What should a foreign citizen or investor who has come to Russia to do business know?
Analysts use companies’ financial statements to assess business stability and make forecasts for future development. What forms of reporting do Russian companies use, how do they differ from each other, and which reporting to use.
Russian public companies usually keep records according to two standards — IFRS and RAS. IFRS is an international financial reporting standard. It is used in 120 countries and is made primarily for shareholders and investors. RAS is a Russian accounting standard. This report primarily discloses information for the tax and other government agencies.
Types of reporting
Federal Law on Accounting No. 402-FZ dated 06.12.11 regulates Russian accounting standards (RAS). Its implementation is mandatory on the territory of the Russian Federation. IFRS is regulated by Resolution No. 107 of February 25, 2011 “On Approval of the Regulation on the Recognition of International Financial Reporting Standards and Interpretations of International Financial Reporting Standards for Application in the Russian Federation” and Federal Law No. 208-FZ of July 27, 2010 “On Consolidated Financial Statements”.
The reporting forms under RAS and IFRS reflect the financial and business position of the issuing company: how much it earned and on what, how much it spent and on what, what net revenue it received for the reporting period.
These indicators are reflected in the main reports of both standards:
- in the balance sheet;
- in the profit and loss statement;
- in the cash flow statement.
Despite this similarity, the quantitative indicators in RAS and IFRS of the same company may differ. These differences are related to the specifics of each report.
In simple terms, the difference is that RAS is a formal reporting for calculating tax liabilities, and IFRS provides the most complete information about the company’s activities and its financial position at the moment. The systems’ approach to calculating the value of assets and some other indicators also differs.
In addition, RAS provides data on one legal entity, and IFRS shows general data for subsidiaries and branches controlled by the parent company. That is why financial indicators in IFRS are often higher.
Where to find company reports
Companies publish financial reports on their official websites, usually in the section for shareholders or investors. To find them faster, enter the company name and the phrase “for investors” in the search.
Then open the page and find the section with reports. For example, on the Gazprom website, the path is as follows: “Shareholders and Investors” → “Disclosure” → “Reporting”.
But once again, the GeoBuro company draws your attention to the fact that this applies to large public companies whose shares are listed on the Stock Exchange. Micro, small and even medium-sized companies rarely see such reporting.
You can also find company reports on special websites, such as Accredited Disclosure Centers or the SEC. And RAS reports are available on the website of the Federal Tax Service.
How to use IFRS and RAS reports
In addition to the fact that reports allow you to see the results of a company’s activities and assess its economic position, they can be used to calculate multiples. They help understand the fairness of the company’s share price – whether it matches its price, whether it is overvalued or undervalued. Having calculated the multiples, an investor can make an investment decision based on business performance – whether it is worth investing or selling assets.
IFRS is usually used to calculate multiples or coefficients, but some require stricter RAS reports. What multiples need to be calculated – in the article What is fair value and how to calculate it.
An additional function of the reports is the ability to pre-calculate dividends. To assess the size of dividends, RAS and IFRS are also used – sometimes separately, and sometimes together. The charter of each company specifies how it pays dividends: this can be a percentage of the net profit specified in RAS or IFRS.
RAS reporting can be used when the company does not publish IFRS. This happens when a company issues bonds, but is not public. In this case, RAS will help to assess whether the company will be able to repay its obligations on debt securities.
Why you need to study RAS and IFRS reports
The amount of profit in the reports can be used to predict the growth or decline of a company’s shares, as well as the dynamics of business development. It is better if the company’s financial indicators grow year on year. However, a decline also needs to be analyzed: for example, it could be a one-time write-off or revaluation. This means that the business can still develop, despite the decreased profit indicated in the report.
When making forecasts based on report data, an investor should take into account, among other factors, the possible intervention of external circumstances. Significant economic or political events are often difficult to predict, and meanwhile they can greatly affect the business and income of companies.
Some investors prefer to use ready-made reviews in investment blogs and listen to the opinions of experts. Others trust only their analysis and calculations, so they carefully study RAS and IFRS. In any case, the more information an investor has, the greater the likelihood of making the right investment decision.
What is RAS
RAS is the Russian accounting standard (sometimes “standards” are written instead of “standard”, but it is the same thing). All companies registered and operating in Russia are required to comply with it, regardless of their legal address. The exception is banks and credit institutions.
RAS is a general term that denotes a set of approved accounting rules and regulations. This set includes:
Federal Law No. 402-FZ “On Accounting” dated December 6, 2011.
Regulation No. 34n “On Accounting and Financial Reporting in the Russian Federation” dated July 29, 1998.
Order of the Ministry of Finance of Russia dated October 31, 2000 No. 94n “On Approval of the Chart of Accounts for Financial and Economic Activities of Organizations and Instructions for its Application”.
Order of the Ministry of Finance of the Russian Federation dated October 6, 2011 No. 125n “On approval of the Regulation on accounting “Accounting for the development of natural resources” (PBU 24/2011)”.
Industry regulations, methodological recommendations and provisions.
According to these standards, a company must maintain accounting records and prepare financial statements. You can read more about how to do this in the articles on accounting and financial statements. We will talk in more detail about what reports need to be done below.
Financial statements under RAS are used by internal and external users. Internal users are managers: they make decisions about the development of the company based on data on its financial condition. External users include, for example, the tax office, which controls the company’s taxes, and investors who decide whether to invest in the business.
Public companies are also required to publish RAS reports in the public domain. For example, the reporting of the companies KAMAZ and Surgutneftegaz can be viewed on their websites.
Companies that trade securities, in addition to RAS, must also maintain reporting in accordance with IFRS. IFRS is a set of international principles and rules for financial reporting of companies. Reporting under IFRS is slightly different from reporting under RAS.
What are the features of Russian accounting standards
RAS sets out requirements for how companies must maintain accounting records. The main requirements are for language, currency, reporting period and accounting method.
Language. Reports, documents and journals are made in Russian. Exceptions are only in cases when the company works with foreign partners, investors and creditors. For them, the company must translate reports and primary documentation.
Currency. Accounting is maintained only in Russian rubles. If transactions are made in foreign currency, it is converted into rubles.
Reporting period. Companies submit annual reports by March 31 of the following year. Some categories of organizations have interim periods — they submit reports every three, six, and nine months.
Accounting method. Companies display transactions using the double entry method. This means that the transaction amount is recorded on two accounts — debit and credit. You can read more about this in the article on accounting entries.
What are the reporting forms under RAS
Reporting forms are approved by the order of the Ministry of Finance of Russia. There are six reporting forms in total, and most companies must submit them.
The balance sheet is a summary of information about the value of the company’s assets and liabilities. It shows the state of all accounts on a specific date. You can read more about it in the article on the balance sheet.
The financial performance report is information about the company’s income and expenses for the reporting period, as well as its profit or loss. Read the article to learn more about this report.
The statement of changes in equity is information about changes in equity, the amount of retained earnings or losses incurred during the reporting period; information about changes in the number and par value of shares.
The statement of cash flows is information about cash receipts and payments for the reporting period, as well as about cash balances at the beginning and end of this period.
The statement of targeted use of funds is information about the balance of funds for targeted financing at the beginning of the reporting period and its changes during the year.
Explanations to the reporting forms are a document that contains a breakdown of individual reporting lines. For example, a company can show in detail what its main assets, liabilities, income or expenses consist of.
The experts of the “GeoBuro” company tried to give a detailed answer about the difference in the reports of Russian accounting and International Financial Reporting Standards. The article was prepared on 08/21/2024.