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Accounting, Page 2

7.3 General Regulations for Compiling and Submitting Financial Statements

According to Russian legislation, companies prepare financial statements monthly, quarterly and annually on an accrual basis.

Annual financial statements include:

  • balance sheet;
  • profit and loss account;
  • appendices to the above two items containing additional information on capital movement, cash flow, movement of borrowed funds, accounts receivable and payable;
  • notes; and
  • audit opinion.

Calculations regarding taxes and contributions to non-budgetary funds are not included in the financial statements.

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.

The information in the financial statements for the reporting year and the year previous 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 both companies located in the Russian Federation and abroad.

A financial year of 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 financial statements in Russia are prepared in accordance with statutory legislation which differs from international regulations, in order to present the financial statements to Western founders or investors, the statutory financial statements are normally brought into compliance with international standards.

This enables company shareholders to make more efficient management decisions.

7.4 Audit Requirements

According to current Russian statutory legislation, annual audits are compulsory for the following entities:

  • open joint-stock companies, regardless of the number of shareholders and the size of charter capital;
  • companies with foreign investments in their charter capital;
  • banks and other banking institutions;
  • insurance companies;
  • commodity and stock exchanges;
  • investment institutions;
  • non-budgetary funds financed by obligatory contributions stipulated by statutory legislation from legal entities and individuals;
  • charities and other (non-investment) funds financed by voluntary contributions from legal entities and individuals;
  • companies whose annual earnings exceed 500,000 minimum monthly wages (i.e. 41,745,000 roubles as at 1 July 2000); and
  • companies whose balance sheet assets exceed 200,000 minimum monthly wages as at the end of the reporting period (i.e. 16,698,000 roubles as at 1 July 2000).

Normally, a company in the Russian Federation is entitled to select its own auditor. An auditor may be a legal entity or a registered entrepre-neur who possesses an appropriate license.

In addition to a compulsory annual audit, companies may on their own initiative, engage an auditor to ensure that the financial statements are sufficiently reliable to attract additional investments, etc.

Expenses resulting from a compulsory audit are included in production costs, whereas expenses resulting from a voluntary audit conducted for taxation purposes are not included therein.

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