AUTOMATED
ACCOUNTING
SYSTEM
Simple Structures
Simply Success
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Differences between IFRS and Russian Accounting Standards
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Approaches to IFRS Reporting in Russia
5
Transformation vs Parallel accounting
5
Choice of Accounting System
7
Possibilities of ITAN
8
Further Customization
13
How we can help you
16
Our Offices
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In 1998, the Russian government started an initiative to harmonize
national accounting standards with IFRS. Since then, more than
twenty new accounting standards have been issued and implemented
by the Ministry of Finance of the Russian Federation that aim to align
local accounting practices with IFRS. Despite these efforts, differences
between Russian Accounting Standards (RAS) and IFRS still remain.
The major differences between RAS and IFRS originate from differing
fundamental definitions and concepts. At the heart of the problem lies
the question on the ”substance over form” or “form over substance”
concept. IFRS are laid out in a conceptual way and can be characterized as taking an “substance over
form"-approach to accounting. For example, they do not refer to debit- and credit-postings, they do not
contain instructions on bookkeeping procedures, there is no predefined chart of accounts with fixed
account numbers, no instructions on how transaction documents should look like. Neither do IFRS
contain instructions on how often stock-taking should take place, nor do IFRS regulate who should bear
and compensate the losses in the event an inventory difference is found.
In Russia, accounting regulations have traditionally been very prescriptive and thus invite a “form over
substance”-approach. In practice, accountants may be meticulous in ensuring that documents have the
correct form. The form of a document may, however, inaccurately reflect the substance of a given
economical fact. As accountants traditionally have little or no experience with the “substance over
form”-concept, they may not be prepared to embrace and apply the differing IFRS approach.
As one of the results of the particular Russian perspective on accounting, accrued expenses and
accrued revenues - well-known to western accountants - are rarely applied. (The term accrual is
hereinafter used as an abbreviation for the terms accrued expense and/or accrued revenue.) The
Russian accountant will usually wait to receive documents from the client or supplier and will not do
any postings before the necessary documents have been received. In effect, this approach may render
the aim of an early and fast monthly closing unfeasible.
Further key differences of RAS and IFRS are presented in the table below.
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Table 1. Example of differences IFRS and RAS
IFRS
RAS
Cash flow statement
Direct and indirect methods may be
applied
Only direct method allowed
Correction of mistakes
Comparative information has to be
recalculated
Mistakes are corrected in the current
period, no recalculation of comparative
information
Internally
created
intangible assets
Cannot be recognized generally
except capitalization of development
costs in some cases
Can be recognized in some cases
Amortization of intangible
assets with not-identified
usage time and goodwill
No amortization
Amortization about 20 years, but not
longer than company’s life
Depreciation of tangible
assets
Dismantling costs have to be
included in an re-estimate of assets,
if applicable (as change in initial
estimation)
Dismantling costs cannot be included in
the initial costs
Capital
costs
Capitalized, if related to replacement
of identified component, which will
bring future benefits and can be
reliably estimated
Capitalized
only
if
related
to
modernization
and
reconstruction;
technical support and replacement are
to be expensed
Inventory costing
Valuation at the lower of net
realizable value or purchase costs
Only purchase costs, revaluations are
not common
Effective interest rates
This method is usually applied for
different valuations (for financial
instruments, etc.).
Not practically applicable in Russia, in
standards only from 2013
Deferred tax recognition
Balance sheet method
Based on Profit & Loss information
reconstruction
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If companies with operations in Russia are obliged to present reports according to IFRS, they face the
challenge to organize IFRS reporting for their Russian entity.
Regularly, a company has to choose between two approaches for IFRS reporting:
a) transformation/translation of the local balances/cumulative figures into IFRS
vs.
b) parallel IFRS accounting, where each document is posted not only in RAS ledgers, but also in IFRS
ledgers.
Transformation vs Parallel accounting
Parallel accounting means maintaining two reporting data
bases – a RAS and a IFRS accounting data base. Usually,
specialized accounting systems are implemented which allow to
reflect each transaction simultaneously in both data bases.
The
parallel
accounting
approach
requires
big
financial
investments and investments in terms of time committed during
the start-up implementation phase and during the ongoing
support of the specialized accounting system.
As in the overwhelming number of cases, companies set up in Russia have to follow RAS for Russian
tax and financial reporting, companies are well advised to implement specialized accounting systems
that are able to produce reports fittinglocal requirements and international requirements. Creating a
workable combination, requires not only investment, but also highly qualified specialists with knowledge
of both RAS and IFRS.
