Ministry of Finance dated December 28, 2015 N 217n Order of the Ministry of Finance of Russia dated December 28, 2015 N 217n “On the introduction of International Financial Reporting Standards and Explanations of International Financial Reporting Standards into force on the territory of the Russian Federation and on declaring certain orders (certain provisions of orders) of the Ministry of Finance of the Russian Federation to have lost force” (Registered with the Ministry of Justice of Russia on 02.02.2016 N 40940). In this regard, this work examines the procedure for accounting for financial results in accordance with the Russian Accounting System (RAS) and International Financial Reporting Standards (IFRS).

The financial result of the activities of a commercial organization is profit or loss, which is the difference between income received and expenses. Let's compare Russian and international definitions of these concepts, the rules for their recognition and classification.

Organizational income.

Income according to PBU 9/99 “Income of an organization” is understood as an increase in economic benefits as a result of the receipt of assets (cash and other property) and / or repayment of liabilities, which leads to an increase in the capital of this organization, with the exception of contributions of participants (owners of property) Order of the Ministry of Finance Russia dated 05/06/1999 N 32n (as amended on 04/27/2012) “On approval of the Accounting Regulations “Income of the Organization” PBU 9/99” (Registered with the Ministry of Justice of Russia on 05/31/1999 N 1791).

The system of international accounting regulations does not have a standard specifically dedicated to income. However, an analogue of PBU 9/99 can be considered IFRS 15 “Revenue from contracts with customers”, which since January 21, 2015 replaced IAS 11 “Construction Contracts” and IAS 18 “Revenue”. According to the provisions of this standard, income is an increase in economic benefits during the reporting period in the form of income or improvement in the quality of assets, or a decrease in the amount of liabilities, leading to an increase in equity capital not related to contributions from capital participants International Financial Reporting Standard (IFRS) 15 “Revenue from contracts with buyers" (put into effect on the territory of the Russian Federation by Order of the Ministry of Finance of Russia dated January 21, 2015 N 9n). Thus, the concept of “income” is similar in RAS and IFRS.

The Russian classification of income assumes the following division: income from ordinary activities and other income (see Fig. 2).

Rice. 2.

International practice on the economic essence of income distinguishes between revenue and other income. IFRS 15 gives the following definition of revenue International Financial Reporting Standard (IFRS) 15 “Revenue from contracts with customers” (put into effect on the territory of the Russian Federation by Order of the Ministry of Finance of Russia dated January 21, 2015 N 9n):

Revenue is income that arises in the ordinary course of business of an organization.

PBU 9/99 also says that income from ordinary activities is revenue from the sale of finished products, goods, performance of work, provision of services. However, in the opinion of some authors, Druzhilovskaya T. Yu., Romashova S. M. “Indicators of income, expenses and financial results in accounting and reporting: theoretical and practical aspects" // "International Accounting", No. 31, 2014, impossible. One of the reasons is that Russian regulations do not provide an answer: whether the proceeds are considered income from ordinary activities, including value added tax (VAT) or not.

IFRS 15 does not establish definitions of such categories as “goods” and “services”, but contains the following examples of goods and services Druzhilovskaya T. Yu., Druzhilovskaya E. S. IFRS 15: new requirements and their relationship with Russian accounting standards // “International Accounting”, 2015, N 15:

• 1. sale of goods produced by the organization;
• 2. resale of goods or rights to goods (services) purchased by the company;
• 3. fulfillment of the task(s) specified in the contract;
• 4. provision of service, which consists of the willingness to provide goods or services (for example, software updates provided in the event of their occurrence), or the provision of services for the client within the time frame established by him;
• 5. provision of a service consisting of organizing the transfer of goods or services to the client by another party (for example, acting as an agent of the other party);
• 6. granting rights to goods or services provided in the future, which the client can provide to its buyer or resell;
• 7. development, construction or production of an asset on behalf of a client;
• 8. provision of licenses;
• 9. provision of options for the purchase of additional services or goods.

Russian regulations define goods as assets purchased from another company and intended for further resale. International standards, as can be seen from the list above, include, in addition to the specified assets, inventories as goods. For example, “sale of goods produced by an organization” in the Russian system is not “goods”, but “finished products”.

Other income is the receipt of economic benefits not from the main activity, which, as a rule, are of an irregular nature. Just like in RAS, their list is open.

Let's look at how income is recognized. IFRS has developed a five-step revenue recognition platform. This is done in order to more accurately identify revenue under the contract under which the organization receives income and incurs expenses. The five steps of revenue recognition are depicted in Fig. 3.

Rice. 3.

Each step of this model contains regulations that are not represented by almost any domestic regulatory document. Some similar points can be found in PBU 2/2008 “Accounting for construction contracts”, for example:

• · similar to accounting for modification of a contract according to IFRS (the step of identifying a contract with a client), this PBU regulates the inclusion in the technical documentation of an additional construction project, but the term “modification of the contract” itself (a change in the subject or price of the contract, approved by the parties to the contract Druzhilovskaya T. Yu., Druzhilovskaya E. S. IFRS 15: new requirements and their relationship with Russian accounting standards // “International Accounting”, 2015, No. 15) not in RAS;
• · revenue under a construction contract is adjusted, provided that there is confidence that this amount will be recognized by customers and that the amount can be reliably determined (transaction price determination step);
• · identical to IFRS 15 are the rules, according to which, in the case where a reliable determination of the financial result of the execution of the contract is impossible, but it is probable that the costs incurred in executing the contract will be reimbursed, revenue from the construction contract is recognized in the income statement financial results in an amount equal to the amount of expenses incurred that are subject to reimbursement.

