Discussion

Ex. 12. a) Read the texts and single out the main facts.

b) Present them in a short review and compare the information and viewpoints in Text (a) and Text (b).

a) For many years the accounting system in Russia was criticized by Western academicians for its failure to adhere to Western accounting principles. Such criticism is no longer valid. Since the early 1990s, accounting in the Russian Federation has changed significantly.

The year 1991 was crucial in accounting development in Russia due to the following three events:

a) Publication of the new Chart of Accounts;

b) Production of a new set of financial statements similar to those used in Western accounting;

c) Beginning of preparations for radical change in accounting and auditing regulation.

In 1992, Regulation on Accounting and Reporting in the Russian Federation was approved by decree of the Government of Russia. The document diminished the control function of accounting and declared the following equal objectives of accounting:

1) Maintenance of control over the availability, movement, and use of material, manpower and monetary resources according to approved norms and estimates;

2) Provision of full and reliable information about the performance and financial results of an enterprise, which is indispensible for operational management as well as for investors, suppliers, customers and creditors, tax, financial, and bank authorities, and others interested in the financial and business activity of the enterprise.

It would not be an exaggeration to say that an essentially new Russian accounting system has come into being with the introduction of the new Chart of Accounts which includes greater cohesion to international accounting norms.

The essential elements of accounting methodology are as follows:

• Documents form the legal foundation for recording transactions according to the approved rules of bookkeeping. No entry should be made unless the bookkeeper has the primary document.

• Taking inventory is the sole means of controlling the physical safety of assets and their valuation. It is the main method of supervising persons who are financially responsible for assets. The safeguarding of assets is always entrusted to a financially responsible person.

• The uniform Chart of Accounts, which provides the nomenclature of accounts and correspondence among them, must be used by all types of enterprises.

• Double entry is a traditional accounting concept that is accepted in Russia as it is in all developed countries.

• Internal reporting includes the general ledger, summary (principal) account registers, primary documents, inventory data, etc. External reporting includes the Balance Sheet, Statement of Financial Results and Their Uses, and supplemental forms that are uniform and obligatory for all types of enterprises. Nonprofit organizations and banks have their own uniform charts of accounts and financial reporting forms. Reporting is carried out according to the statutory regulation and presented within strictly prescribed time limits.

• Information generated by the accounting system must be timely, reliable, full, accurate, and objective.

• Historical cost accounting is the only method of internal and external reporting permitted.

Words you may need:

adhere v придерживаться, оставаться верным принципам

accounting principles принципы бухучета

valid adj имеющий силу, юридически действительный

indispensible adj необходимый, незаменимый

cohesion n связь

primary document первичный документ

taking inventory инвентаризация

sole adj единственный

financially responsible person материально-ответственное лицо

nomenclature n номенклатура (перечень наименований)

correspondence n корреспонденция (счетов)

internal reporting внутренняя отчетность

general ledger главная бухгалтерская книга

summary account register сводный журнал

inventory data инвентарные данные

external reporting внешняя отчетность

Statement of Financial Results and Their Uses Отчет о финансовых результатах и их использовании

financial reporting form бланк финансовой отчетности

historical cost accounting учет на основе стоимости приобретения

b) From an international perspective, it is important to remember that while based on similar principles, Russian accounting does not fully meet international accounting standards (IAS). The main differences are as follows:

• Sales are usually recorded on a cash basis. The cost of goods/services delivered but not yet paid for remains on the balance sheet until payment is received. Most Russian taxes are sales-based. As a result, companies try to minimize sales in their accounts. When sales are recorded on a cash basis, allowances are not made for bad debt, in spite of the fact that bad debts may represent a considerable share of accounts receivable. Sales figures for Russian companies tend to be understated compared with the accrual sales of Western companies.

• Cost of goods sold. Russian companies report the full cost of goods sold, which includes production costs, transportation, depreciation, marketing, and financial expenses. No cost items are disclosed separately. Social costs are not included in the cost of goods sold.

• Depreciation: Only a straight-line depreciation method is allowed. The depreciation rates are fixed by the government and are as a rule significantly lower than in the West. Accelerated straight-line depreciation has been permitted since January 1, 1995 but is still rarely used.

