The Russian government’s desire to standardize corporate financial reporting according to IFRS is encountering pushback from state companies.
The issue here is dividends and taxes. While the more detailed IFRS reporting requirements are likely to attract more foreign investments, the less detailed Russian accounting system makes it possible to hide profit.
The situation has prompted the Russian Finance Ministry to call for a faster switch to IFRS-based reporting.
In mid-May 2013, Russia’s Finance Minister Anton Siluanov spoke of the necessity to switch to IFRS when allocating funds to pay dividends. The reasoning was simple: Russian companies’ financial results as per local accounting standards are usually lower than consolidated data as per IFRS. For example, Gazprom’s net profit in 2013 as per Russian accounting standards totaled 811.5 billion rubles, whereas the same indicator as per IFRS reached 1.165 trillion rubles. Tatneft’s profit in 2013 totaled 63.85 and 70.832 billion rubles respectively. Last year, Transneft earned 11.26 billion rubles as per local accounting standards and 158.017 billion rubles as per IFRS.
Such a difference in reporting the same indicator as per domestic and international standards stems from the effort to demonstrate higher numbers to foreign investors while paying less taxes locally. And this is not the end as IFRS is a consolidated financial statement that takes into account all subsidiaries, while reporting as per Russian accounting standards is more superficial, excluding reports by Gazprom’s trading and marketing entities, for instance.
Rosimuschestvo, Russia’s state property agency, and Ministry for Economic Development, advocate the profit calculation as per Russian accounting standards, not IFRS. Both back up their stance by the difficult economic situation and potential profit falls. The Finance Ministry’s position is explained through effort to ensure growth in budget receipts by 30 billion rubles in 2015 and 50 billion rubles in 2016.
The Ministry for Economic Development told OGE that current legislation doesn’t require state-owned companies to use IFRS to calculate dividend payments. When determining the size of the share of net profit, which will be used to pay dividends, the Ministry for Economic Development and Rosimuschestvo tend to evaluate financial standing of a specific company. “Considering that Federal Law #208-FZ “On Consolidated Financial Reporting”, dated July 27, 2010, obliges a number of companies to compile consolidated financial reports as per IFRS starting from 2016, the Ministry for Economic Development and Rosimuschestvo are preparing a draft of a government executive order that would envision the possibility of calculating the base for dividend payments from the IFRS-reported net profit,” a spokesman for the ministry said and
added that state-owned joint stock companies are currently obliged to allocate at least 25 percent of their net profit to pay dividends.
Experts Have Their Say
“The dividend policy differs substantially from company to company, and it’s a known fact that even rapidly growing companies can effortlessly pay up to 30 percent of their net profit calculated as per IFRS (NOVATEK is a good example),” Gennady Sukhanov, Analytical Dept. director at TKB BNP Paribas Investment Partners,