PBU 9/99 “Organizational Income” contains the following rules for revenue recognition (see Fig. 4).

Rice. 4.

As can be seen from the proposed schemes, international and Russian standards have different approaches to accounting for income from ordinary activities. We can highlight only a few provisions of PBU 9/99 that are similar to the international standard:

• · the ability to account for revenue using the “as ready” method;
• · determination of revenue taking into account all discounts (capes) provided for in the contract, etc.

Thus, the regulations for accounting for income, considered within the framework of PBU 9/99 “Income of an Organization”, IFRS 15 “Revenue from Contracts with Customers” and some other regulatory documents, showed different approaches in international and Russian practice. It will be quite difficult for domestic companies to account for income under IFRS due to the fact that IFRS 15 was recently approved and has not yet been tested in practice.

Organizational expenses.

Expenses in Russian legislation are regulated by PBU 10/99 “Expenses of the organization”. IFRS does not have a single special standard regulating the accounting and reporting of expenses. These data are specified in separate standards. For example, IAS 2 “Inventories” is intended to estimate the cost of materials, IAS 16 “Property and Equipment” and IAS 38 “Intangible Assets” regulate the organization’s depreciation expenses, IAS 19 “Employee Benefits” » - expenses related to wages. At the same time, we will take into account that wages and depreciation of non-current assets can be recognized as expenses in accordance with IFRS (and not costs), as components of the written-off cost of products at the time of recognition of income from its sale 13. Druzhilovskaya T. Yu. Characteristics of expenses and costs for financial accounting // “International accounting”, 2015, No. 2.

The interpretation of expenses according to national and international accounting systems is presented in Table 4.

Table 4. The concept of “expenses” in Russian and international standards

The table demonstrates that the interpretation of the concept of “expenses” given in PBU 10/99 and in the Conceptual Framework for the Preparation and Presentation of Financial Statement “Conceptual Framework for Financial Statements”, October 31, 2014 [Electronic resource] URL: http://www.consultant.ru/law/review/2430391.html (Date of access: 02.21.2016)) is absolutely identical.

The Russian classification of expenses offers a grouping corresponding to the income of organizations - expenses from ordinary activities and others (see Fig. 5) Kamordzhanova N. A., Kartashova I. V., Shablya A. P. Financial accounting: for bachelors and specialists - Peter, 2015 - pp. 314-340..

Rice. 5.

In the Conceptual Framework for Financial Reporting “Conceptual Framework for Financial Reporting”, October 31, 2014 [Electronic resource] we find a similar classification of expenses. To provide information that allows an organization to make appropriate economic decisions, this document proposes to distinguish between losses of various types and expenses arising in connection with the ordinary activities of the enterprise.

Normal expenses, according to the Conceptual Framework, include cost of sales, depreciation, and wages. The main characteristic of such expenses is the disposal of assets, such as cash and cash equivalents, fixed assets, and inventories.

Other losses are expenses caused by natural disasters, the disposal of non-current assets, or an increase in the exchange rate of another country's currency. Thus, other losses may arise both in the normal course of the organization’s activities and without being related to it.

Note that the Russian accounting system does not have a strict conceptual apparatus regarding the delimitation of certain categories. So, for example, it is questioned what can be included in “expenses from ordinary activities”: all expenses that are associated with production (the cost of both finished goods and work in progress) or only those associated with the cost of goods sold. In IFRS we find a clearer interpretation: “expenses from ordinary activities” include cost of sales. Thus, Russian and international standards have a number of differences in the distinction between ordinary and other expenses.

Continuing to consider the recognition of expenses in various systems, it is necessary to identify the conditions when an organization can determine the occurrence of expenses (see Figure 6).

Rice. 6.

International practice similarly defines the criteria for recognizing expenses:

• · it is probable that future economic benefits associated with this cost item will exit the organization;
• · the value of the object is reliably estimated Information is reliable if it is complete, neutral and does not contain errors. or has an initial cost “Conceptual Framework for Financial Reporting”, October 31, 2014 [Electronic resource] URL: http://www.consultant.ru/law/review/2430391.html (Date of access: 02.21.2016)..

It is also important that expenses are recognized in the income statement based on the relationship between the costs incurred and the receipt of income items. That is, the various components of expenses representing the cost of goods sold are recognized at the same time that the income received from the sale of these goods is recognized.

Thus, having compared the regulations for accounting expenses in the RAS and IFRS systems, we come to the conclusion that there are a number of key questions about whether or not certain transactions lead to the formation of expenses.

Having considered the comparison of the parts that make up the company’s financial result (income and expenses), it is necessary to analyze how this indicator is reflected according to different accounting systems.

The main source of information about profits and losses is the Statement of Financial Results (RAS) and the Statement of Comprehensive Income (IFRS). The indicators required for disclosure in this reporting form are determined by clause 23 of PBU 4/99 “Accounting statements of an organization” Order of the Ministry of Finance of the Russian Federation dated 07/06/1999 N 43n (as amended on 11/08/2010) “On approval of the Accounting Regulations “Accounting statements” organizations" (PBU 4/99)" and Order of the Ministry of Finance of the Russian Federation dated 07/02/2010 No. 66n "On the forms of financial statements of organizations" (as amended on 04/06/2015) Order of the Ministry of Finance of the Russian Federation dated 07/02/2010 No. 66n "On forms of financial statements of organizations" .

