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The Development and Status of Auditing in Russia

Authors:
  • St-Petersburg State Agrarian University

Abstract

The paper emphasizes the difference between Russia and Western Europe in the development of audit. A distinction is drawn between audit and the Russian and Soviet tradition of control and inspection. The development of state control in Tsarist Russia is described. The paper examines the distinctive characteristics of control and inspection in the USSR. The changes introduced at the time of the disintegration of the USSR are considered. Finally the present situation with respect to the development of auditing and the auditing profession are reviewed.
The development and status of auditing in
Russia
Svetlana Bychkova
St Petersburg State Agricultural University, Russia
ABSTRACT
The paper emphasizes the difference between Russia and Western Europe in the
developm ent of audit. A distinction is drawn between audit and the Russian and
Soviet tradition of control and inspection. The development o f state control in
Tsarist Ru ssia is described. The paper exam ines the distinctive characteristics of
control and inspection in the USSR. The chan ges introduced at the time of the
disintegration o f the U SSR are considered. Finally the present situation with
respect to the developm ent o f auditing and the auditing pr ofession are reviewed.
INTRODUCTION
The reforms of the economic structure of the Russian Federation (the major
successor state to the former Soviet Union), involving the transition from
the administrative command economy to the market economy, are in full
swing. These reforms are having a profound impact on the development of
accounting and auditing for two reasons. First, accounting and auditing, in
adapting to the changing needs of the reinforcing economic structure, are
called upon to solve a number of new theoretical and practical problems.
Second, both accounting and auditing play a significant role in the economic
activities of the country.
Following the end of perestroika (i.e the failed attempt to reform the
administrative command economic system) the traditional methods of
control and inspection (kontrol' i reviziya) were becoming more democratic.
Auditing firms were launched. Auditing is now undertaken according to the
Temporary Rules of Auditing in the Russian Federation, in which the main
categories and principles of audit are determined. Uniform auditing
Address for correspondence *
Russia, St Petersburg, Pushkin 18 9620, Leningradskoye Shosse 6 house 14 flat 374.
© 1996 European Accoun ting Association 0 96 3-8180
standards will bo produced in the near I nline ami me expected lo he closely
allied with the accepted international standards.
However, the auditing profession in Russia is slill in I lie initial stage of
its development. Currently some audit functions are carried out by a number
of authorized Russian firms as well as by some of the most important
international accounting firms. The scope and quality of the work under
taken varies considerably and, in general, is significantly below that required
for international auditing and reporting purposes.
Presently it is not realistic to expect audit to be performed according to
international standards, given the novelty of the external auditing function
in Russia and also the lack of trained professionals in accounting and
auditing.
AUDITING, CO NTR OL AND RUSSIA
Auditing, as the term is understood in Western Europe, has never existed in
either Russia or the USSR. Throughout the history of Russia the pervasive
power of the overbearing state and the absence of the private ownership of
property (or the veiy strict limits placed upon the exercise of the privilege
of private ownership) rendered impossible the emergence of an auditing
profession. The notion of an independent auditor was absolutely alien to the
consciousness of the peoples living on the plains of Eastern Europe and
Northern Asia.
The term auditing was unknown in the Soviet Union. For example the
term was not included in the standard Soviet accounting glossary (i.e.
Kostyuk, 1990). Instead, there was control (I'control) which has been
described as ‘verification with the aim of ensuring the correctness and
legality of specific activities (Kostyuk, 1990: 106). Further, the word
“control” must be read in its German-French-Russian sense of checking or
inspection (e.g. the French controle des billets)’ (Nove, 1961: 91).
There were no auditors.1 In Western Europe auditors work as members of
an independent professional association in verifying the reliability of the
accounting information conveyed to shareholders and creditors. But in the
USSR there were no shareholders and nearly every creditor was either a
state enterprise or a state institution. Only some state agencies were entitled
to verify accounting statements.
STATE CONTRO L IN TSARIST RUSSIA (UNTIL 1917)
The organization of systematic control commenced in the seventeenth
century when a special ministerial department of accounting affairs (Prikaz)
was formed under Tsar Alexis Mikhailovich (1645-76). The department’s
officials exercised control (i.e. conducted inspections) over the account
books of various organizations, verified the proper use of the budgetary
allocations assii’iird In various stale ollicials and verified the return of
unused monetary resourres and other assets to the state budget.
