Russian accounting is regulated by a system of legal acts which consists of four different levels.
The first level consists of the laws regulating the way accounting is set up and maintained by companies, including:
• the Federal Law "On Accounting", which contains basic accounting and reporting requirements;
• the Civil Code of the Russian Federation, which consolidates many accounting issues. The Civil Code of the Russian Federation, in particular, defines a legal entity as having its own balance sheet, establishes the obligatory approval of annual financial statements, provides definitions of subsidiary and associated companies and determines procedures for reorganisation and liquidation of different kinds of legal entities;
• the Federal Law "On Development of Small and Medium Business in the Russian Federation" which provides for accounting and reporting compilation according to a simplified procedure;
• the Federal Laws "On Joint Stock Companies" and "On Limited Liability Companies", which establish information disclosure and presentation requirements, stipulate the requirement for the data contained in the annual report to be confirmed by the internal auditor, determine the procedure by which the annual financial statements are approved, as well as instances in which an audit opinion is required.
The second level consists of accounting regulations.
As of 1 April 2009 there are 23 Accounting Regulations (Standards) for commercial entities (except credit institutions which are regulated-by special standards). They regulate accounting policies, compilation and presentation of financial statements, accounting for fixed and intangible assets, inventory, loans, income, expenses, financial investments, profits tax, etc.
In content, many of these regulations are close to International Financial Reporting Standards (IFRS). Bringing the national accounting system in accordance with IFRS is part of the accounting reform started in 1998.
New accounting regulations are intended to be issued in the future. The topics covered will be in accordance with the current list of IFRS standards. In particular, Russian accounting regulations currently have no standards on leasing or impairment of assets, for example. Furthermore, the existing accounting regulations are revised on a regular basis in order to enhance their compliance with IFRS.
The third level comprises methodological instructions on accounting, including recommendations in which specific procedures for applying principles and regulations of accounting are set out for particular types of activities.
One of the most important documents at this level is the Chart of Accounts and related instructions.
The fourth level includes documents issued by the company itself, which determine its accounting policies in all systematic, technical and organisational aspects and are approved by the company's internal order on accounting policies. If there are any specific accounting methods that are not specified in relevant accounting standards, companies have the right to develop them independently and to adopt them by including them in the order on accounting policies.
Branches and representative offices of foreign companies located in the Russian Federation are allowed to maintain their accounting on the basis of regulations established in the country in which the foreign company resides, unless these regulations contradict IFRS developed by the International Accounting Standards Board (IASB).


The key accounting principles in the Russian Federation are as follows:
• Separate entity principle, in accordance with which assets and liabilities of the company are separate from assets and liabilities of the owner or assets of other persons provided to the entity;
• Going concern principle, in accordance with which it is assumed that the company will continue operating in the foreseeable future;
• Principle of consistence of accounting policy application which means that the accounting policy selected by the company is applied consistently from one reporting year to another, and the change of the accounting policy is possible in case of changes in the legislation of the Russian Federation or in accounting regulations, new accounting methods developed by the company or significant changes in operating conditions;
• Matching principle, in accordance with which business operations are recorded in the reporting period in which they occur regardless of when receipts or payments relating to these transactions are actually made;
• Principle of timeliness and completeness of recording transactions;
• Prudence principle, in accordance with which the accountant should rather record liabilities and expenses than assets and income and should not allow for any hidden reserves;
• Substance-over-form principle, in accordance with which transactions should be accounted for based on their economic substance and business circumstances, rather than legal form;
• Principle of non-contradiction, in accordance with which analytical accounting data should be identical to synthetic accounting data as of the last calendar day of each month;
• Rationality principle meaning application of a rational accounting method based on the company's size and business environment;
• Materiality principle, in accordance with which data on material assets, liabilities, income, expenses and transactions should be recorded separately if this information is essential for evaluation of the entity's financial position or financial results.
Companies use a working chart of accounts developed on the basis of the centrally established Chart of Accounts.
All business operations performed by companies should be supported by relevant source documents. These documents are primary accounting documents underlying the financial statements.
All business operations should be documented in Russian. Source documents prepared in other languages should be translated into Russian on a line-by-line basis.
In order to improve regulation in the field of accounting new Russian Accounting Principles (PBU) coming into force for the financial statements for 2009 and replacing the previously effective PBU were approved:
• PBU 1/2008. Accounting policy of a company': This PBU discloses the details of preparing accounting policy of a company. In comparison to the previously effective PBU 1/98 'Accounting policy of a company' PBU 1/2008 in particular establishes the company's possibility to base its accounting policy not only on PBU but also on IFRS should the legislative acts fail to provide specific types of accounting for a specific matter. It also expands the range of individuals who can form accounting policy (in particular, it stipulates that accounting policy can be formed not only by the chief accountant but also by other individual entrusted with bookkeeping).
• PBU 2/2008 'Accounting for construction agreements': This PBU was introduced to replace the previously effective PBU 2/94 'Accounting for agreements (contracts) for capital construction'. PBU 2/2008 stipulates the principles of recognition of income and expenses, financial results as well as disclosing in the financial statements the information by the companies acting as contractors or subcontractors under construction contracts with duration of work more than one year as well as contracts with start and completion dates in different reporting years. This PBU also applies to the contracts to provide services in the areas of architecture, engineering for construction and other services intricately linked with the asset under construction, for reconstruction, modernization, maintenance, liquidation (dismantling) of fixed assets with duration of more than one reporting year (long-term contracts) or contracts with start and completion dates in different reporting years. The new PBU at considerable extent reproduces international standards of financial statements (IAS 11 'Construction Contracts'). The new PBU has significantly extended the provisions on accounting for income and expenses under contracts as well as recognition and determination of financial results;
• PBU 15/2008 'Accounting for expenses on loans and borrowings': PBU 15/2008 stipulates the principles of recognition in the accounting and financial statements of expenses incurred in connection with obligations on received loans and borrowings. This PBU was introduced to replace the previously effective PBU 15/01 'Accounting for loans/borrowings and related expenses'. The new PBU is applied both to interest-bearing and interest free loans and borrowings as well as state loans (whereas the previously effective PBU was not applicable to interest free and state loans);
• PBU 21/2008 'Changes to estimates': This PBU stipulates the rules for recognition and disclosure of information on changes to estimates in the financial statements and introduces their approximate list. In particular, by changes to estimates they mean adjustments to value of assets (liabilities) caused by new information that is made based on an estimate of the current situation within the entity, future expected benefits and liabilities and is not a correction of errors in the financial statements. In particular, amounts of provisions (for bad debts, for impairment of inventory and other), useful lifes of fixed and intangible assets, etc. are considered estimates.
At the moment, the RF Finance Ministry has also developed a draft PBU 22/2009 'Correcting errors in accounting and financial statements' stipulating the rales for correcting errors and disclosing information on such corrections in the financial statements. It is assumed that this PBU will come into force in 2009.