The preparation of the Statement of Comprehensive Income in the international format is regulated by IAS 1 “Presentation of Financial Statements” IFRS (IAS) 1 “Presentation of Financial Statements” [Electronic resource] URL: http://minfin.ru/common/img/uploaded/library/no_date/2013/RU_IAS_01_GVT_2009.pdf (Date of access: 03.03.2016).. This standard speaks about the general requirements for its preparation, as well as the need to enter analytical information about income and expenses received. This point is one of the main differences between domestic and international reporting.

The difference is primarily due to the disclosure of expenses from ordinary activities. The international standard offers two options for specifying expenses - by nature and by function. In RAS, only one method is used - by function (see Fig. 7).

Rice. 7.

The above diagram shows that the “nature of costs” method combines costs in accordance with their economic content (nature) and allows one to reveal the sources of costs. Determining the financial result from the main activity involves comparing the proceeds from the sale of products (or goods / work performed / services rendered) with the total amount of expenses of the reporting period, which is adjusted for changes in balances in inventories (finished goods and work in progress) Golichenkova E. A. Comparison of the report on financial results, formed in accordance with RAS and IFRS // Scientific and methodological electronic journal “Concept”. - 2016. - T. 6. - P. 161-165. - URL: http://e-koncept.ru/2016/56068.htm.

The cost function method involves dividing expenses for ordinary activities into groups in accordance with their purpose, such as cost of sales or administrative activities. The calculation of financial results using the cost function method is based on comparing sales revenue with the cost of products sold (or goods/work performed/services provided).

It is important to note that IAS 1 states that an entity should select an expense classification method that is capable of most accurately representing the components of its financial results, as the most reliable and more relevant information to interested users. The Russian form of the financial results statement is based on the functional method. Thus, Russian companies prepare their reports without taking into account the specifics of doing business, the type of economic activity and other factors.

Next, we compare the indicators presented in Russian and international forms, reflecting the financial results of the company (see Table 5). Note that an entity may present all information about income and expenses recognized for a period either in one Statement of Comprehensive Income or in two statements: an income statement, which shows all components of profit or loss, and a statement of comprehensive income , which reflects the components of other comprehensive income.

Table 5. Comparative characteristics of items in the Russian form of the financial performance statement and items regulated by IAS 1

Gains and losses report	Income statement
Income from the main activity	Revenue 5
Expenses from the main activity	Cost of sales
Gross profit (loss)
Business expenses
Administrative expenses
Revenue from sales	Profit (loss) from sales
Other income	Other income
other expenses	other expenses
Profit (loss) from operating activities
Financing costs (interest costs)	Percentage to be paid
Investment income (interest income)	Interest receivable
	Income from participation in other organizations
Profit before taxes	Profit (loss) before tax
Income tax expense	Current income tax
incl. permanent tax liabilities (assets)
Change in deferred tax liabilities
Change in deferred tax assets
After-tax profit (loss) for the year	Net income (loss)
Statement of other comprehensive income
Change in revaluation reserve	Result from the revaluation of non-current assets, not included in the net profit (loss) of the period
Exchange differences from translation of foreign subsidiaries
Change in the value of available-for-sale financial assets
Results of effective cash flow hedges
Actuarial gains (losses) on defined benefit plans
Other comprehensive income (expense) for the year before income tax	Result from other operations not included in the net profit (loss) of the period
Income taxes attributable to components of other comprehensive income
Other comprehensive income (expense) for the year after income tax
Total comprehensive income (expense)	Cumulative financial result for period 6
Profit attributable to:
Minority interest (non-controlling interest)
Total comprehensive income (expense) related to:
Shareholders of the parent company
Minority share
Earnings per share:	For information
	Basic earnings (loss) per share
Reduced	Diluted earnings (loss) per share

The table data shows that the names of some items provided for by IAS 1 differ from the names of items in the Russian statement of financial results, but many indicators are the same. Note that some articles, for example, “Minority share,” are not available in the domestic form. Thus, we can conclude that the recommendations of IFRS 1 are, to a certain extent, implemented in the domestic financial statements.

Thus, the differences in the accounting of components - income and expenses - of financial results according to domestic and international standards are shown, in the disclosure of this category in financial (accounting) statements, and the problems of accounting for the analyzed object are highlighted.

The development of international economic relations at the enterprise level in conditions of market relations and competition is impossible without proper information support. At first glance, it seems that this process should not be accompanied by any serious problems, especially problems of a fundamental nature, since domestic markets also require mutual awareness of business entities, which is precisely achieved by the dissemination of accounting reports compiled in accordance with national regulations . However, between the intention to notify potential foreign counterparties and the implementation of this intention there is a huge distance, overcoming which is accompanied by numerous difficulties and barriers, and the language barrier is not the most important here.