For towns and provinces the inspections by officials of the department of
accounting affairs were conducted in Moscow. Provincial officials were
required to bring their account books and substantiating documentary
evidence were summoned there. It should be mentioned that, while officials
of the department of accounting affairs were checking the account books
and other records and documents brought to Moscow, at the same time other
officials might be undertaking a physical inventorization in the province to
which those account books, records and documents related. The first (i.e
documentary) inspection was considered to be of less importance than the
second inspection (i.e. inventorization).2 Unfortunately the system of state
control was very ineffective. Russian historians have argued that over half
l he payments in money and kind due from peasants for the state budget were
deflected to the benefit of state officials.
Under Tsar Peter I (1682-1725) the organization of state accounting was
re-examined in connection with the reform of state administration.
Numerous laws and instructions were issued, many of which were based on
Western European. In this manner the function of state control was adapted
to a new pseudo-European system. The reconstruction of state control was
intended to achieve two objectives:
1 strengthen control for the protection of property;
2 increase the income of the state budget.
A new phase began in 1811 when the principal office for the inspection of
state accounts was organized under the influence of the great reformer M.
ML Speransky who has been described as probably the most brilliant
Russian statesman of the nineteenth century’ (Szamuely, 1974/1988: 173).
At a later date the office was renamed the Ministry of State Control.
In the 1860s the efforts of V. A. Tatarinov promoted the adoption of the
best examples of West European practice in state control. At this time,
when the administration of the state budget was reformed, the main
principles of control were formulated. To a certain extent these principles
remain in force today.
However, control over some institutions was forbidden, thereby limiting
the scope and effectiveness of state control. For example, an enactment in
1892 stipulated that certain institutions were to be exempt from state
inspection:
• Ministry of the Court;
• Chancellory (i.e personal office) of the tsar;
Chancellory (i.e personal office) of the tsar for Tsarina Maria’s
Institutions;
State credit institutions and the Credit Office;
Holy Synod for Special Funds (i.e. allocated from the slate budget for
ecclesiastical educational institutions).
In addition, appropriations from all ministries to programmes personal to the
tsar, and some offices, were exempt from state control.
At the very end of the nineteenth century some prominent Russian
statesmen tried to create an Institute of Sworn Accountants. Although all the
necessary statutory documents were developed their initiative received
support neither from the government nor from the public, and did not even
find support among professional accountants.
The government was afraid of competition from an independent and
organized group of professional accountants and inspectors. The public was
afraid of additional expense. In the words of one accountant: ‘We have no
money for real needs but only for disgraceful things’.
Professional accounting circles were sceptical that the emergence of an
accountancy elite could, and would, improve the overall social and material
conditions of accountants. It was believed that anaccounting aristocracy’
would deeply affront the ideas and tastes of the Russian people.
STATE CONTROL IN THE SOVIET ERA (1917-90)
The collapse of the Tsarist autocracy and the assumption of power by Lenin
and the Bolsheviks occurred in 1917. The October Revolution had some
influences on the fate of state control in Russia although most of the
changes introduced were structural in character.
On 18 January 1918 Lenin signed the Decree of the Council of Peoples
Commissars on the Creation of a Central Control Board and Local Control
Commissions. On 9 May 1918, the People’s Commissariat of State Control
was established. The function of the Commissariat was to provide for the
security of cash and other assets. On that day the history of the institutions
controlling the economic activities of all Soviet enterprises began. Lenin
wrote: ‘The goals of control are twofold: the simple inspection of
inventories, stocks and products; and the most complex, the control of the
correctness of work ... control over the system of work organization:
guarantee of the highest efficiency, and so on (Lenin, 1964: 37, 339).
In line with this directive fell all the practical work of control. First о I
all, assets were inventorized and inspected to ensure their safe custody.
Second, the activities of enterprises were inspected to determine theii
economic effectiveness. In spite of the theories advanced by economists
over the decades, the effectiveness of work was measured by the fulfilment
of the state plan set for the enterprise. The more the state plan was exceeded
the better the performance, but performance falling short of the plan wan
regarded as a state crime. As an inevitable consequence, from the 1930s to
the 1980s, the data on the fulfilment of the state plans were distorted in
many eases. The iillenlion ol llie inspection was directed chiefly to this
phenomenon.
In the USSR a complex and multi-structured system of control institu-
lions existed and often competed with, and hindered, one another. The state
financed the institutions exercising this control. The agencies of control
embraced the following.
Branch administrative control
Each higher administrative level within a given branch of the national
economy was required to inspect all enterprises subordinated to its control.
