The New Law on Accounting

The Federal Law dated 06.12.2011 N 402-ФЗ "On Accounting" has come in force on 1st of January 2013. We shall review the principal differences of the provisions of the new Law "On Accounting" and the provisions of the Federal Law dated 21.11.1996 N 129-ФЗ previously in force.

The scope of the Law

The scope of the Law "On Accounting" has been broadened considerably. Apart from companies, subsidiaries and representative offices of foreign companies the following are referred to as the commercial subjects that are under the scope of the law:

• sole traders;
• lawyers that have established their legal firms;
• notaries public;
• other persons carrying out private practice.

Further, the law mentions separate commercial subjects, such as state authorities, local authorities, management authorities of non-budget funds, the Bank of Russia.

A separate provision in the Law N 402-ФЗ establishes that it shall be applied under the following circumstances:

• where budget accounting and preparation of budget financial statements are implemented;
• where a trustee implements accounting of the operations with property under the trust;
• where accounting is introduced in a simple partnership;
• where accounting is introduced when enforcing agreements on partitioning of products.

Exemption from accounting

Having compared and analyzed the provisions of Article 4 of the Law N 129-ФЗ and Article 6 of the Law N 402-ФЗ the following conclusions can be made:

1. Sole traders and persons that are engaged in private practice (including lawyers carrying out activities through a legal firm) remain to be entitled to the exemption from accounting under the new law that comes into force. Thus is due to the fact that these subjects the economic activities are obliged to keep records of income or income and losses and (or) other objects of taxation in accordance with the tax legislation and it does not depend on the applicable taxation pattern.

2. As from 1st January 2013 all organizations must do accounting irrespective of the taxation pattern they enjoy. The exception stands only for structure units of organizations created in accordance with the law of overseas countries located in the Russian Federation and in accordance with the laws of the Russian Federation on taxes and fees keeping the books on income and loss and (or) other objects of taxation.

The objects of accounting

The only object of accounting that remained unchanged in the list under the new law is the liabilities.

Under the new law the list of accounting objects is added with income and loss. Instead of a company’s property as the accounting object the new law establishes the assets.

Replacement of property with the assets in the list of accounting objects suggests that accounting pursues new targets. Property records (rather than those of assets) relate to the supervisory function placed on accounting, but cannot generate information for preparation of accounting (financial statements), which are supposed give a fair picture of the financial position of the entity as required by users of these financial statements in making economic decisions . For the purposes of such accounting one needs details of the assets controlled by a company, not details of the property.

Notably, in accordance with paragraphs 7.2, 7.2.1, 7.2.2 of the Concept, the meaning of assets covers business tools supervision over which the company received as a result of having carried out its business activities and which should earn the company economic profit in future. In other words, they have a potential chance directly or indirectly to facilitate the inflow of funds into the company. Besides, the material and factual form of the object and the legal conditions of its use are not essential criteria of qualifying it as assets.

Therefore, not every property of the economic subject can be qualified as assets. In order to be qualified as one it must be able to bring economic benefits to this subject from the use in the production process, in exchange for another asset, transfer in order to transfer settle the liability, distribution to the owners). At the same time, the assets can be the objects that do not belong to economic subject in ownership, that is, are not his property. This is possible if the economic entity exercises control over the object itself, and has the right to receive benefits from it.

It should be noted that when property as an accounting object is removed from the Law "On Accounting" the principle of property isolation has disappeared, that was established in par. 2 Article 8 of the Law N 129-ФЗ as one of the main accounting requirements. This assumption property isolation, contained in Clause 5 of the Regulation on accounting "Accounting Policy of an Entity" APR 1/2008, as approved by the Order of the Ministry of Finance of Russia on 06.10.2008 N 106n, does not contradict the spirit of the new law. After all, this regulation is not about separate accounting of property of the organization and but of its assets and liabilities.

Another essential amendment in the list of accounting objects is the change from business operations to business life facts. In par. 8 Art. 3 of the Law N 402-ФЗ the business life fact is defined as a transaction, event, operation that influence or may influence financial status of the commercial subject, the financial result of its activities and (or) movement of funds.