The main problem is that there are probably no two countries with the same accounting rules, and therefore the mutual presentation of reporting data by firms registered and carrying out the bulk of their operations in different countries causes quite natural caution from the point of view of assessing the adequacy of the declared (i.e. .e. presented in the form of reporting) to the actual state. Among the reasons for such wariness, the dominant role, of course, is played by reasons that are purely professional in nature and consist in the fact that the user of a professional product may not clearly understand the logic and basic algorithms for generating the indicators presented to him. The professional background of possible contradictions regarding the interpretation, legality and expediency of certain rules of accounting, evaluation and reporting naturally represents only part of the basis for doubt; among other arguments, for example, national, political, general economic and other features of doing business and communicating about it, accepted in a given country.

In order to reduce country variability in the rules of accounting and reporting and smooth out the degree of mutual distrust regarding the “rightness or wrongness” of such rules, the international accounting community decided to carry out a certain unification of them by processing and implementing standard regulations, called international financial reporting standards (IFRS). This work began to be carried out under the slogan of the need for harmonization and standardization of accounting.

The elements that reflect the financial results of an enterprise are income and expenses. The concepts of the economic categories “income” and “expenses” of an enterprise are formulated in the IFRS chapter “Principles”. In Russia, they are disclosed in the Accounting Concept, as well as in the Accounting Regulations: PBU 9/99 “Income of the Organization” and PBU 10/99 “Expenses of the Organization” (with subsequent additions and changes).

The definition of the category “income” in IFRS 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.

According to IFRS, income is divided into two classes:

Income from ordinary activities;

Other income.

Income from ordinary activities is called “revenue” and is generated in the process of regular activities of the enterprise in various forms: in the form of income from the sale of labor products; in the amounts of remunerations received, interest, dividends; in the form of royalties and rent.

Other income represents irregular, random income that may or may not occur in the activities of the enterprise. These include, for example, income from the sale of fixed assets, inventories, positive exchange rate differences, fines and penalties received. IFRS notes the conditional nature of assigning income to one group or another depending on the specific activities of the enterprise and the uniform nature of various items of income by economic nature, since they all represent an increase in economic benefits.

Having characterized “income” as an economic category in the “Principles” chapter, in the same chapter IFRS defines the criterion for including income in financial statements. The fact that income is included in the financial statements is called “revenue recognition.” The need to check the income recognition criterion is due to the uncertainty of the increase in economic benefits in a particular situation. The income recognition criterion under IFRS is that income is recognized in the income statement if there is an increase in future economic benefits associated with an increase in assets or a decrease in liabilities that can be measured reliably.

If the definition of the category “income” is contained in the conceptual chapter of IFRS “Principles”, then a separate standard IFRS 18 “Revenue” is devoted to the company’s revenue. IFRS 18 recognizes revenue differently depending on the type of revenue:

From the sale of goods;

From providing services;

From the use by other parties of the assets of the enterprise that generate interest, royalties and dividends.

IFRS 18 does not exhaust all possible types of revenue, however, revenue not covered by this standard is considered in other standards. For example, the procedure for generating income under lease agreements is disclosed in IFRS 17 Leases; dividends - in IFRS 28 “Accounting for investments in associates”; changes in the fair value of financial assets and financial liabilities - in IFRS 32 “Financial Instruments: Disclosure and Presentation”. Depending on the type of revenue, IFRS provides for different criteria for recognizing it in financial statements. The schematic correspondence of the conditions for recognizing revenue from the sale of goods in Russian accounting standards and IFRS is presented in table 1.8.

Table 1.8 - Revenue recognition criteria

a) the organization has the right to receive this revenue arising from a specific agreement or confirmed in another appropriate manner	a) the company has transferred the significant risks and rewards of ownership of the goods to the buyer
b) the amount of revenue can be determined	b) the amount of revenue can be measured reliably
c) there is confidence that as a result of a specific transaction there will be an increase in the economic benefits of the organization	c) it is probable that the economic benefits associated with the transaction will flow to the company
d) 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)	d) the company no longer participates in management to the extent normally associated with ownership and has no control over the goods sold
e) the expenses that have been incurred or will be incurred in connection with this operation can be determined	e) the costs incurred or expected to be incurred in connection with the transaction can be estimated reliably

Under IFRS 18, the amount of revenue arising from a particular revenue transaction is usually determined by the contract between the supplier and the buyer or user of the asset. Revenue is measured at the fair value of the consideration received or expected to be received, taking into account the amount of any trade discounts or volume discounts provided by the company.

Fair value in IFRS 18 is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction.

The definition of the category "expense" in the chapter "Principles" of IFRS is a decrease in economic benefits during the reporting period, occurring in the form of an outflow or depletion of assets or an increase in liabilities leading to a decrease in capital not related to its distribution among shareholders.

After defining expenses as an economic category, the chapter “Principles” of IFRS provides their classification:

Expenses from ordinary activities;

Expenses from activities other than normal, which may or may not arise in the course of the enterprise's activities.

Ordinary business expenses include costs such as cost of sales, wages, and depreciation.

Expenses from other activities represent losses incurred during the sale of fixed assets or other assets, in the event of changes in currency exchange rates, as a result of natural disasters.

However, when distinguishing between IFRS expense items, their uniform nature in economic nature is noted, since they all represent a reduction in economic benefits.

The “Principles” chapter of IFRS does not regulate the grouping of expenses from ordinary activities by element, and these expenses include both single-element (wages, depreciation) and complex expenses (cost of sales). The right of the enterprise to independently form the nomenclature of costing items.