Higher administrative authorities used inspection to maintain discipline
among subordinates rather than for conducting real investigations. There
fore, Russian inspection did not provide the assurance of adherence to
accounting standards as do audits in Western Europe. Only the partners in a
joint venture had the right to undertake an inspection.
People’s control
The people’s control was an autonomous control system that could check all
kinds of enterprise activities. Its structure was very broad and its sphere of
influence could encompass the most diverse aspects of the activities of
enterprises, such as analyzing the quorums at meetings of advisory boards.
However, in 1990 in Russia the activities of the Committee of People’s
Control were terminated and its constituent bodies disbanded. As a rule,
however, joint ventures were outside the scope of people’s control.
Financial control
The financial control was exercised through the subdivisions of the Ministry
of Finance USSR and was orientated towards ensuring that the taxes
dictated by the state budget were paid (i.e. taxes payable were predeter
mined in planning the state budget and were not dependent upon the actual
profits of enterprises). The Ministry of Finance USSR defined the
methodology of accounting from which the financial results (i.e. gains and
losses) of enterprises were determined.
According to its constitution the USSR comprised a federation (or union)
of fifteen soviet republics. (There were also numerous lesser territorial
divisions reflecting the multinational character of the USSR). Consequently,
I here were both federal (or all-union) and republican ministries. The
regulations issued separately by federal and republican ministries were
i ontradictory and not consistent. Republican authorities, acting with
reference to the declarations of sovereignty made by their supreme soviets
in recent times, affirmed the primacy of republican law over the federal law
Accounting in Europe 83
accountant. TIk* usual punishments resulting from intra-departmental and
intra-enterprise inspections were administrative measures such as warnings,
fines and dismissals.
Public control took the form of ‘workers’ control’ undertaken by trade
unions and control groups formed by municipal authorities for special
inspections. For example, these groups might check retail shops for
unauthorized price increases or for concealed products that, for some reason
or other, had been withheld from sale by the shop’s administration.
In these instances punishment might be either administrative or criminal
in form. Employees of the enterprise were permitted to exercise control.
According to the Soviet law on ‘work collectives’ the employees could
request a report from the enterprise’s administration on their control and
inspection activities. The council of ‘work collectives could issue
instructions to the enterprise’s administration on the basis of the results of
inspection.
The role of the trade unions should be especially stressed. The trade
unions controlled the use of human resources, workplace discipline, work
security and the improvement of working conditions. Representatives of the
trade unions were required to participate in meetings concerning production.
Finally, the place of the Bureau of Legal Accounting Expertise within
the functioning of the civil and criminal law courts should be mentioned.
I. xpert witnesses could be called to testify before an investigative tribunal or
ii court of law. Before the October Revolution expert witnesses were
authorized for use by both the prosecution and the defence in legal
proceedings. These conditions created difficulties for the smooth functioning
of the work of the law courts. In the Soviet judicial system experts were
enlisted to aid in impartial factfinding and could not be used by attorneys
representing one side in adversial legal proceedings. As a rule, the attorneys
could not reject the conclusions, or findings, of expert witnesses. Account
ing experts had to pass tests of their knowledge once every five years so as
lo continue to be certified as legal accounting expert witnesses.
In addition to the numerous state control institutions there were the
control activities of the ‘work collectives’. Because there was no co
in'd ination of the activities of all these bodies a given enterprise could be
■aibjected to continual inspection. Some inspectors might approve, and
others disapprove, the activities of the enterprise inspected. It was a
iluation that caused instability in the functioning of enterprises.
On the basis of many centuries of experience of state control and
inspection in Russia conclusions might be drawn as follows:
I The object of control was not organizational systems but people, in the
first place administrative personnel and then the individuals responsible
for specific assets. If these were considered ‘good’ from the point of
view of the authorities empowered to exercise control there would be
favourable results to the inspection. Oilu-i w im -, the inspectors faced the
very difficult task of searching the nomuilive documents for specilic
rules that had been violated and then punishing the offenders in
accordance with the law. (From this primary conclusion the remaining
conclusions flow logically).
2 The inspector analysed the substance of a violation. The inspector
needed not only to understand the situation at the enterprise but also to
determine who was in charge and what was the purpose to be served by
the inspection. The objective of the inspection was not to affirm that
laws had, or had not, been violated, but instead to help the administra
tor to correct the violation or to dismiss the person involved. If the
enterprise’s administration enjoyed the confidence of the senior
authorities there was no need to fear an inspection: the moral intent was
more important than the actual result of the infraction.
