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. Last Updated: 07/27/2016

Russia Urged to Bring Up Its Accounting Standards




In a world where international business is rapidly moving toward adopting an international standard of accounting, Russia needs to move quickly to reform its tangled system or risk falling hopelessly behind, warn Western experts assisting in the government overhaul of the nation's accounting regulations.


"Russia has three years to change, otherwise it will be extremely difficult for it to catch up later," said David Damant, senior adviser to the International Center for Accounting Reform, or ICAR, which is advising the government.


Lack of clear and transparent accounting standards has long been a barrier to outside investment in Russian firms, a problem the Finance Ministry decided to address last year by setting up the Inter-Agency Commission for Accounting Reforms last year. The commission has solicited assistance from ICAR and the International Accounting Standards Committee to help Russia implement accounting reforms.


Foreign advisers acknowledged that progress has been incremental, but said the government appears to be genuinely concerned about the problem.


"Accounting is politically neutral," said Donald Beskine, head of ICAR. "The Russian experts are educated and very demanding. They want to know not what, but why. They want to hear the arguments and understand fully the rationale behind our accounting practices before deciding whether to accept it."


Western advisers are quick to point out that even though Russia needs to adopt international standards quickly, the nation is not a lost cause. With the exception of Britain, the United States and the Netherlands, few countries have accounting systems that create financial transparency, they said.


"Russia is hardly out on a limb in the world of accounting," Damant said. "However, Russia is in a more difficult situation because it is a country where the underlying culture was never oriented toward a market economy."


Advocates of global accounting standardization and reform, such as Damant, say that the changes will allow business managers seamless access to international capital markets, making it cheaper and easier to attract outside capital.


Russia, which has failed to draw large sums of direct foreign investment - partly because of its opaque financial reporting system - would seem an ideal poster child for accounting reform, he said.


Barter, which is thought to account for well over half of this country's economic activity, has made Russia something of an authority on the subject in international accounting forums, experts said.


Presumably, a Siberian metalworking plant's experience in paying creditors with rubber tires can contribute to the debate on how a U.S. airline should report the value of a deal that swaps seats for free advertising, they said.


"In as far as [barter] exists, the committee is concerned with how we can account for it," Damant said.


The movement for reforming international accounting standards formally began in 1973 with the creation of the International Accounting Standards Committee, but it was not until the early 1990s that it began to gather steam - thanks in part to the Soviet Union, Damant said.


The Soviets' decision to permit German reunification in 1990 acted as a catalyst for international reform, which had been stagnant for years, he said.


"After unification, German companies needed access to lots of cheap capital to economically integrate the eastern parts of the country with the West, and the way to do that was to get access to the international capital markets at a low price," Damant said.


That created pressure for European and Asian companies doing business with German firms to become more financially transparent, he added.