Requirements of the Russian government have been playing a leading role in accounting. Thus, Russian companies have to use a standardized chart of accounts which is determined by government regulations and can only be slightly amended according to the requirements of a company.
It can be assumed that the accounting work is several times more voluminous in Russian accounting than in comparable circumstances in Western countries. In addition, the supporting documentation to be provided by either third parties or by the company itself is at least four times greater.
This can be demonstrated by the following:
- A contract, such as a consulting services agreement with fixed monthly payments is not sufficient evidence to support consulting expenses. Even a monthly invoice is not sufficient. The invoice is the basis for authorizing a bank transfer; however, the payment has to be initially recorded as an advance payment to a service provider. Only after the provider has issued a so-called “act” (a formal statement of acceptance of a service) which contains a breakdown of the services provided can the advance payment be transferred to the expense account.
- Profit tax returns, as well as the majority of other tax returns, have to be submitted to the authorities on a quarterly, rather than a yearly basis.
- In addition to tax returns and reports to the social security funds, additional reports have to be submitted to the statistics office. The submission periodicity of statistical reports depends on their nature, and may occur on a monthly basis, yearly basis, or anything in-between. Altogether, at the end of a quarter, a company may have to submit more than 10 reports to the state authorities.
- Payments to or from a foreign company are subject to currency control procedures. Before the bank can make payments for a contract of the total amount of 50,000 USD or higher (incl. VAT), the Russian company has to submit the underlying contract, the related invoice and numerous other forms to the bank in order to open a “passport of deal”. Within it, special forms and supporting documents for each currency operation are provided to the bank. Also, the bank may have additional requirements when processing these documents.
- As there are some optional accounting principles for both tax and financial accounting, each company, on a yearly basis, has to define which principles it intends to apply. Then they must document this in their “Accounting and Tax Policy”, and strictly follow these rules. This document should be provided to the tax authorities at their request.
- Matching revenue and expense, as practiced in the West, is not widely practiced in Russia, especially in small and medium-sized companies. Russian Accounting Standards require such matching; however accountants still tend to recognize revenue and expenses based on the actual receipt of supporting documents, as this is an obligatory requirement for tax accounting.
It should be pointed out that the General (Managing) Director of a company bears significant responsibility for the company’s accounting function and compliance of its operations with legislation.