3 As the object of control was a person, his or her personal attitudes were
observed by the inspector. Attributes such as style of dress, personal
property, the cigarettes smoked, the consumption of alcoholic
beverages and so forth were subjected to examination. Personal
attributes were more important than documents.
4 State assets were in the custody of specific persons and, therefore,
inventory taking was more significant than documentary inspection.
5 The conferring of intellectual respectability upon control required that
it be defined as a science. On the basis of the work of the eminent
Italian accounting specialist Fabio Besta (1845-1923), that control is a
function of accounting,5 a distinct theory of financial and economic
control was created in tsarist Russia and the Soviet Union.
6 In undertaking inspection confidentiality (stealthiness) was combined
with openness (frankness). A deep distrust of administrators was the
basis of inspection. It was widely believed that administrators did nol
carry out the work with which they were charged: in the best cases duties
were neglected and in the worst cases the state’s property was abused,
Only by confronting the administrator unawares would his, or her, true
face be revealed. Hence, the element of surprise was highly valued.
7 The complex nature of control envisaged inspection of all aspects of
the economic activities of the enterprise. But in real life this rule did
not work.
8 Lenin had predicted the mass character of control. He thought that
under socialism the entire adult population of the country would bo
engaged in control. Until recently two aphorisms were to be widely
heard. ‘Socialism is control’ (Lenin) was countered by ‘Communism in
control squared (popular saying). The mass character of control wan
achieved when the inspectors found additional sources of information
about the possible negative attitudes or bad actions of the persons undci
inspection. To accomplish this objective all employees of the enterprisi
Accounting in Europe 85
were informal about the inspection beforehand, with the inspectors’
telephone numbers publicized and special inspectors mailboxes
installed. Any employee could provide the inspectors with revelations
about any other employee of the enterprise.
THE PERIOD OF CHANGES (SINCE 1991)
Some changes in the approach to control and inspection had arisen during
the time of perestroika. The idea of shifting inspection away from the
central authorities emerged. So did the idea of the establishment of auditing
boards for state departments (ministries) responsible for branches of the
national economy. The term ‘audit’ penetrated into financial and banking
controls.
The practice of audit for joint ventures, introduced in 1987 in the former
Soviet Union, was to some extent a departure from traditional inspection.
But, in general, the reality was still far removed from the normal West
European procedures.
For the immediate post-Soviet period internal auditing and external
auditing should be distinguished.
Internal auditing
The partners to a joint venture are required to specify in its founding statute
how often, and in what way, internal audits will be performed for purposes
of control and how relevant information is to be conveyed to its partners.
Usually a clause was introduced into the founding statutes for enabling a
partner, or partners, at any time to ask for any information concerning the
joint venture’s operations and financial position.
Audit commissions, appointed by boards of directors, may make annual
internal audits. The commissions normally include representatives of all the
partners. Contrary to the usual Soviet practice the participation of minister
ial officials in the auditing commissions was not obligatory. The partners
may, and do, have professional accountants to perform internal audits. The
reports of the auditing commission have to be submitted to the board of
directors for approval.
Kxternal auditing
The external auditing for joint ventures was supposed to conform to West
European practice in that the audits have to be performed by independent
auditors. The goals of auditing for joint ventures are different from the
Koals of inspection. The former are tax orientated whereas the latter are
imti-fraud orientated.
Some important developments took place during this recent period. First,
the year 1991 was crucial to accounting development snw three significant
events:
1 the publication of a new, and largely revised, national chart of
accounts;
2 the introduction of a new set of financial statements similar to those
used in West European accounting;
3 the commencement of preparations for a radical change in accounting
and auditing regulations.
Second, the Russian government has granted accounting and auditing firms
the right to perform full-scale audits not only for joint ventures but also for
Russian business undertakings.
Third, the law on auditing to be introduced in 1994-95 in Russia is
intended to establish the main independent auditing procedures. It will create
a wholly new auditing environment that will be dominated, almost certainly,
by the big international accounting firms.
THE PRESENT SITUATION
The Temporary Rules of Auditing in the Russian Federation, approved by
presidential decree No. 2263 on 22 December 1993, determine the main
categories and principles of auditing in Russia. The principal provisions of
the Temporary Rules are:
1 Auditing activity must be implemented in accordance with the
Temporary Rules until replaced by the proposed audit law.
2 All individuals involved in audit practice must be certified by 1 October
1994 in accordance with the Temporary Rules.
3 All auditing firms must be licensed by 1 January 1995 in accordance
with the Temporary Rules.