Thus, a new Law "On Accounting" by introducing the business life facts instead of business operations in the accounting objects adds such new accounting objects as transactions and events (those include not only the ones that influence the financial status of the commercial subject, the financial result of its activities and (or) movement of funds, but also the ones that are potentially able to do so).

One more new accounting is the sources of financing the activities of a commercial subject . Since the Law N 402-ФЗ does not define this notion it is suggested that the sources of financing the activities are all the sources except for the circumstances classed as a separate accounting objects.

The regulating authorities of accounting

After the Law N 402-ФЗ comes into force regulating the field of accounting shall still be made by the Ministry of Finance of Russia and the Bank of Russia. The functions of the accounting regulating authorities are listed in Art. 23 of the Law N 402-ФЗ.

The new regulating authorities on accounting are self-regulated organizations (the SRO). Such organizations can be the SRO of entrepreneurs or other users of accounting (financial) statements as well as associations, unions, other non-state organizations.

In other words, the Law N 402-ФЗ establishes an opportunity of non-state regulation of accounting. The functions of non-state regulating authorities are listed in Art. 24 of the Law N 402-ФЗ. The SRO, in particular, can:

• develop projects on federal standards, carry out public discussions of the projects and submit them to the authorized federal body;
• participate in preparing a programme of development of federal standards;
• participate in expertise of the projects on accounting standards;
• develop and adopt recommendations on accounting;
• develop proposals in improvement of accounting standards;
• participate in development of international standards.

Chief accountant

The provisions of the old and the new Laws "On Accounting" related to the chief accountant are completely different. While the Law N 129-ФЗ dealt with subordination, powers and duties of the chief accountant, the Law N 402-ФЗ does not cover these matters. These issues obviously must be regulated by local legal acts of commercial subjects.

It should be noted that the new Law does not have the requirement for the signature of the chief accountant on financial and accounting documents and on the documents confirming borrowed liabilities.

The new Law "On Accounting" establishes requirements that chief accountants of the following commercial subjects must company with:

• open joint-stock companies (except for credit organizations);
• insurance companies;
• non-state retirement funds;
• joint-stock investment funds;
• managing companies of co-ownership investment funds;
• other commercial subjects whose securities listed on stock exchange and (or) other coordinators of stock exchange trading (except for credit organizations);
• authorities of state non-budget funds;
• authorities of state local non-budget funds.

The above requirements are also applied to other officers that are engaged in accounting or to an individual with whom a commercial subject enters into service agreement for accounting.

A legal entity that enters into a service agreement to undertake accounting must have at least one employee that complies with these requirements entering into an employment contract.

Accounting policy

Having compared the provisions of the new Laws "On Accounting" regarding accounting policy the following conclusion can be made: as opposed to the Law N 129-ФЗ the new Law does not list the mandatory components of accounting policy (working schedule of invoices, forms of preliminary accounting documents and the like). It is not required because the respective details are contained in Clause 4 of the Regulation on accounting "Accounting policy" Accounting Policy Regulation (APR) 1/2008 adopted by the Order of the Ministry of Finance of Russia dated 06.10.2008 N 106н.

The Law N 402-ФЗ provides a merely general notion of accounting policy defined as a sum total of accounting tools by a commercial subject, it also provides the main principles of forming the accounting policy. The said definitions and principles restate provisions of Clauses 2, 7 of the APR 1/2008. Clause 2 of the APR 1/2008 also discloses what is referred to the accounting tools:

• tools for grouping and assessment business activities;
• tools for repayment of cost of assets;
• filing and archiving tools;
• inventory tools;
• tools for application of accounting records;
• tools of arrangements of accounting registers;
• tools for data processing.

Another peculiar feature of the new Law "On Accounting" is as follows: it lacks the provision that the liability for forming the accounting policy is on the chief accountant (such provision was contained in Clause 2 Article 7 of the Law N 129-ФЗ).

The grounds for the change of accounting policy mentioned in the Law N 402-ФЗ are generally similar to the ones in the Law N 129-ФЗ. The wording of the new Law, however, is more precise. It, for instance, establishes that any amendment of the legislation of the Russian Federation or the legal acts of the bodies engaged in the regulation of accounting do not suffice in order to change the accounting policy. It is also necessary that the requirements (obviously related to accounting process) of that legislation of the Russian Federation or the legal acts.