IFRS transformation (or translation/restatement) is a periodical exercise to prepare IFRS reports for
a certain reporting timeline. Any IFRS transformation is based on the reclassification of RAS financial
reports and making adjustments to them.
By definition, transformation means the preparation of a number of tables, which are able to clearly
demonstrate the translation of RAS statements to IFRS reports. Please see below an example of a
transformation table, which we implement for our clients (pic.1):
Pic.1 Example of transformation table
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Not all accounting systems applying parallel RAS and IFRS accounting are capable of producing a
similarly clear-cut reconciliation between RAS and IFRS. This being said, one of the key points to base
a company’s choice for a particular transformation system on should be transparency of reconciliation
bookings. However, any transformation system has its own restrictions which are rooted in the
technical possibilities of the programs applied (for example, usage of EXCEL tables instead of
accounting programs).
One of the main drawbacks of the transformation approach is the fact that between reporting deadlines,
preparing operational reports for the company’s management and other interested parties is
impractical. In general, financial reports produced as a result of transformation bookings are less
reliable and bear a higher risk of mistakes as compared with parallel accounting.
As a transformation is a simplified process, it relies heavily on professional assumptions and
judgments. Furthermore, in case the final IFRS reports are prepared in any other currency than
Russian rubles, it is practically impossible to correctly calculate the historical exchange rate rubelforeign currency exchange rate for incoming inventory without parallel accounting.
In the table below we have prepared a comparison of both methods for IFRS reporting.
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Table 2. Comparison of transformation and parallel accounting for IFRS reporting
Parameter
Transformation
Parallel accounting
Reliability of the
High
information
assumptions
Launch time, investments
Very quick, external specialists or
Long launch time, trainings of in-
needed (system, trainings,
special providers are contracted
house personnel necessary
Not needed
Required
Not possible
Possible
risk
of
mistakes;
includes
High reliability of the information
etc.)
System choice,
development and upgrade
Possibility to receive
operational information
Choice of Accounting System
One of the key elements of the parallel accounting is the choice of a specialized accounting system.
For the accounting of their Russian operations, companies may follow two schemes:
a) to implement one of the European systems which is used in the
Headquarters
or
b) to implement locally developed programs
and adjust it to their corporate standards.
For each company, its individual case has to be analyzed from the point of view
of local risks and chances arising connected to choice of a leading accounting system and the risks
and chances arising on the corporate level.
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Possibilities of ITAN
For companies, which opted for the most commonly used Russian accounting software 1С as their
leading accounting system for their Russian operations, the market offers, among others, the
specialized module ITAN to solve the question on IFRS accounting. RUSSIA CONSULTING has
implemented ITAN as an IFRS reporting tool for its clients, which allows parallel RAS and IFRS
accounting in the standard version of the common local accounting program 1C. The ITAN module
does not add complexity to the basic system and does not require frequent system upgrades (which
are common with the basic accounting software 1C in Russia). Therefore, ITAN represents a
specialized IFRS module which can be added to the standard 1C functionality at any time and includes:
 the corporate IFRS chart of accounts, which is flexible and can be tailored to fit the requirements of
individual corporate standard (pic.2);
 the mapping which identifies interdependencies between the (standarized) Russian chart of
accounts and the corporate IFRS chart of accounts;
 the opportunity to create a number of different parallel reports, e.g. apart from reports according to
IFRS additional parallel management reports.
Pic. 2. Example of IFRS chart of accounts
.
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Pic.3. Local document and created IFRS document
The majority of the IFRS
postings
draw
documents
which
on
the
trigger
postings in the local RAS
accounting. Thus, in the IFRS
sub–ledger, each local RAS
document creates a parallel
document “IFRS transactions”
which is being posted to the
corporate
according
IFRS
to
the
accounts
mapping
rules.
Mapping rules for the transfer of documents from the RAS chart of accounts to the IFRS chart of
accounts are created in a special document “Accounts mapping”, which allows for different mapping
rules. For instance, one Russian account may be mapped to several IFRS accounts, only the debit part
of postings is reported in IFRS, restrictions are possible as to the provider to the IFRS account.
Furthermore, the mapping definitions allow to save and add analytical details for cost and profit
allocations (profit centers and cost centers for expenses); on counterparties for settlements with
suppliers, etc.
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Pic.4. Mapping in ITAN
ITAN automatically checks all translations and in case if a mapping rule does not exist, it displays
translated bookings on special earmarked accounts 00ТС и ХХТС for further reference. ITAN also
includes information on why the mistake has happened. By analyzing the earmarked accounts,
