© 2000 John Petroff
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© 2000 John Petroff |
As mentioned in the previous chapter, most countries of the world are moving toward a common system of accounting known as international accounting. But not all are moving at the same speed. Especially slow are countries of the former Soviet Union. Some of these have adopted international accounting rules in principle, but accountants that are supposed to apply them, receive little training, assistance or new staff to carry out the conversion to new rules. In addition, tax codes have not been rewritten and tax reporting is mostly unchanged. Moreover, government authorities and especially tax inspectors require the same extensive documentation and statistics as before.
It should be interesting to take a quick look at the Russian accounting system, as an example of traditional non-western accounting, and contrast it with international or national accounting systems. Such comparison should be helpful to assess how well each system fulfills the goals of the accounting function, and serves the needs of decision makers. Understanding the Russian accounting system would become imperative for anyone interested in dealing with a Russian firm as lender, investor or supplier. Even when eventually the international accounting system is fully adopted in former Soviet countries, knowledge of the old system will still be justified because comparison with prior data prepared under old rules will still be necessary.
As it will become apparent, the Russian system emphasizes the balance sheet (i.e. stocks) rather than the income statement (i.e. flows). Because of that, it is not geared to make predictions of revenues and expenses (i.e. future cash flows essential for evaluation of company's potential). Consequently, modern financial analysis is hampered. Yet, financial analysis was rather developed in Russia because government authorities constantly looked for methods to correct inefficiencies in government owned firms. Comparing this analytical approach with that of this manual should also be of interest.
Today, the practical solution for those engaged in financial analysis in banks, accounting and investment firms, has been to convert the financial statements of Russian firms from the traditional format to GAAP or international format. The last section of the chapter will present an example of such conversion and lay out the major rules for doing so.
A- Traditional Russian accounting
B- The problems with traditional Russian accounting system
C- Conversion of financial statement from tradition Russian to
International accounting standards
See review questions Q-7.1 through Q-7.5.
See research assignments R-7.1 and R-7.2.
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