Having defined “expense” as an economic category, IFRS, in the “Principles” chapter, specifies the criteria for including expenses in financial statements. The fact that an expense is included in the financial statements is called “recognition of an expense.” The need to check the expense recognition criterion is due to the uncertainty of the reduction in economic benefits in a particular situation. The criterion for recognizing an expense under IFRS is that an expense is recognized in the income statement if there is a decrease in future economic benefits associated with a decrease in an asset or an increase in a liability that can be measured reliably.

The unity and differences in the interpretation of the elements characterizing the financial results of an enterprise according to Russian regulatory documents and IFRS are presented in Table 1.9.

Table 1.9 - Elements characterizing the financial results of an enterprise in domestic financial statements and according to IFRS regulations

Comparison sign		Concept of accounting in the Russian Federation	Regulatory acts of the Russian Federation
List of elements characterizing the financial results of an enterprise	Income, expenses	Compliant with IFRS	Compliant with IFRS
Interpretation of income	Increase in economic benefits in the form of an increase in assets or a decrease in liabilities	Increased economic benefits or decreased liabilities	Compliant with IFRS
Interpretation of consumption	A decrease in economic benefits in the form of a decrease in assets or	Decrease in economic benefits or increase	Compliant with IFRS
increase in liabilities	obligations
Classification of income and expense items	Income and expenses from ordinary activities and other income and expenses	No classification	There are differences from IFRS in the classification of other income and expenses
Recognition of income and expenses	Determined by the criteria for recognizing elements of financial statements	Compliant with IFRS	There are differences from IFRS
Estimation of income and expenses	Determined by the rules for assessing elements of financial statements	Compliant with IFRS	There are differences from IFRS

As can be seen from Table 1.9, regulatory documents adopted in recent years have brought domestic financial reporting significantly closer to IFRS. Particularly important are PBU 9/99 and PBU 10/99, which, despite their differences, meet the requirements of IFRS in the most important matters. At the same time, there are also inconsistencies between the regulations of Russian accounting standards and the rules of IFRS, the most significant of which is the preservation of strict regulatory regulation of many issues of accounting for income and expenses of enterprises.

The following items should be presented in the income statement: revenue; operating results; financing costs; share of profits and losses of associates and joint ventures accounted for using the participation method; tax expenses; profit or loss from ordinary activities; results of emergency circumstances; minority share; net profit or loss for the period.

In the income statement and in the notes thereto, it is necessary to provide an analytical description of income and expenses. The standard recommends two approaches to cost classification: the nature of costs method (classification by cost elements) and the cost function method or cost of sales (sales) method.

Accordingly, two reporting formats arise. The first format is based on the disclosure of production costs by so-called cost elements, the second - on the cost of production. Both formats allow you to get completely identical results, but reveal data on the formation of financial results in different ways.

The study of the conceptual foundations for preparing financial statements in IFRS and Russian accounting legislation allows us to conclude that there is a certain degree of similarity in the general approaches to the formation of financial reporting indicators in Russian and international standards. At the same time, there are significant differences in the conceptual framework, which will inevitably lead to differences in reporting indicators prepared according to Russian standards and according to IFRS. These include different interpretations of assets, liabilities and capital, the lack of recognition criteria for reporting elements in Russian legislation, and many of the reporting principles required by IFRS that are not implemented (although proclaimed) in Russian practice.

International Financial Reporting Standards (IFRS) were created to provide interested users with objective and reliable information. However, it is quite possible to find the necessary loopholes in IFRS - including those that allow you to increase the profit margin.

Today in Russia the stock market is gradually developing, and investors are trying to invest money in potentially more profitable companies. Thus, profitability indicators and their dynamics come first: after all, the higher the profit, the higher the stock price. This is where the task of maximizing profit arises (by this we will mean increasing it through exclusively accounting methods).

High profits are also important for enterprises to attract borrowed funds. The higher it is, the greater the confidence of potential creditors that obligations on interest payments and principal will be repaid on time.

Methods for maximizing profits can be divided into two large groups. The first includes methods that allow the company's profits to be redistributed between reporting periods. That is, the total amount of income and expenses for the transaction remains constant, and only the time of their recognition changes. The second group includes methods by which the company's income increases or the company's expenses decrease.

Particular attention should be paid to a number of methods that allow the redistribution of income and expenses between operating and other. In this way, you can increase operating profit, that is, profit from core activities. Its high value indicates the financial stability of the company. Basically, these methods belong to the second group, but they are also found in the first. Thus, writing off interest on loans for period expenses allows you to increase your gross profit.

Redistribution between periods:

A) Depreciation of non-current assets.

This is perhaps the most well-known method, so there is no point in talking about it in detail. We only note that the linear method of calculating depreciation allows you to increase the profit of the reporting period compared to accelerated methods (based on the sum of the numbers of years and the reducing balance).

B) Accounting for interest on loans.

In accordance with IAS 23 Borrowing Costs, there are two accounting procedures for interest: basic and alternative. Under the basic procedure, borrowing costs are recognized as expenses for the period in which they were incurred, regardless of the terms of the loan agreement. Under the alternative treatment, costs directly attributable to the acquisition, construction or production of an asset are included in its cost. Consequently, when choosing an alternative order, current profits increase at the expense of future profits.

B) R&D expenses.