Apart from a new tool for accounting process developed by the organization the condition for the change of the accounting policy shall also be the choice of a difference existing tool by it. It is important that the application of a developed or a chosen new accounting tool would lead to an increase in the quality of the accounting data. It should be noted that according to Clause 10 APR 1/2008 the application of a new accounting tool should lead to one of the below results:

• more accurate presentation of the business activities facts in accounting and financial statements of the company;
• lesser consumption of time and human resources in the accounting process without the loss on data accuracy.

It should be noted that the new Law “On Accounting” allows to change the accounting policy not from the commencement of the reporting year provided that such change of accounting policy is caused by the reason of its change. A similar provision was previously contained only in Clause 12 APR 1/2008 and the Law N 129-ФЗ required the changes to come in force only from the beginning of the year.

The Law N 402-ФЗ does not have the requirement to include the details of the change in accounting policy for the following year of reporting in the explanatory note of the financial statements (such provision was in Clause 4 Art. 13 of the Law N 129-ФЗ). These details, however, must be in financial statements of the company publishing them fully or partially in accordance with Clause 25 ARP 1/2008.


Initial accounting documents

Initial accounting documents, as before, are required to be prepared for every business life fact (it was previously required to do so for every business transaction). The Law N 402-ФЗ, however, lack the provision that accounting should be done on the basis of the initial accounting documents. This is explained by the fact that currently the role of the expert opinion of the accountant is increasing in accounting, in particular, on matters of qualifying the business life facts, assessment of accounting objects (including the use of a discount method) and reservation.

It should be noted that the fact that the Law N 129-ФЗ has the provision that an initial accounting document is the basis for accounting, did not meet the requirement of priority of the contents over the form. Such a requirement suggests that the business life facts must be presented in accounting based not only on their legal form, but more so, based on the economic contents and business conditions.

The important amendment is that the Law N 402-ФЗ does not have the requirement of mandatory application of unified forms of initial accounting documents approved by the State Committee for Statistics of the Russian Federation. As from 01st January 2013 the forms for initial accounting used by the company are confirmed by the general manager.

The exception is made for government companies. The forms of initial documents for these companies are prescribed by the government legislation.

The provisions of Parts 5, 6 Article 9 of the Law N 402-ФЗ make virtually equal the initial accounting paper documents and electronic ones signed electronically. The Law N 129-ФЗ provides that a copy of an initial accounting document made electronically had to be mandatorily prepared on paper, while according to the Law N 402-ФЗ a paper copy shall be made only upon request of a counter-party in case the agreement with such party provides for this.

It was possible and obligatory under the new Law “On Accounting” to recognize an electronic document signed electronically after the Federal Law “On Electronic Signature” dated 06.04.2011 N 63-ФЗ came in force. As provided in Part 1 Article 6 of the Law N 63-ФЗ, "information provided electronically signed by an authorized electronic signature is accepted to be an electronic document equal to a paper document signed by handwritten signature except for cases when the federal laws or the legal acts adopted in accordance therewith provide for the requirement on mandatory preparation of paper reporting".

It should be noted that the possibility of submission of electronic documents (only provided that they have been prepared in accordance with the format set out by a federal executive body authorized to supervise the area of taxed and fees) to tax authorities via communication means provided by Clause 2 Article 93 of the Tax Code of the Russian Federation.

The new Law “On Accounting” does not contain a prohibition on making corrections the cashier’s and banking documents. This does not mean that such amending is permitted from 1st January 2013.

The reason for that is that Part 7 Article 9 of the Law N 402-ФЗ contains a note that "unless otherwise is provided by the federal law or the legal acts by governmental bodies regulating accounting". According to Clause 2.1 of the Regulation on cash operations with ATM-machines and with coins of the Bank of Russia in the Russian Federation (as adopted by the Bank of Russia on 12.10.2011 N 373-П) and Clause 2.4 of the Regulation on procedures of making transfers of funds (as adopted by the Bank of Russia on 19.06.2012 N 383-П) corrections in cashier and banking documents is not permitted.

Corrections in other documents must contain, apart from the date of correction and the signatures of the persons who initially signed the document, the surnames and initials of the persons or other details required for identification.