• Fixed assets: Fixed assets pose the most serious problem. Fixed assets are accounted for at historical cost and cover property, plant and equipment. Land is not treated as a fixed asset and does not appear on the balance sheet at all. Even if depreciation rates are lower than in the West, fixed assets are generally undervalued compared with Western practice.

• Accounts receivable: Since most Russian companies record sales when they receive payment, the sales margin is not accrued until that time. Therefore accounts receivable are understated given that the sales margin is not reflected. Overdue accounts receivable are not disclosed separately.

• Consolidation of accounts. Russian companies, including holding companies, are not required to submit consolidated reports. No consolidation standards have been established yet. Some of the holding companies prepare aggregated reports, summing up 100% of all subsidiaries and associates without accounting for intragroup transactions and minorities. Consequently, the reported results of Russian holding companies are usually significantly overstated.

All other aspects of Russian accounting are basically in line with IAS. The Russian government is taking measures to eliminate the most serious divergences.

Words you may need:

bad debts безнадежные долги

accounts receivable дебиторская задолженность

straight-line depreciation method метод равномерного начисления износа

accelerated straight-line depreciation method метод ускоренного начисления износа

sales margin доход от продаж

overdue adj просроченный

consolidation of accounts консолидация счетов

IAS – international accounting standards

divergence n отклонение

Ex. 13. Read the dialogue, sum up its content and act it out:

Accounting Methods

American: Accounting is a kind of data processing and recording. In my country it's usually the accountant who decides on the form which this recording shall take and on the methods to be used.

Russian: Do you mean that in writing financial statements for stockholders and lenders accountants can make the firm look strong and healthy and when preparing tax returns, on the other hand, they can make the firm look poor and weak?

Am.: Accountants prepare financial statements according to rules set by law and by the accounting profession itself. Often the rules allow more than one way of reporting information.

R.: Accounts can be kept on an accrual or a cash basis. How do the two methods differ in real life?

Am.: Firms that keep their accounts on an accrual basis report costs and revenues in the year in which sales are made even if the customers do not pay until later. Those that keep their accounts on a cash basis report costs and revenues in the year in which payment is made.

R.: I know that each method has its pros and cons. But how does each method affect the way the outside users of the income statement and the balance sheet see the image of the company?

Am.: The accrual basis matches the income statement more closely to the balance sheet and accrual basis accounts show rapidly rising income. But little of the income is cash!

R.: What is more, the accrual basis assumes that all accounts receivable will be collected, but in reality some may not.

Am.: For these reasons, some people think the cash basis is a more prudent way to draw up an income statement. Accountants have also to decide how to determine the monetary value of an item included in a financial statement.

R.: What problems can arise here?

Am.: Assets can be recorded at the amount of cash paid to acquire them at the time of their acquisition.

R.: At the historical cost, in other words.

Am.: Yes. In addition, current replacement cost and net realizable value can be used.

R.: Are goods held in inventory another problem area?

Am.: Yes, there are two ways of dealing with inventories. One is FIFO, the other is LIFO.

R.: Theoretically, Г believe, we can argue in favour of both methods. Which works better in real life?

Am.: In recent years many firms have switched from FIFO to LIFO.

R.: Do you have an explanation?

Am.: Yes. During periods of inflation, LIFO results in a higher cost of goods and, hence, a lower reported income. As a result a firm that uses LIFO pays less income tax.

Words you may need:

accounting method метод учета

cash basis метод записи доходов и издержек на счетах только при их поступлении и выплате; кассовая база

pros and cons за и против

the image of a company репутация, имидж компании

monetary value of an item стоимость операции (статьи в балансе) в денежном выражении

current replacement cost текущая восстановительная стоимость

net realizable value чистая (потенциальная) стоимость реализации

inventories pl товарно-материальные запасы

FIFO «первая партия на приход – первая в расход»

LIFO «последняя партия в приход – первая в расход»

Ex. 14. Give extensive answers to these discussion questions:

1. What is the role of accountancy in a free-market economy?

2. What is managerial accounting?

3. Who needs the information provided in financial statements?

4. How are accountants classified in Russia?

5. What services do public accountants offer their clients?

6. What is done in this country to create a strong and respected professional body of accountants?

7. What accounting system is most widely practised in the world?

8. In what way does cash basis accounting differ from accounting on an accrual basis?

9. What do you think of the problem of harmonizing national accounting standards?