The new Federal Law No. 402-FZ “On Accounting”, dated 6 December 2011, (the “Law”) is due to come into force beginning on 1 January 2013. The Law aims to replace Federal Law No. 129-FZ “On Accounting”, dated 21 November 1996, and it introduces some important amendments to the existing accounting regime.
The Law does not provide a grandfather clause, meaning that as soon as it comes into effect, the previous law will be abolished.
The Law contains a number of accounting issues to be considered; however, we note that the Law does not introduce anything revolutionary in the accounting sphere. We highlight below the main changes that the Law introduces, and we comment on their practical implications.
The Law aims to replace current accounting standards (“PBUs”) with new federal and branch ones. It also recognises internally developed standards of a company as the documents regulating accounting. Nevertheless, the currently existing PBUs are not abolished and should be applied till the respective new standards are developed. Thus, the Law is not ground-breaking in terms of accounting standards.
The Law does not replace Russian GAAP with IFRS. In fact, it refers to IFRS only with respect to setting new federal and branch accounting standards which should take into consideration international standards.
Therefore, companies are still required to maintain Russian accounting records and may not replace them with IFRS, which were recently accepted in Russia for consolidated reporting purposes only.
At the same time, Russian accounting is changing to be similar to IFRS. Still, a full-scale implementation of IFRS to replace Russian GAAP is not expected in the near future.
The scope of the Law has expanded substantially. While the previous law exempted from mandatory bookkeeping sole proprietors, advocates, and, under certain conditions, entities using a simplified taxation regime, the Law establishes a binding character of bookkeeping for them.
The only exceptions to the Law are for sole proprietors and those engaged in individual practice, as well as the branches and representative offices of foreign entities, when such persons maintain accounting records for income/expenses in compliance with the rules set by tax legislation.
One of the most important changes that the Law introduces concerns drafting primary accounting documents. The Law does not require that primary accounting documents be issued in compliance with unified forms. Instead, the Law contains only requirements on mandatory requisites, while the forms of the primary accounting documents will be subject to mandatory approval by a director. Consequently, each company will be free to develop its own form of primary accounting documents.
At the same time, companies may use the old forms, while the newly developed forms should be set as part of a company’s accounting policy.
Therefore, it is necessary to review the current accounting policy and currently used forms with respect to simplifying and raising the efficiency of the accounting process by developing and introducing new forms.
Moreover, the Law does not require that all documents related to monetary operations have two signatures, such as those of the director and chief accountant. Also, there is no requirement that the director, upon the chief accountant’s approval, has to provide a list of persons empowered to sign primary accounting documents. Thus, it may be concluded that such requirements will not continue to be mandatory once the Law comes into force.
Another important change relates to accounting registers: the Law lists the key elements of such and allows developing own registers subject to approval by the CEO and fixation in the accounting policy.
The Law provides for the possibility of primary accounting documents and registers being drafted as digital documents signed by digital signatures.
The latest clarifications from the Ministry of Finance in relation to the Electronic Signature Law recognise only documents “signed” with a qualified electronic signature as duly signed. Therefore, a primary accounting document “signed” with a non-qualified electronic signature may be treated as invalid for tax and accounting purposes.
In this light, to avoid claims from the tax authorities, it may be sensible to introduce a qualified enhanced electronic signature.
The Law permits changes to accounting policy in the event that a new method of accounting is developed and it improves the quality of reporting. Changes in accounting policy, however, take effect only from the next reporting year.
The Law does not mention an audit statement as being a mandatory element of financials. At the same time, the Law does mention addendums to financials required by other regulatory legal acts. We believe that entities subject to mandatory audit will still have to submit an audit statement with their financials, while other companies will be relieved from this requirement.
Under the current wording of the accounting legislation, companies are required to submit financials to the tax authorities neither yearly nor during the year. However, the Tax Code does require that companies submit financials to the tax authorities under the Law “On Accounting”; therefore, a circular reference exists.
The Law envisages a unified register of financials to be created and kept by the statistics bodies, which would enable access to the financials of all companies. Correspondingly, the Law forbids introducing a commercial secret regime with respect to financials. This may relieve companies from submitting financials to the tax authorities.
At the same time, until non-submission of financials is explicitly allowed, the requirement to submit financials to the tax authorities is not completely eliminated.
Unlike the existing law on accounting which established the complete discretion of a company’s director in deciding the bookkeeping option, the Law contains strict rules requiring the director to impose bookkeeping on the chief accountant or another official, or enter into an accounting services provision contract, i.e. outsource the accounting function.
Requiring that a director complete the accounting by him/herself is permitted only in small and medium-sized businesses.
Furthermore, the Law removes the requirement of having the chief accountant’s signature on the financials, retaining this requirement instead only for the director. In addition to this, the Law does not have a statement that is similar to the one in the previous law, requiring the chief accountant to be responsible for forming the company’s accounting policy, carrying out accounting, and completing timely and credible reporting.
In the case of a disagreement between the chief accountant and the director over (non-)reflection of a certain primary document or a certain object, the former may request a written order from the director who will bear full responsibility for such (non-)reflection.
All these facts together could imply a certain redistribution of responsibility between the chief accountant and the director; but it would be rather too absolute to state that from 2013, the chief accountant will not be responsible for accounting at all, with all of his/her responsibilities shifting to the director.
The requirements of professional experience of chief accountants are the significantly new amendments to the Law.
For a long period of time, this issue was addressed by introducting various professional certifications for accountants. The provisions of the Law are far more radical; however, the requirements are imposed only on the chief accountants of joint-stock companies and other entities whose securities are traded on stock exchanges or by other official securities traders.
The Law introduces requirements for the education, professional experience and criminal records of chief accountants. At the same time, such provisions apply only to chief accountants hired after the Law comes into force, and the provisions do not apply to persons already holding the positions of chief accountants as at the Law’s date of entry into force.
The Law requires that companies organise and carry out internal control of business processes; however, no further details are provided. The Law does not introduce a mandatory position of internal controller, specify his/her functions, etc.
The Law establishes certain specific matters of financial statements if a legal entity is reorganised or liquidated. In particular, the Law clearly requires the last financial statements to be drafted by the liquidation commission (the liquidator) in the case of liquidation.
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