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. Last Updated: 07/27/2016

Firms Brace for Accounting Reform

In one of the first and broadest attempts to extend Russia's economic reforms to the enterprise level, the government is preparing a decree that would promote large-scale restructuring at virtually every major Russian industrial firm.

Mikhail Kopeikin, head of the department for economics and investment in Prime Minister Viktor Chernomyrdin's office, said he expects President Boris Yeltsin to sign a decree later this month mandating that Russian firms comply with Western accounting standards and granting them ownership rights to the land on which their factories sit.

The decree, which has been in the works for the past three months, was speeded up after the International Monetary Fund urged the Russian government to take a closer look at industrial restructuring, he said.

He said the decree was "directly" related to the work of the IMF mission in Moscow last month, and was one of the "most important conditions" for disbursement of the August tranche of the three-year $10 billion loan to Russia, which the IMF board approved Friday.

Yaroslav Lisovolick, an expert at the Russian-European Center for Economic Policy, said the move signalled the government's readiness to take on industrial reform of individual enterprises after securing stabilization at the macroeconomic level.

"This marks the second stage of the government's effort to make Russia's sluggish economy efficient," he said.

Kopeikin said that at the heart of the restructuring policy was a government decision to allow enterprises to become full owners of their land plots, in order to "create a land market so that they can attract investments."

He did not describe in detail the future ownership mechanism, but said the land plots would be made available to enterprises at a "minimum cost simply to secure a legal status of the selloff."

The policy would probably take effect later this year.

For companies that already have privatized the land under their production facilities, the government would offer compensation of about 50 to 60 billion rubles ($9 to $11 million), he said.

In a major departure from years of Soviet-style bookkeeping practices, the government also plans next February to require the use of international accounting standards at Russian enterprises.

"While foreigners don't understand our accounting practices, our own people can't make them out either," Kopeikin said.

He said the government would plan a number of conferences in the next two months to familiarize Russia's vast army of accountants with the new bookkeeping rules.

"For a Western investor who wants to know how well a company is doing, there is still an information barrier [because of Russia's accounting standards]," Lisovolick said.

Yevgeny Maznev, deputy director in charge of economics at the Stoilensky Ore Mining Plant in the southern Belgorod region, said the decision to bring domestic accounting in line with Western standards "was very good news for the industry. Our production management is already very close to the Western norm, but accounting still lags behind," he said, adding that the plant would begin using dual standards -- Russian and international -- from early October.

However, Sergei Pavlenko, director of the Center for Economic Reform, said it was "unrealistic to expect that from the second quarter of next year everyone would conform to Western standards."

The transition could take up to a year, and would involve producing a special scheme to convert the existing books to Western-style accounting, he said.

The Cabinet will meet in December to assess the progress of industry reform, Kopeikin said.

IMF officials have said they are keen to see Russia move ahead with reforms.

in areas such as privatization, agriculture, industry and regulation of natural monopolies "to see investment go into the right sectors and get higher economic growth."