Accounting registers

The provisions of the Law N 402-ФЗ can bear the following features regarding the accounting registers:

1. It is provided that the templates of accounting registers are established by the head of the commercial subject upon submission thereof by an officer engaged in the accounting process (currently this requirement is in Clause 4 ARP 1/2008). This requirement excludes governmental organizations for which the templates of accounting registers are established by the budget legislation of the Russian Federation .

2. The Law provides a list of mandatory details for the accounting register.

3. The contents of accounting registers by law are not a commercial secret. The Law N 402-ФЗ provides for a possibility to disclose an accounting register to a third party if so agreed in a contract.

Further, the Law introduces provisions regulating corrections of accounting registers and replacement thereof with copies in case they have been seized in accordance with the laws of the Russian Federation. The above provisions are similar to the provisions on the initial accounting documents.


Inventory

An important amendment introduced by the new Law “On Accounting” is that it does not have a list of circumstances where obligatory inventory must be carries out.

Further, the Law N 402-ФЗ does not regulate that the results of inventory must be presented in the financial statements. It only states that the discovered variance is subject to registration in the financial statements in the reporting period that corresponds to the date when the inventory has been made.


Financial statements and internal audit

The Law N 402-ФЗ establishes an irrevocable obligation for commercial subjects to prepare annual accounts (financial statements).

One of the majour tasks of accounting, pari passu with the provision of accurate information on financial status and financial results of the business activities of the company, is the provision of information on movement of funds for the reporting period. It should be noted that currently the requirement that the accounts must provide full and accurate picture not only on the company’s financial status and financial results of its activities but also the information on any changes in its financial status, as required by the APR 4/99.

The Law N 402-ФЗ, copying the provisions of the Clause of the APR 4/99, establishes that accounts (financial statements) must include the results of all departments of the commercial subject, including its subsidiaries irrespective of their location.

Before the Law N 402-ФЗ had not been enacted financial statements had to be signed by the chief accountant. As from 1st January 2013 the signature of the head of the company is enough on a paper copy of the financial statements. We can make a conclusion from Part 8 Article 13 of the Law N 402-ФЗ that preparation of accounts (financial statements) only in electronic format signed electronically is not permitted.

The new Law “On Accounting” does not create requirements for the contents of the explanatory note to the accounts (financial statements). It should be noted that the explanatory note itself is not mentioned among the templates of financial statements under the new law.

Although the new Law "On Accounting" does not have a provision that the procedure for preparing the accounts (financial statements) is established by the Ministry of Finance of the Russian Federation, such powers are granted to this body in Clause 5.2.21 of the Regulation on the Ministry of Finance of the Russian Federation (as adopted by the Resolution of the Government of the Russian Federation on 30.06.2004 N 329).

As far as the contents of the accounts (financial statements) are concerned there are the following distinctions of the Law N 402-ФЗ from the previous law "On Accounting":

1. The Law clarifies the name of one of the two reports: the profit and loss report is now called the financial results report. This change is due to the fact that the current template of profit and loss report (as adopted by the Order of the Ministry of Finance of Russia on 02.07.2010 N 66н) has, apart from net profit (losses) of the company, such items as the result on re-assessment of non-turnover assets, such result being excluded from the net profit (losses) of the period and the overall financial result of the period. This template, therefore, is the template report on financial results.

2. The auditor’s report and the explanatory note have been removed from the list of the contents of accounts (financial statements).

The former is seemingly logical since an auditor’s report is the official document intended for the users of the accounts (financial statements) of audited entities and it contains an opinion presented in an established form by an auditor’s form, a sole auditor on accuracy of the accounts (financial statements) of the audited entity.

The Law N 402-ФЗ gives an opportunity to avoid the situations where a part of the accounts (financial statements) is at the same time the document that confirms their accuracy.

The fact that the auditor’s report is excluded from the accounts (financial statements) does not cancel the obligation of carrying out auditing of certain companies, neither does it cancel the obligation to publish the auditor’s report together with publishing the accounts (financial statements) provided that publishing is mandatory.

As from 1st January 2013 t is not required to submit the auditor’s report together with the accounts (financial statements) to the government statistics authorities and to the tax authorities.