The Auditing Committee under the President of Russia was created for the
state co-ordination of auditing. The principal regulating documents (e.g.
those setting out the procedures for the certification of individuals, the
licensing of firms and the rates of fees for mandatory auditing) are required
to be written by the Auditing Committee and approved by the government
of Russia.
The process for the preparation of audit standards is developing fast.
There are intended to be thirty-three audit standards. By April 1995 ten
standards had been drafted. All have been published in Bukhgalterskii
uchet, the accounting journal, for discussion by specialists. Following the
completion of the discussions the draft audit standards are expected to be
approved by the government and confirmed by presidential decree.
Auditing may be done either to fulfil a legal requirement or on the
initiative of the entity to be audited. The mandatory audit is carried out by
an auditing (inn, or independent auditor, on behalf of a court or the public
prosecutor. In si k'Ii a cast; the audit must be completed within two months.
All expenses must be covered by the client whose activity has been audited.
Any enterprise, and its directors, evading a mandatory audit can be taken to
court and fined. The amount of the fine can vary from 100 MS to 500 MS
for enterprises and from 50 MS to 100 MS for each of its directors (where
MS is equal to the amount of the minimum monthly salary not subject to
taxation i.e. 22,400 roubles since 1 July 1994).
Audit is compulsory for:
banks, insurance companies and stock exchanges;
investment institutions (i.e. investment funds and their holding
companies);
charitable funds;
companies with annual revenue in excess of 500,000 MS or total assets
in excess of 200,000 MS.
Auditing can be carried out by auditing firms (including foreign auditing
firms and joint ventures) and certified auditors holding a special licence and
are listed in the State Register of Auditors and Auditing Firms. An auditing
(irm may have any form of organization recognized by law except that of a
corporation. Independent auditors and auditing firms may not carry on any
kind of business unrelated to accounting, auditing, financial analysis or
consulting.
The professional certification of auditors is accomplished by special
certification commissions. The procedure and fee for certification, as well as
the licensing procedure, are approved by the government of Russia. The
main regulating document is the Rules of Certification and Licensing for an
Audit Activity, approved by the government decree No. 482 on 6 May 1994.
To be certified as an auditor a person must have an economics or law
diploma from a higher (i.e university or institute) or specialized vocational
(i.e. training school or college) educational institution, as well as three (out
of the last five) years experience in accounting, auditing, inspection or in
teaching accounting and finance.
In addition, certified auditors and registered auditing firms must be
licensed. It is anticipated that four different kinds of licence will be issued
l or auditing:
banks and insurance companies;
stock exchanges;
investment funds;
all other enterprises.
I he agency that has licensed a given auditor or auditing firm may verify the
quality of the audit, if considered necessary, either on its own initiative or
at the request of the client audited (if deemed necessary) or at the request
of the public prosecutor. II unsatisfactory wml n. discovered the auditing
firm can be prosecuted and it must cover all the expenses so incurred. In
similar circumstances an independent auditor also may be prosecuted. Fines
may be imposed: from 100 MS to 500 MS for an auditing firm and up to
100 MS for an independent auditor.
The licence of an auditing firm or an independent auditor may be
cancelled by the issuing body for any of the reasons specified in the
Temporary Rules, such as an adverse court decision, repeated unqualified
audits and so on. A firm or an individual auditing without a licence may be
prosecuted. The profits realized from such unauthorized audit activity must
be refunded. In addition the firm can be fined from 500 MS to 1000 MS
(and with corresponding amounts for an individual).
According to the Temporary Rules the auditor’s report must consist of
three parts:
1 an introductory section: in this section are shown the name, address and
telephone number of the auditing firm and the names of all the auditors
involved in the audit. Also shown is the name of the agency that
licensed the auditing firm and, for the latter, its registration number and
the expiry date of its licence;
2 an analytical section, giving the name of the firm audited, the
accounting period, the quality of the accounting and the internal
controls, and any material misstatements and any deviations from the
accounting regulations;
3 an opinion section, outlining the conclusion, based on the results of the
audit examination.
Each page of the audit report must be signed by the auditor and sealed with
his, or her, stamp. In addition, the audit report must be signed by the
manager of the auditing firm (viz. the person who has been authorized to
sign for the firm and seal with the auditing firm’s stamp). The opinion
section can be presented by the business enterprise audited to all the parties
and users interested in its activities.
In the present situation a large number of auditing firms are appearing but
their qualifications for undertaking audit work have not yet been established.