For the purposes of reporting under IFRS, all R&D is divided into research and development. Research involves the acquisition of new scientific or technical knowledge. Development is the application of knowledge to design the production of new products. The procedure for accounting for costs at these two stages is as follows. Research costs are recognized as expenses when incurred. Development costs are capitalized if a number of conditions are met, one of which is the company's intention to complete the creation of the intangible asset. If the enterprise cannot distinguish between the stages of research and development, then all costs are considered research costs. Therefore, you can either attribute all costs to period expenses, or capitalize part of the costs (attributable to the development stage), increasing current profit.

Income increase:

A) Sale of non-current assets with subsequent purchase.

If the carrying amount of an asset differs materially from its fair value, the company may revalue the asset. However, then the increase in value will be reflected as an increase in equity capital (section “Results of revaluation” - an analogue of the Russian account “Additional capital”). Subsequently, the amount of the revaluation can be written off to retained earnings. But even then this value will be reflected in the statement of capital flows, that is, net profit for the year remains unchanged.

If the company sells the asset, the excess of the market value over the book value will be recognized in income as profit from the sale of the asset. However, the company cannot simply sell the asset - because then its production capacity will be reduced, so a subsequent purchase is necessary. The problem can be solved in two ways: either a buyback from the same counterparty at the same price, or the acquisition of a similar asset at market value. In the second case, the company will at the same time update its production assets. This method partly redistributes profit between periods, because after an increase in the value of non-current assets, depreciation expenses will increase.

B) Classification of financial investments.

According to IFRS, financial assets are divided into four categories: held for sale; held to maturity; loans and receivables; available for sale. We are interested in the first and fourth groups. The fundamental difference between them is as follows. If an asset is intended to make a profit as a result of short-term price fluctuations, then it belongs to the first group. If not, then to the last one (provided that he does not fall into the second or third category). Both groups are accounted for at fair value. Income (losses) from their revaluation are included in profit - for trading financial assets; for profit or increase (decrease) in capital - for financial assets available for sale.

Thus, in accounting for financial investments, two ways to increase income are possible at once. The first is to classify available-for-sale financial assets as trading - a criteria that is difficult to verify. The second method involves establishing in the accounting policy a provision according to which income from the revaluation of financial assets available for sale is included in net profit for the period.

Cost reduction:

A) Asset impairment losses.

According to IAS 36 Impairment of Assets, an impairment loss (the excess of an asset's carrying amount over its fair value) must be recognized as an expense in the income statement. Thus, when assets depreciate, the company's profit decreases. How can you avoid such a situation? To do this, you need to “create” a revaluation of the asset, reflected as an increase in the company’s capital. Then the impairment loss will be reflected not as an expense, but as a decrease in the company’s capital (section “Results of revaluation”), that is, it will not appear in the income statement.

B) Overheads.

We are talking about fixed overhead costs attributed to the cost of inventory. Their distribution to the cost of finished products is based on the production volume indicator under normal conditions, calculated on the basis of data for several periods. Fluctuations in fixed overhead costs can result in underappropriations. They should be written off as expenses for the reporting period. That is, by manipulating the indicator of normal production capacity, it is possible to reduce the cost of production. This will increase your gross profit. If necessary, you can perform the reverse operation, that is, reduce the costs of the period and increase the cost.

C) Write-off of accounts receivable.

Strictly speaking, this method both reduces expenses and redistributes them between periods. This is due to the presence of two ways to write off accounts receivable: reservation and direct write-off. Under the provisioning method, a company creates a reserve to cover losses on bad debts. To redistribute expenses, you just need to set the required reservation percentage. The fact is that IFRS does not strictly regulate its value.

Under the direct write-off method, accounts receivable are expensed when it becomes apparent that they will not be collected. That is, expenses are recognized only in relation to bad debts. Thus, choosing this method allows, on the one hand, to reduce costs, since there is a possibility that not the entire reserve amount will be used. On the other hand, expenses are redistributed between periods. The fact is that with the reservation method they are recognized earlier - at the time the receivables are overdue or even before the payment is due.

The main differences between Russian accounting and IFRS arise when determining the moment of revenue recognition.

Let's consider the conditions for recognizing revenue when selling goods. Revenue from the sale of goods must be recognized when all specified conditions are satisfied. If at least one of the conditions is not met, then revenue is not recognized in the reporting period.

IFRS operates mainly in qualitative terms (“significant risks and rewards”, “reliable measurement of revenue”, “degree of ownership”, etc.), leaving significant scope for the professional judgment of the preparers. Russian standards operate with more precise definitions of the conditions for revenue recognition (“the right to receive revenue arising from an agreement or confirmed otherwise”, “ownership has passed from the organization to the buyer”), which have documentary evidence.

One of the most striking examples of the difference between IFRS and PBU is the approach to the sale of goods through an intermediary, taking into account the transfer of ownership, significant risks of ownership and profit from ownership of the goods.

In Russian accounting, revenue will be reflected only at the moment of sale of goods by an intermediary (the moment of transfer of ownership).

The principles for assessing revenue received in IFRS 18 and PBU 9/99 also differ significantly. If the agreement provides for a deferred payment, then according to IFRS, revenue must be recognized taking into account the interest rate specified in the agreement for the use of actually borrowed funds.

Another problematic issue from an assessment point of view is the implementation of payment in kind. Under IFRS 18, such revenue is measured at the fair value of the consideration received. Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction.