A company's financial statements must present fully and reliably the company's economic and financial position, any change in this position, as well as the financial results of the company's activities.
According to Russian legislation, commercial legal entities prepare interim financial statements (as a cumulative total for each quarter, six months and nine months), as well as annual financial statements.
Annual financial statements include:
• balance sheet;
• income statement;
• appendices to the above two forms containing additional information on changes in equity, cash flows, movement of borrowed funds, changes in accounts receivable and payable, etc.;
• notes; and
• audit opinion issued in the cases stipulated by legislation.
Interim financial statements include the balance sheet and the income statement, unless otherwise stipulated by the founders (shareholders).
Tax returns are not included in the financial statements.
The information in the financial statements for the reporting year and the previous year must be presented in comparable formats. A company's financial statements must include the results of the activities of the company's branches, representative offices and other structural subdivisions.
If the company has subsidiaries or associated companies, consolidated financial statements must be prepared in addition to the company's own financial statements. The consolidated financial statements must include figures from the reports of companies located both in the Russian Federation and abroad.
A financial year for a Russian enterprise is a calendar year.
Companies submit quarterly and annual financial statements to:
• shareholders;
• statistics authorities;
• tax authorities; and
• other interested users (upon the decision of the shareholders).
Considering the fact that company financial statements in Russia are prepared in accordance with statutory legislation, which differs from IFRS, in order to present the financial statements to foreign founders or investors, the statutory financial statements are normally brought into compliance with IFRS. This enables company shareholders to make more efficient management decisions.
Presenting financial statements in accordance with IFRS and, consequently, increasing their transparency, will facilitate the inflow of foreign investment into the production sector of the economy and increase the possibility of obtaining financing in the local market.
At present, Draft Law: 'On Accounting' is being finalized; another Draft Law 'On Consolidated Financial Statements' is being considered by State Duma. These laws have been drafted in order to implement the Concept for the Development of Accounting and Reporting in the Russian Federation and are intended to ensure broader integration of IFRS into Russian practice.


Most provisions of the Federal Law 'On Audit Activities' of 30 December 2008 #307-FZ comes into force starting from 1 January 2009. Part of the provisions of the Federal Law 'On Audit Activities' of 07 August 2001 #119-FZ was cancelled, however another part remains effective until 31 December 2010.
According to the Federal Law 'On Audit Activities' #307-FZ annual audits are compulsory for the following entities:
• open joint stock companies;
• credit or insurance companies, commodity and stock exchanges, investment funds, non-budgetary state funds;
• organisations whose annual earnings from goods sold (work fulfilled, services rendered) for the year prior to the reporting year exceed RUB 50 million (or USD 1.475 million), or whose total assets as at the end of the year prior to the reporting year exceed RUB 20 million (or USD 590 thousand).The legislation of the subjects of the Russian Federation may reduce the mentioned financial performance indicators for municipal unitary enterprises;
• in other cases stipulated by federal laws.
Apart from compulsory audits, entities are entitled to use audit services at their own initiative to confirm their financial statements, for example, for the purposes of attracting additional investments.
Normally a company in the Russian Federation is entitled to select its own auditor.
Starting from 1 January 2010 individuals holding an audit qualification certificate and being members of one of the self-regulation associations of auditors (SRA) or audit organizations-members of one of the SRA. Audit licenses become invalid starting from 1 January 2010, and audit organizations and individual auditors that are not members of the SRA, are not entitled to perform audits and provide audit-related services. During the 'transition period' - 2009 - audit organizations and individual auditors should comply with all the requirements of the Federal Law 'On Audit Activities' #307-FZ, in particular, join one of SRA and adjust the constituent documents in accordance with the requirements of the new federal law.