No extensive literature is available explaining how to conduct audits in an
internationally acceptable manner. Various texts are being translated into the
Russian language and tuition courses specifically devoted to West European
and North American auditing are being offered.
However, auditing requires a thorough grasp of accounting and, above
all, Russian auditors should be accountants. In addition to the need for a
thorough understanding of financial auditing techniques, the notion о I
managerial, performance or operational auditing is rapidly gaininj',
acceptance in different regions of the country.
Auditing techniques are still being subjected to considerable refinement
niul their i 11 pit* 11 н* 111111 i о 11 is proceeding. Some form of integrated or
‘comprehensive' auditing, also known as ‘value for money auditing’, might
well be a goal for the future. The installation of computer-orientated
systems also requires expertise in computer auditing techniques. This is
another area where further enhancement of audit practice may be warranted.
At present internal auditing is the least unified area.
In fact, during the most recent years some problems, connected with
strengthening the accounting and auditing profession, have been solved:
1 a comparison of Russian and West European charts of accounts
revealed no large differences (therefore the proposed new Russian
accounting and auditing standards should have a very strong correspon
dence with those applied in Western Europe);
2 special training and certifying centres for auditors were created;
3 the professional associations in Moscow, St Petersburg and the regional
centres are fast developing.
CONCLUSION
The paper has demonstrated that the conception of control and inspection
utilized in Russia over many centuries, both in tsarist Russia and the Soviet
Union, has differed fundamentally from the tradition of auditing that
evolved in response to the expanding needs of business people and investors
in Western Europe. The difference is explainable in terms of the enduring
pervasive power of the state in Russia.
Since the disintegration of the USSR auditing practices common to
Western Europe have been introduced gradually into Russia. Provisional
rules for the establishment of auditing firms and independent auditors in
Russia have been introduced. The foundations for an independent audit
profession are being laid. In a few years some progress has been achieved
although there is room for further improvement.
NOTES
I The term ‘auditor’ is described as a ‘non-So viet term in Smith (1962: 13).
Docum entary control (dokum ental nyi /control’) and physical control
(fak tich esk ii kon trol’) were distinguished in S oviet texts. See, for example,
Bobyr (1975: 51 -7 0).
I It was not unusual for Sov iet texts on control and inspection to include a
reference to the state inspectorate for fire prevention and similar services.
I Am algamation ( ob edinenie) - a multi-establishm ent combine (e.g. comprising
a number of industrial plants and research and developm ent laboratories). The
re-grouping o f state enterprises occurred largely during the 1970s.
> Fabio Besta considered that political economy studied the national economy
whereas accounting was the political econom y o f the individual enterprise.
Accounting was understood as the science of econ omic control. Accoun ting, as
the means o f economic control, studied the movement of material values
connected with the specific activities o f direction (i.e. executive action);
administration, and iii control. D irection signified the achievement o f stated
objectives. Administration (m anagem ent) signified the optimization of
resources and time for the achievement of the stated objectives with give n, but
lim ited, financial resources. Control signified the ascertainment o f the degree
of adherence by administration to the stated objectives through the uncovering
of, say, untapped opportunities for an improved performance in the discharge
of responsibilities. Control w as a function o f accounting and divided into
preoperational, operational and post-operational control (Sokolov,
1985: 98-102). See also Zan (1994: 28 6- 8).
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... Nevertheless, the evidence of benefits from IFRS adoption and other reporting reforms is indispensable in the context of globalization, and the BRIC nations' experiences establish a precedent for the rest of emerging economies. The Russian reporting environment was examined primarily at an early stage of the accounting reforms (1990s) with little evidence on benefits of IFRS (Bourmistrov & Mellemvik, 1999;Bychkova, 1996;Smirnova et al., 1995;Sokolov & Kovalev, 1996;Sucher & Bychkova, 2001). Alon (2013) examined factors that played a role in how Russian organizations managed institutional complexity created by the coexistence of local standards and IFRS, but provided no evidence of IFRS adoption consequences. ...
... The accounting evolution in Russia has been examined primarily in relation to the 1990s when the accounting reforms began. Smirnova et al. (1995) discussed the changes in the accounting education and training during the transition period within Russia, while Bychkova (1996) and Sucher and Bychkova (2001) described the changes in internal and external auditing practices during the 1990s. Sokolov and Kovalev (1996) focused on the challenges faced by the accounting profession after 1991 and Richard (1995) examined the role of the historic accounting attributes on the formation of the modern reporting practices in Russia and Romania. ...
