Using IT to Automate 1C-Accounting

Ulf Schneider, Managing Director / Russia Consulting

Most of the accounting departments in Russia use the popular 1C system for their accounting and taxation. One could even say 1C almost has a monopoly. The base version of the system is more or less tailor-made for the specific needs of Russia and not very expensive compared to most other commonly known programs.

Tailor-made for the specific needs of Russia, means in particular that it can deal with most of the complex matters for tax calculation and with proper use of the program, the tax returns can be generated, at least partially, automatically. The focus of the program was always on tax accounting, but companies, who have implemented one of the popular Western ERP-Systems in accounting, very often still use 1C for tax calculation (or did it in Excel) and payroll accounting.

In the meantime, Western ERP-Systems also developed further with regard to the specific needs of Russian accounting. However, a very dynamic development happened on the 1C-side. While version 7.7 of 1C was mainly programmed for tax accounting and partial statutory accounting, the higher versions 8.0 and 8.1 allow several interesting analytical functions in addition. They start with Cost Center and Profit Center Structures, including implementation of a second Chart of Accounting, which means that 1C can finally be used as a full ERP system or at least to create meaningful interfaces with other ERP systems. Of course, these functions are not included in the base version of 1C 8.0 or 8.1 and require qualified IT-Work, however, these versions do grant the possibility to add such functions.

Russian statutory and tax accounting usually do not foresee a detailed breakdown of types of cost. In the Russian Profit & Loss-Statement there are no details like “Salaries and Wages”, “Consulting Expenses”, “Rent and Lease” etc. However, Russian accountants usually know how to create them in 1C as sub-accounts to the general expense accounts 26 and 44.

Western Management often requires a breakdown into Cost Centers and Profit Centers. The advanced version of 1C not only allows for creating such a structure; in addition it is also possible to create keys, where a Cost Center is then allocated to different Profit Centers, for example. Also it is possible to distribute an incoming invoice to different Cost Centers. One can program it so that the monthly office lease invoice will be allocated with a defined allocation key among several Cost Centers right away.

Russian legislation requires the use of the Chart of Accounts developed by the Ministry of Finance. However, most Western companies want a structure with their corporate Chart of Account for consolidation purposes. Such a second Chart of Accounts can be implemented in the advanced 1C Version and then a so-called “Mapping” between the two Charts of Accounts should be done, so that one booking leads to accounting entries in both Charts of Account right away.

At the end of the month one can split up the two data entries and make adjustment bookings for IFRS or US-GAAP transformation. These additional bookings will appear only in the corporate Chart of Accounts and not in the Russian accounting. Finally, an Interface could be created to transfer the data from the corporate Chart of Accounts automatically to the accounting system in the ­headquarters for consolidation purposes.

Some large Western corporations hesitate to implement their Headquarters’ ERP-System in Russia. Reasons are the very special document and tax-driven requirements in Russian accounting. Version 8.1 of 1C has a special variant called “UPP” This stands for “Management of Producing Enterprises” or “Upravleniye Proizvodstvennym Predpriyatiyem.”

The word “Producing” should not be taken too seriously, the variant is very good for enterprises with import and trade, but without any production facilities in Russia. 1C 8.1 UPP can be developed into a well functioning ERP-System that provides most analytical functions with reasonable programming effort. Typical programming tasks are structuring warehouse management with predefined storage places for different goods, different currency regimes with several different options of payment modes and policies for corporate discounts.

Before starting such projects it is important to define the right team. It is not sufficient to let the accountant or the sales and logistics manager discuss the requirements with the 1C programmer. This will, in most cases, lead to severe misunderstandings.

The involvement of a 1C Business Analyst is very much recommended. The better the planning, the shorter the implementation and the more reliable the use of the specific configuration. Also one should not forget that the accountant, who will work with the new configuration, should be trained by the 1C Business Analyst.