As for the explanatory note, the following can be said. According to Clause 4 of the Order of the Ministry of Finance dated 02.07.2010 N 66н "On templates of financial statements". All other attachments to the balance sheet and profit and loss report (except for the report on the changes in the capital, report on movement of funds and a report on target use of the received funds) are called explanatory ones. These attachments (comments) can be presented as a spreadsheet or as a text. It can be suggested that explanations are in fact explanatory noted. That is why it has not been named separately within annual accounts (financial statements in Part 1 Article 14 of the Law N 402-ФЗ.

Now to the contents of the accounts of non-profit organizations. While the Law N 129-ФЗ established a simplified procedure only for social organizations (associations) and only provided that they do not carry out business activities and they do not have turnover from selling goods (works, services) apart from the exiting property, the Law N 402-ФЗ established special contents for all non-profit organizations.

The previous Law N 129-ФЗ provided 3 templates of accounts within the simplified procedure:

• the balance sheet;
• the profit and loss report;
• the report on target use of the received funds.

The new Law does not require non-profit organizations to submit the profit and loss report (under the new Law – the financial results report), and this would be perfectly clear where no business activities were carried out. Many non-profit organizations, however, do carry out business activities or other profitable activities in accordance with Clause 2 Article 24 of the Federal law dated 12.01.1996 N 7-ФЗ "On Non-Profit Organizations" as long as such activities are in line with the purposes of the organization and serve their fulfillment.

Such activities can be profit earning production of goods and services that are in line with the purposes of setting up of the non-profit organization, as well as purchase and sale of securities, property and non-property rights, and membership in business societies, partnerships and trusts as a depositor.

Further, Clause 3 Article 24 of the Federal Law N 7-ФЗ requires non-profit organizations to do accounting of profit and losses on business activities or any other profit earning activities. Considering the above, the fact that the profit and loss report (financial results report) has not been included in the list of mandatory accounting templates for accounts of non-profit organizations seems to be unreasonable.

It should be noted that the accounts (financial statements) of non-profit organizations (including social organizations and associations) include Annexes to the balance sheet and the report on target use of funds. As explained by the Ministry of Finance in the Letter dated 05.05.2012 N 07-02-06/126, the contents of the annexes to the balance sheet and the report of target use of funds are set out by the federal standards.

A dramatic amendment in the new Law "On Accounting" is that it does not have provisions that regulate the frequency of interim accounts as well as the provisions with the requirements for such accounts.

According to the Law N 402-ФЗ interim accounts (financial statements) are made for the reporting period of less than one year. The circumstances where companies are obliged to prepare interim accounts are provided by the legislation of the Russian Federation, the legal acts of government authorities regulating accounting.

According to Part 1 Article 30 of the Law N 402-ФЗ and after 1st January 2013 the APR 4/99, Clause 48 remains in force. It requires companies to prepare interim accounts on a monthly, quarterly basis with accumulating result from the reporting year, unless otherwise is provided by the laws of the Russian Federation. The requirement to submit interim accounts is also contained in Clause 29 of the Regulation on accounting and financial statements in the Russian Federation adopted by the Order of the Ministry of Finance of Russia on 29.07.1998 N 34н.

Therefore, based on the above companies must prepare interim accounts on a monthly, quarterly basis with accumulating result from the reporting year after the Law N 402-ФЗ comes into force.

The new Law "On Accounting" directly provides that accounts (financial statements) must be made on the reporting date that is on the last calendar year of the reporting year. It means that within the annual financial statements there must be balance sheet up to 31 December of the reporting year, but not on 1st January of the following year.

Although the Law N 129-ФЗ did not have the similar provision companies, nevertheless, also prepared accounts as on the reporting date that is on the last calendar year of the reporting period. This requirement was provided by Clauses 4, 12, 18 of the APR 4/99.

It should be noted that the Law N 402-ФЗ has certain provisions for special conditions of preparing accounts (financial statements) for legal entities under restructuring and liquidation.

As opposed to the Law N 129-ФЗ, the new Law “On Accounting” establishes the liability of commercial subjects (except for the state entities and the Central Bank of the Russia Federation) to submit a mandatory copy of accounts (financial statements) to a single user – the state statistics authority. Оthis, however, does not mean that the requirement to submit copies of accounts (financial statements) to other users can not contain in other laws.