According to PBU 9/99, it is assessed in the amount “based on the price at which, in comparable circumstances, the organization usually determines the cost of similar goods.” If fair value is tied only to market conditions, the entity's method of determining the value of “like goods” may not be consistent with fair value.

The principles of information disclosure in PBU 9/99 and IFRS 18 are generally the same. PBU 9/99, as well as IFRS 18, requires disclosure in the accounting policy of the procedure for recognizing revenue and methods for determining the stage of completion of operations.

Despite the fact that PBU 9/99 provides a definition of “extraordinary income”, a separate article of “extraordinary income” has not been provided for in Russian reporting forms since 2000, approved by Order of the Ministry of Finance dated January 13, 2000 No. 4n. And IFRS 1 “Presentation of Financial Statements”, starting with the 2005 financial statements, expressly prohibits the presentation of income as “extraordinary”.

IFRS 18 requires disclosure of the amount of each significant category of revenue recognized during the period (revenue arising from the sale of goods, from the provision of services, interest, royalties and dividends), as well as disclosure of the amount of revenue arising from the exchange of goods or services included in each significant category of revenue.

Separately, IFRS 18 requires disclosure of any contingent liabilities and assets arising in connection with warranty repair costs, claims, fines and other probable losses.

In turn, PBU requires showing revenue for each category if the amount of revenue for this category is five or more percent of the organization’s total income for the reporting period. As for revenue from barter transactions, PBU regulates the disclosure of: the total number of transactions with which such contracts are carried out, indicating the organizations that account for the bulk of such revenue; the share of revenue received under the specified agreements with related organizations, and the method for determining the cost of products (goods) transferred by the organization.

The differences between IFRS 18 and PBU 9/99 are mainly conceptual. Although the PBU is declaratively brought into line with international standards, it nevertheless bears the imprint of the Russian accounting tradition, when reporting is prepared for the purpose of control by government agencies, and not for private investors. At the same time, PBU 9/99 at the level of principles contradicts PBU 1/98 “Accounting Policies of an Organization,” which, in particular, declares the principle of priority of economic substance over legal form. PBU 9/99 contains a requirement for mandatory confirmation of the fact of implementation by an agreement or other document, which establishes the priority of form over content in this matter. On the contrary, IFRS 18 fits harmoniously into the system of international standards and complies with the “Principles of Preparation and Presentation of Reports”. The vagueness of the wording and the scope for professional judgment are precisely due to the fact that IFRS offers principles that must be followed when preparing financial statements, and not rules that must be strictly followed.

Reflection of deferred tax assets and liabilities in financial statements prepared in accordance with IFRS is regulated by IAS 12 Income Taxes.

This standard is used to reflect all taxes that are based on taxable income. In this case, taxable means profit for the period, which is determined in accordance with the rules established by the tax authorities, and on the basis of which income tax is calculated for payment to the budget.

The scope of the standard may also include other taxes that are essentially calculated on the basis of profit or replace income tax. For example, for the purpose of tax optimization, companies that apply a simplified taxation system are often used within holding companies. If the object of taxation is the amount of income minus expenses, this tax is subject to IAS 12.

According to IAS 12, income taxes consist of current and deferred taxes.

Current income taxes are the amount of income taxes that a company must pay for the accounting period. Current tax for the current and previous periods should be recognized in the financial statements as a current liability equal to its unpaid amount. If the tax becomes payable more than 12 months after the reporting date, the tax amount is disclosed as a non-current liability.

Because IAS 12 allows offsetting current tax assets and current tax liabilities only when the entity has a legally enforceable right to set off recognized amounts, income tax debt and overpayments must be shown in reporting in detail:

In terms of income tax settlements with the federal and regional budgets within one company;

In terms of income tax calculations for different companies within the framework of consolidated reporting.

Deferred income taxes represent the amount for which the accountant needs to make an adjustment due to the existing difference in the definition of income and expenses for the purposes of preparing financial statements and calculating income taxes. Deferred taxes arose as a result of the consistent implementation of the accrual principle in IFRS (transactions are reflected in the periods to which they relate). For example, the presence of income and expenses that are accounted for in accounting on an accrual basis, and in tax accounting only after payment, will lead to a gap in time between the recognition of the financial result of the transaction and the reflection of the income tax arising precisely from this transaction. In this case, the income tax accrued on transactions of the previous period will reduce the current profit, the result of which it is not the result.

According to IAS 12, deferred tax liabilities are the amounts of income taxes payable in future periods based on the amount of taxable temporary differences.

Deferred tax assets are amounts of income taxes that will be reimbursed in future periods in relation to:

Deductible temporary differences;

Unaccepted tax losses carried forward;

Unused tax credits carried forward.

From the above it follows that the concept of temporary differences is key to the calculation of deferred taxes.

Taxable temporary differences lead to the emergence of a deferred tax liability (they increase the amount of income tax for future periods), and deductible temporary differences lead to the emergence of a deferred tax asset (they reduce the income tax of future periods).

IAS 12 defines temporary differences as differences between the carrying amount of an asset or liability and its tax base. The carrying amount of an asset or liability is the amount at which the asset or liability is recognized in the financial statements. The tax base of an asset or liability is the amount at which the asset or liability is carried for tax purposes. According to IAS 12, any asset or liability has a tax basis.

