In the 1990s, many Western companies came to Russia. Their fate in Russia turned out in different ways. Some closed their offices because of the crises of 1998 and 2008. Others stayed but only at the level of a representative office. But there are also those who have succeeded in building a successful business in Russia. What influenced the final result? Of course, a large part was played by economic factors, but not least was the correct organisation of the business, taking Russian reality and specifics into account. This includes organising accounting and tax reports. If a report does not meet all the requirements of Russian law, a new business is often deprived of the opportunity to continue its activities. The sanctions in the form of fines applied by the supervisory bodies are very severe.
What does one need to know first of all for the correct structuring of accountancy and tax reports in Russian conditions? The first thing is to pay attention to the tremendous number of requirements and regulations which have to be followed both by the accounts department and all the other departments of the new business. Otherwise, when they are checked by the state supervisory bodies, the business owners face serious difficulties. In most Russian companies, the tax report is an unconditional priority because it is associated by company managers with risks of additional payments in the form of fines. Here the accountancy side of things plays more of an auxiliary role.
The tax report is an unconditional priority because it is associated with risks of additional payments in the form of fines.
On the basis of the above, to structure a report (particularly a tax report) correctly, you must find a professional accountant with not less than 15-20 years’ experience who must know his way confidently through all the subtleties of the tax requirements. True, it is now possible to bring in an outsourcing company to outsource the tax and accounting reports. My point of view is that this course is only advisable if we are talking about representative offices, not about an actual business with production and sales. If the number of operations to be reflected in the report is significant, the cost of outsourcing will prove much higher than the salary of a professional accountant. Also, with outsourcing, there is a serious risk that errors in a report made by an outside organisation and leading to significant tax consequences will not be corrected by the owners of the business.
On the other hand, you need to understand that accounting teams formed 15-20 years ago are most likely to be able to cope well with tax checks and reports, but they are not usually competent enough in accountancy. In recent years, the Ministry of Finance of the Russian Federation has been systematically changing the standards of Russian accountancy to bring them closer to the international financial reporting standards (IFRS). Furthermore, for public companies, the IFRS standards are required to be met as well as the Russian ones. Pursuing a predetermined strategy, the Ministry of Finance may very soon enforce a complete transition to IFRS on all companies in the Russian Federation.
The Ministry of Finance of the Russian Federation has been systematically changing the standards of Russian accountancy to bring them closer to the international ones.
Accountants now need to have not only knowledge about the chart of account and how an economic operation is reflected in the report. An accountant must also be able to make professional judgements and assessments about bad debts, deductions, asset depreciation and so on. Practice shows that the old accounting staff did not know how to adapt, and consequently, companies had to seek out qualified staff resources outside. An invaluable service in this was provided by the international auditing companies, who in a short period were able to train large numbers of staff in all the details of IFRS, which later served as a basis for organising accounts reporting meeting both the Russian standards (to a lesser extent) and the IFRS (to a greater extent) in all the big companies in the Russian Federation. Nevertheless, in connection with the plans for a complete transition to IFRS for all enterprises in the Russian Federation, all employers are finding there is a shortage of IFRS-qualified personnel. This particularly applies to those with businesses outside Moscow and St. Petersburg.
All employers, particularly those in the Russian regions, are finding there is a shortage of IFRS-qualified personnel.
What should be done now by Western entrepreneurs who intend to open a business in Russia and want to safeguard themselves at once against risks connected with possible errors in accounting and tax reports? I would recommend, firstly, searching the labour market to find, and then taking onto the staff, a qualified tax specialist with experience of not less than 15-20 years and entrusting him with the tax report. And secondly, the same should be done for an accountant with 5-10 years’ experience, preferably in an auditing company. This specialist should look after the accounting report.
Note also that in taking a decision on which employee should head the accounts department, a business owner should decide what his priority is: to reduce the risk of tax penalties or to bring accounting completely up to IFRS requirements.