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The study examines the impact of IFRS adoption and concurrent regulatory reforms on the reporting quality of Russian public firms. Unlike much of prior literature focusing on the economic and legal explanations to the IFRS adoption, we build on the neo-institutional theory of DiMaggio and Powell (1983, 1991). We show that changes in reporting quality, as measured by value relevance of information and the degree of conditional conservatism, are a function of the type of the isomorphic pressure within a country. We find that firms that experienced coercive, mimetic and normative societal pressures - those that both adopted IFRS and were affected by other regulatory reforms - experienced significant improvements in reporting quality. We do not find such evidence for firms that experienced only coercive pressure - those that were affected by changes in regulations but were exempt from the IFRS reporting requirement. Overall, the study sheds light on complexity of the interplay between external pressures and a wide array of internal pressures on public firms to adopt IFRS. Notably, the study’s unique research settings also allow us to achieve a better identification strategy, compared to prior IFRS studies that attempted to disentangle the IFRS adoption and regulations/enforcement effects. Our findings indicate that the incremental “IFRS adoption” effect on reporting quality was significantly positive, whereas the individual “regulations” effect was non-detectable.
... Accounting glossaries as recent as 1990 did not even include the word "auditor." The traditional Russian approach, going back to the time of the Tsars, had more to do with control and inspection than with checking and verifying in the Western sense (Bychkova 1996;). That approach is now changing. ...
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Much has been written about the economic and political problems of countries that are in the process of changing from centrally planned systems to market systems. Most studies have focused on the economic, legal, political and sociological problems these economies have had to face during the transition period. However, not much has been written about the dramatic changes that have to be made to the accounting and financial system of a transition economy. This book was written to help fill that gap. Using Russia as a case study the authors examined all the major aspects of accounting reform, starting with problems of implementation. They also examined the current state of auditing in Russia. Other studies looked at the changes in accounting education that are sweeping through Russian universities and the private sector and how international accounting certification is being used to meet the demand for credible accounting practitioners. They also devote chapters to corporate governance issues, the Russian tax system and the problems Russian enterprises face when they try to attract foreign direct investment. "Accounting and Financial System Reform in a Transition Economy: A Case Study of Russia" is the first in a series on accounting and financial system reform in transition and developing economies. Other volumes will examine accounting and financial system reform in Eastern Europe and Asia and the changes to the taxation and public finance systems these countries are going through in their transition to market economies. © 2005 Springer Science + Business Media, Inc. All rights reserved.
Chapter
The paper is devoted to the difficulties of interpreting the profession and determining the qualifications of auditors in Russia, which have become aggravated in recent years due to significant changes in the audit legislation and the self-regulation of the profession. With the help of a brief excursion into the distant and modern history of auditing in Russia, it is shown that the problem of establishing the requirements for the educational level and the competencies of auditors has always been problematic. The paper also introduces a new model of competency-based assessment of auditors—2020 which is centered around the verification of prospective auditors’ competencies pursuant to the International Education Standards.
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This study extends the literature on the association between business risk and audit pricing by exploring the economic sanctions of 2014 imposed by the Western community on Russia. The sanctions targeted predominantly Russian companies with state ownership, potentially leading to increased business risk for these companies. I find support for the notion that, post-2014, audit fees increased in the case of Russian state-owned companies. This evidence suggests that auditors passed on costs, arising from sanctions-driven increase in audit risk, to their clients. Further, the Russian government responded to sanctions by encouraging state-owned companies to terminate their audits conducted by auditing firms with foreign capital and/or foreign partnerships—Big 4 firms—meaning these firms were likely to lose their lion’s share of the Russian audit and consulting revenues. Nevertheless, I do not find evidence that Big 4 firms started to offer services at a discount to retain lucrative contracts with leading Russian companies. In contrast, the results indicate that Big 4 firms charged companies with state ownership higher fees for their audits, following the imposition of sanctions.
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The Russian regulatory environment offers a unique audit duality situation in which public companies receive two separate financial statement audits by the same audit firm: one based on Russian Accounting Standards (RAS) and the other on International Financial Reporting Standards (IFRS). We assess whether audit duality influences audit quality, measured by modifications to the standard audit report. Using a sample of public Russian companies from 2004 to 2016, we find that audit duality significantly reduces auditors' propensity to modify the audit opinions for both the RAS and IFRS audits as compared to companies that engage a different firm for each audit. This potential reduction in audit quality is mitigated when the company is in a loss position. The presence of Big N dual auditors does not diminish the observed findings and, in fact, appears to translate into lower-quality RAS-based audits of financially distressed companies. JEL Classifications: M42; M48.