It should be noted that as from 1st January 2013 entities shall also be obliged within three months after the end of the reporting year to submit its accounts (financial statements) to the tax authorities of its registered office except for the entity is not obliged to do accounting.

The deadline for submission of accounts (financial statements) to the state statistics authorities is virtually unchanged: instead of "within 90 days" the new Law reads: "not later than three months". The maximum timeframe, thus, in a leap-year is now 91 days.

Submission of interim accounts (financial statements) is not provided by the Law N 402-ФЗ.

An important amendment is that the new Law does not have the requirement to submit the already approved annual accounts (financial statements). It was established for entities (except for budget and state entities) par. 2 Clause 2 Article 15 of the Law N 129-ФЗ and it was hard to achieve.

The matter is that approval of financial statements of Joint-Stock Companies (АО) and Limited Liability Companies (ООО) is the authority of the General Shareholders’ Meeting (members of OOO) . The annual general shareholders’ meeting in a joint-stock company is held within the terms as term defined by the Memorandum and Articles of Association but not earlier than two months and not later than six months from the end of the financial year. The annual general shareholders’ meeting in a limited liability company is held not earlier than two months and not later than four months from the end of the financial year.

Thus, more often than not compliance with the requirement of the Law N 129-ФЗ on submission of approved financial statements seemed impossible. In the Law N 402-ФЗ the procedures of submission and approval of accounts (financial statements) are not connected. As far as the procedure and approval of accounts (financial statements) the Law N 402-ФЗ makes referrals to other federal laws. Where considerable mistakes are found in accounts (financial statements) before its approval an entity may need to replace the initially submitted accounts with the revised accounts in accordance with Clause 8 of the Regulation on accounting "Correction of mistakes in accounting and financial statements" of the APR 22/2010 (as adopted by the Ministry of Finance of Russia dated 28.06.2010 N 63н).

The procedure and the cases of mandatory publishing of financial statements the Law N 402-ФЗ does not regulate either, it makes referrals to other federal laws. It only establishes that the contents of accounts (financial statements) cannot be a commercial secret and it also makes publication of auditors’ report mandatory together with the accounts in case where the published accounts are subject to mandatory auditing. The necessity of the latter requirement is due to the fact that auditor’s report is excluded from the contents of accounts (financial statements).

The new development by the Law N 402-ФЗ is the new provisions on internal audit organized by commercial subjects mandatorily. The purpose of internal audit should not only be accounting and preparing accounts (financial statements) but also the actual business life facts of the commercial subject.

The requirements of Part 1 Article 19 of the Law N 402-ФЗ are partially represented in the provisions of Article 3 of the Law N 129-ФЗ that the tasks of accounting are provision of information required by the internal users of accounts in order to supervise the compliance with the legislation of the Russian Federation while carrying out its business activities and the expediency of these activities, availability and movement of funds and liabilities, use of human and financial resources in accordance with the adopted norms, standards and budget; prevention of negative results of business activities of the entity and identification of internal resources that provide its financial stability.

Further, according to Clause 3 Article 6 of the Law N 129-ФЗ accounting policy of an entity must include the internal auditing procedures over business activities. The matters of internal audit in commercial subjects are, for instance, regulated by:

• Art. 85 of the Federal Law dated 26.12.1995 N 208-ФЗ "On Joint-Stock Companies";
• Art. 47 of the Federal Law dated 08.02.1998 N 14-ФЗ "On Limited Liability Companies";
• Art. 18 of the Federal Law dated 08.05.1996 N 41-ФЗ "On Production Cooperatives".

According to the Schedule of the Ministry of Finance of Russia for 2012 - 2015 for improvement of accounting and financial statements in the Russian Federation based on the International Financial Reporting Standards (as adopted by the Order of the Ministry of Finance of Russia dated 30.11.2011 N 440) after enforcement of the new Law "On Accounting" recommendations for active entities on arranging and carrying out internal audit of accounting and preparation of financial statements must be developed.

The elements of the internal audit are risk detection and risk management. The details of risks of a company’s business activities are required for a full understanding of its financial status, the financial results of its activities and the changes of its financial stats.