translation mistakes can be corrected.
The system also includes a number of instruments which allow to create transactions which are not
recorded in RAS, but only apply to IFRS, such as:
 Periodical expenses, which allow for differing depreciation and amortization methods according to
RAS and IFRS rules;
 Month-end closing in ITAN allows to calculate financial results not only for calendar month, but as
well for periods with deviating lengths;
 Opening balances for IFRS accounting for the first adoption of IFRS standards;
 Reversals of temporary transactions (for example, accruals from previous periods).
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The system allows to fix IFRS balances at a certain reporting deadline after the report date, while
keeping the RAS balances open for correction and further postings after the corporate reporting
deadline. Any corrections of local balances in RAS will be reflected in ITAN with document dates which
lay after the report date. The mechanism looks as in the following (pic. 5):
Pic.5 Mechanism of fixing IFRS balances
ITAN allows implementing a special procedure for accruals postings, which are to be reversed in the
next month after the corporate report has been submitted. The special document “Reversal of
temporary postings” allows to define a number of flexible criteria for reversals of accruals posted in
ITAN and to define a set of postings which should be reversed.
RUSSIA CONSULTING developed the standard ITAN functionalities as to reversals even further by
adding the possibility to define the model of reversal already in the accruals posting document. The
reversal of the accrual then takes place automatically.
ITAN includes a standard number of reports, which allow to analyze data according to different points
of interests: trial balance, based on the chart of accounts, cost center information, etc..
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Pic.5.Standard IFRS reports
ITAN includes possibilities to form standard financial reports such as:
 Balance Sheet
 Profit and Loss statement
 Cash flow.
The layouts of these standard reports are rather flexible and can tailored to the individual company’s
requirements using the standard system configuration, ITAN also includes the possibility to create multilanguages reports and to recalculate the reports in various preferred currencies. For the recalculation of the
reports, various exchange rates such as spot exchange rates or average exchange rates may be used.
ITAN includes special reports which allow to check whether all local transactions have been reflected in the
IFRS reporting. Ensuring maximal transparency of the transformation bookings from RAS to IFRS, the ITAN
module offers a report on the differences between RAS and IFRS bookings. As well, a report is available on
postings which have been added in the RAS module after the reporting period in the IFRS module had
been closed.
As mentioned above, ITAN allows for the parallel setup of management reports. If required, second parallel
mapping may be defined between the RAS chart of accounts and the company’s corporate chart of
accounts which caters for special reports, e.g. with regard to profit or cost centers. Within the mapping, the
allocation of costs and revenues may be redefined from auxiliary cost centers to consolidating cost centers
and profit centers according to set allocation keys. Therefore, ITAN may be used to locally produce flexible
management reports.
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One of the advantages of the 1C ITAN application is the possibility to upload financial data to corporate
ERP systems, with which the 1C modules used for RAS accounting purposes are usually not
integrated.
Adapting a group’s corporate ERP system to meet the numerous requirements of the Russian
authorities may prove a complex task. Many companies with an extensive network of offices and
subsidiaries around the world are faced with difficulties when attempting to implement at their corporate
IT solutions for their Russian operations due to following factors:
 Predefined RAS chart of accounts - the RAS chart of accounts is defined on the government level,
its structure is fixed and unified for all companies;
 Special unflexible paper templates for primary documents;
 Obligatory use of the Cyrillic alphabet in the primary documents;
 Differences in the rules and requirements of the Russian and international accounting standards;
 Separate tax accounting in parallel with the financial accounting;
As companies have to cater to the local Russian standards, it is not always possible to adapt
corporate ERP systems for Russian legal requirements in a short time and at low cost.
RUSSIA CONSULTING has implemented a number of projects where 1C ITAN has been integrated
with the corporate ERP system. In particular, RUSSIA CONSULTING has a wealthy experience in
integrating 1C ITAN withthe leading corporate ERP-system SAP. We have developed various
interfaces for data transfer in various formats (XML, XLS, CSV, TXT and others). Among the
interfaces realized are data transfers from 1C ITAN to corporate ERP systems and vice versa from
corporate ERP systems to 1C applications. The approach to exchange relevant data on postings
between the local and the corporate leading system ensures compliance with local statutory
requirements as well as and compliance with corporate reporting including for consolidation purposes
within corporate the ERP system.
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Standard data interfaces following the below structure:
In this approach, 1C RAS is the leading system for local accounting requirements and ensures
compliance with:
 Preparation of all required primary documents:

Delivery note

VAT- invoice

Invoice

Expense reports

Payment orders

Special paper forms for Fixed assets and Inventories movements (including stocktaking
documents)

Payroll calculation and payroll documents
 Calculation of VAT:

fulfillment of purchase ledger

fulfillment of sales ledger

fulfillment of tax register for VAT

preparation of outgoing and incoming VAT invoices journals
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 Profit tax calculation

preparation of required tax registered applicable for tax check up

preparation of supporting documents for tax check up
 Property and transport tax calculation
 Submission of statutory and tax reporting in a special electronic format accepted by
tax authorities
Usually, postings from 1C RAS are uploaded to 1C ITAN on monthly basis for the transformation of the
RAS financial reports to IFRS reports. After the transformation process is finished, the adjusted data
are uploaded into the leading corporate ERP system of the HQ, for example, SAP. In addition, ITAN
offers the possibility to additionally upload separate sales reports and stock reports from 1C to SAP.
For the data upload, several models as to the aggregation of data of postings may be considered and
implemented. The uploading file may contain data on single postings, allowing for maximal
transparency and a non-restricted follow-up analysis of composed financial results. As well, during the
creation of the uploading file, data on single postings may be aggregated with the effect to save on the
volume of the uploading file and on the number of transactions carried over to into the leading
corporate ERP system.
In summary, 1C ITAN, combined with a data interface to the leading corporate ERP system offers the
following benefits:
 Automation of parallel accounting under RAS and IFRS;
 Fast and accurate management reporting;
 Minimizing double entry of information;
 Transparency and control.
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RUSSIA CONSULTING has a team of accountants with extensive expertise in RAS and IFRS
accounting and IT experts experienced in the implementation of interfaces between different ERP
systems. We will be pleased to provide you with:
 Analysis of the requirement to IFRS reports;
 Recommendations as to the choice of a leading accounting system;
 Overview for possibilities to integrate the accounting system of your localentity into your global ERP
system;
 Report templates;
 Support during external and internal audits of your local entity.
Please feel free to contact us to discuss your individual IFRS reporting requirements.
PRIMARY CONTACTS:
Alexey Kozlov
IT Director
KozlovAA@russia-consulting.eu
Anne Richter
Senior Manager - ERP Business Development
RichterA@russia-consulting.eu
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Moscow
115054, ul. Bakhrushina, 32/1
T + 7 / 495 / 956 55 57
Ulf Schneider
Managing Partner
SchneiderU@russia-consulting.eu
Lars Flottrong
Director & Partner
FlottrongL@russia-consulting.eu
Mike Allen
Director & Partner
AllenM@russia-consulting.eu
info@russia-consulting.eu
www.russia-consulting.eu
St. Petersburg
Kiev
194044, Finlyandskiy pr. 4a
T +7 / 812 / 458 58 00
Andreas Bitzi, Director & Partner
01601, vul. Shovkovychna 42-44
T +380 / 44 / 490 55 28
Sven Henniger, Director & Partner
BitziA@russia-consulting.eu
www.russia-consulting.eu
HennigerS@ukraine-consulting.eu
www.ukraine-consulting.eu
Minsk
Warsaw
220012, ul. Surganova, 29
T +375 / 17 / 290 25 57
Polina Meleshko, Head of Office
02-001, Al. Jerozolimskie 81,
T +48 / 22 / 695 03 10
Piotr Linke, General Director
MeleshkoPS@belarus-consulting.eu
www.belarus-consulting.eu
LinkeP@poland-consulting.com
www.poland-consulting.com
Almaty
Aktau
050000, ul. Zheltoksan 111 A
T + 7 / 727 / 333 44 48
Kirill Afanasyev, General Director
130000, Mangistauskaya oblast
District 14, BC “Zvezda Aktau”
T +7 / 7292 / 47 00 38
Kirill Afanasyev, General Director
AfanasyevKV@kazakhstan-consulting.eu
www.kazakhstan-consulting.eu
Hamburg
20095, Burchardstraße 19
T +49 / 40 / 226 33 76 0
Ulf Schneider, Managing Partner
SchneiderU@germany-consulting.de
www.germany-consulting.de
AfanasyevKV@kazakhstan-consulting.eu
www.kazakhstan-consulting.eu
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info@russia-consulting.eu
www.russia-consulting.eu