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This article focuses on the rights, obligations, functions, coordination and subordination of the main regulatory bodies in the spheres of accounting, auditing and taxation. Presented are the main regulatory documents most recently issued. Part of the article is devoted to the process of the attestation of accountants and auditors. This topic is illustrated from the point of view of regulatory documents. The main difference between Western and Russian approaches to the regulation of accounting and auditing is the following : in the West, professional bodies play a primary role, while in Russia the Government fulfils this function. This results in the centralisation of accounting methodology. Moreover, the second specific feature of Russian accounting is its orientation towards the tax authorities. When there is a conflict between accounting regulations and tax authority regulations, the accountant must choose the latter-there is no choice.
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Differences and similarities of Russian and Western approaches to auditing standards
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This paper presents an overview of the current state of auditing in Russia. International Standards on Auditing (ISA) are in the process of being adopted and implemented but this task is far from complete. Furthermore, there is resistance to ISA adoption and there is less than a widespread perception that they are needed or desirable. Russia has adopted some auditing rules that are not included in ISA and the focus of audits in many companies is tax compliance or minimization rather than attestation. Lack of full compliance with ISA makes it more difficult to attract investment capital, since foreign investors do not place much confidence in financial statements that do not comply with International Accounting Standards and that were not audited using ISA.
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This is the first and only book to offer a comprehensive survey of accounting research on a broad international scale for the last two centuries. Its main emphasis is on accounting research in the English, German, Italian, French and Spanish language areas; it also contains chapters dealing with research in Finland, the Netherlands, Scandinavia, Russia, Poland and the Ukraine as well as Argentina and Japan. In a time of financial globalization, familiarity with accounting research in countries beyond the English language boundary is no less important than familiarity with the recent, comprehensive research activity in the English language area. It also offers a survey of the present state of the art (from empirical to analytical accounting and from such esoteric subjects as gender issues to the archaeology of accounting); finally, it casts a glance into the future.
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This paper reviews 107 academic research publications appearing between 1988 and 2011 that studied accounting changes in post-communist economies. While there has been a significant amount of prior research focusing on accounting changes in economies undergoing the transition from communism to a market economy, there has been a lack of synthesis and overview of the literature in this field. In order to develop such a synthesis and overview, the reviewed publications have been categorized according to a framework proposed by Barbu (2006), and then further classified into changes pertaining to accounting institutions, changes in accounting systems (i.e. legislation, principles and standards), and interactions between economic changes and accounting changes. We then interpret our findings through several theoretical frameworks that provide explanations regarding relationships between economic changes (i.e. in particular the transition from communism to a market economy) and accounting changes. This analysis has led to a proposed new framework to better understand relationships between economic changes and accounting changes during the transition from communism to a market-based economy.
In the last quarter of the nineteenth century the rising tempo of industrialization in Russia was accompanied by the establishment of the first accounting firms. Throughout the period proposals were advanced for the formation of a professional accounting association. These efforts were unsuccessful although accounting societies were established during the last decade of the Tsarist autocracy. Following upon revolution and civil war the New Economic Policy introduced a mixed economy and a period of stability. A professional association, inspired by the example of the Institute of Chartered Accountants in England and Wales (ICAEW), was formed but suppressed with the consolidation of the Stalinist autocracy.
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In recent years there has been increasing recognition of the marked national differences in approaches to accounting. What is less clearly appreciated is how accounting historiography is also fragmented into different national traditions,with diverse patterns and frameworks for reconstructing and interpreting accounting's evolution. The prominence given to accounting theory and practice may vary in different historical periods, not least in terms of the emphasis given to the contribution of different scholars and schools of thought in the evolution of accounting theory. This article concentrates on the Italian tradition of accounting from the time of Paciolo, and on how Italian accounting historiography has depicted the evolution of this tradition; it critically questions the periodization generally adopted, the interpretations made of the relative roles played by non-Italians and Italians in the evolution of accounting ideas down to the mid-nineteenth century, and the ways in which the contribution of more recent authors and schools of thought have been variously evaluated. It suggests that the emergence of national idiosyncrasies in accounting historiography may be seen as part of a wider process of institutionalization, and the creation of modern disciplinary identities and practices.
Doing Business in Russia and the Other Fortner Soviet Republics: Accounting and Joint Venture Issues
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The Philosophy of Auditing
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