Thus, the tax base of an asset is the amount that is deducted for tax purposes from the taxable income that the company will receive when it recovers the carrying amount of the asset. If these future earnings are not subject to tax, the tax basis of the asset will be equal to its carrying amount. It should be noted that international financial reporting standards separately consider the issues of recognition of revenue arising from lease agreements, insurance agreements, changes in the value of biological assets in agriculture, mining, etc. In Russian accounting, some issues of income accounting are not considered in principle, for example, the issue of recognizing income from changes in the value of biological assets.

graduate work

1.4 Accounting for financial results in IFRS format

Financial reporting of companies is provided for external users, and since in different countries there are differences in the content, creation and presentation of indicators describing the performance of organizations, international financial reporting standards were created. International financial reporting standards were created in order to bring to a unified form the rules for compiling, procedures for preparing and presenting financial statements of a company. Thanks to IFRS, users in different countries are able to adequately perceive and understand reporting.

Financial statements are discussed in IFRS 1 Presentation of Financial Statements.

IFRS 1 states that the following forms of reporting are considered mandatory:

* balance sheet;

* report on financial results;

* statement of changes in capital;

ѕ cash flow statement;

* explanatory note.

IFRS interprets the concept of income this way: income is an increase in economic benefits. In turn, the concept of expenses is given: expenses are a decrease in economic benefits.

Income includes:

* revenue that arises as a result of the organization’s leading activities,

* other income - irregular income that may or may not arise as a result of the activities of the enterprise.

IFRS 18 Revenue states that revenue is the gross flow of economic benefits in the ordinary course of an entity's activities during the period that gives rise to capital growth other than from shareholder contributions.

In accordance with IFRS-18, income is recognized as income received as a result of:

* sales of goods;

* provision of services;

ѕ the use of other assets of the enterprise that generate interest and dividends.

Income from the sale of goods is recognized only when all the conditions are met:

ѕ the enterprise has transferred to the buyer all the benefits and risks associated with owning the goods;

* the organization retains neither management nor control over the goods sold;

* the amount of income can be measured with a high degree of reliability;

* transaction costs can be measured with a high degree of reliability.

IFRS-21 “The Impact of Changes in Exchange Rates” shows how changes in the exchange rate affect the results of the financial and economic activities of an enterprise. The standard defines the rules for selecting exchange rates for reporting transactions that are denominated in foreign currencies. Foreign currency is any other currency that differs from the one in which the statements are prepared. Reporting is prepared in the currency of the country in which the company is registered and in which it carries out its work.

IFRS-23 “Borrowing Costs” explains the concept of borrowing costs in this way - these are the costs of paying interest or other costs incurred by the enterprise due to the receipt of borrowed funds. Borrowing costs are recognized as an expense in the period in which they are incurred.

Borrowing costs include:

ѕ interest on bank overdraft or on short-term and long-term loans;

* amortization of discounts and premiums related to loans;

* depreciation of secondary costs that arose in connection with the provision of loans;

* amortization of minor costs incurred in connection with the provision of loans;

ѕ differences in exchange rates that arise when obtaining loans in foreign currency, provided that they are considered as an adjustment to interest costs.

IFRS-23 also has a different approach, based on which borrowing costs can be capitalized and not included in the expenses of the period in which they were incurred. Capitalization is the accumulation of costs up to a certain point, with their further write-off to the cost of the asset. This moment may be partial or complete commissioning of the facility. If the development of an asset is suspended for a long time, then capitalization should be interrupted. Complete cessation of capitalization occurs when the activities necessary to use or sell the asset are completed.

IFRS-33 "Earnings per share" establishes rules for organizing information about the amount of earnings per ordinary share. The information is used to compare the results of an enterprise's activities in different reporting periods or for the same reporting period, but different enterprises. The basic ratio is calculated by dividing net profit or loss for the reporting period by the weighted average number of ordinary shares in that period. Net profit is reduced by the required amount of dividends on preferred shares, while the net loss by the amount of these dividends increases.

According to Varlamov S.A. , the basic indicator of the number of shares for the reporting period must be equal to the weighted average number of ordinary shares outstanding during the given reporting period.

The weighted average number of shares in circulation is formed as (formula 1.9):

Thousand pcs., (1.9)

where A is the weighted average number of shares, thousand;

Number of shares at the beginning of the period, thousand units;

Number of shares placed for the period, thousand;

Number of shares purchased during the year, thousand pieces.

This data must be multiplied by a weighted time factor, which requires the number of days during which the shares are in circulation to be divided by the total number of days.

There is also a dilutive effect when common shares are issued and priced below their fair value. The effect is that earnings per share are reduced.

Thus, to obtain information about financial results, the following are used: IFRS 8 “Accounting Policies, Changes in Accounting Calculations and Errors”, IFRS 18 “Revenue”, IFRS 21 “The Impact of Changes in Exchange Rates”, IFRS 23 “Borrowing Costs”, IFRS 33 "Earnings per share."

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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 authorities 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 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 taxation 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 IFRS requirements.

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 accounting policies, 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 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 permissible 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 standards 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 documents of protection, 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 probability 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, business reputation is the difference between the purchase price of an organization and the balance sheet value of all its assets and liabilities. Under IAS 38, goodwill is defined 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 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 sale of products 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, road user tax (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 ones) 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 its 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 not justified, 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 depreciation in the value of a currency that affects the amount of liabilities arising from a recent acquisition of assets in a 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.