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Different Types of Companies Required to Prepare Financial Statements Under the IFRS

November 13, 2015

Nowadays, an increasing number of Russian companies are required to prepare their Financial Statements as per the International Financial Reporting Standards (IFRS).

The different companies who will be required to prepared its financial statements under The IFRS can be divided into the following several groups:

1. Companies raising financing from financial institutions

Currently, it is almost impossible to attract financing from a foreign bank without providing the latest and most frequently audited financial statements prepared under IFRS. Otherwise the foreign bank will simply not be able to assess the financial standing and profitability of the Russian company applying for loans. The IFRS serve as generally recognised and widely accepted tool of “reading” financial statements by various users all over the world, especially in Europe.

The same situation is happening lately when Russian companies are trying to obtain loans from Russian banks.  Although there is no legal requirement for Russian companies to provide financial statements prepared under IFRS, many large Russian banks still require the statements to be prepared this way. The reason is in fact that accounts prepared under IFRS give a better understanding of real picture of the business and financial standing of the company.


Any Russian company conducting its business with foreign counterparties (suppliers, subcontractors, insurance companies, etc.) may face the requirement to provide IFRS financial statements to a foreign party. Very often, foreign suppliers require an understandable proof of creditability and solvency of a Russian company before entering into any large transactions or agreements about sales, especially on credit terms. Moreover, in order to lower the risks foreign suppliers frequently use “protected schemes of trade financing” which involve payments with letters of credit, the bank or third party guarantees, financing from import-export agencies, international insurance, etc. Such schemes protect both parties from various risks, however will require a Russian company to provide financial statements as prepared under IFRS regulations.


Historically, the concept of unified standards like IFRS was invented in order to enable harmonisation and comparability of various companies trading on world stock exchange. The crises of world stock market in 1929 revealed that the companies from various countries trading shares and other securities on global markets were preparing its financial statements under its national standards which differed significantly and could not serve as a sound basis for such a decision. Nowadays, all companies trading shares on the world stock markets are required to provide financial information under IFRS.

Regarding the Russian stock market ,there is currently no such mandatory requirement set for the participants trading its bonds and other securities, however many companies still prefer to provide its financial statements prepared under the IFRS as it usually gives them more favourable conditions of placement. In addition, if publicly trading, the Russian company is also willing to issue its shares in free float the company is required to provide financial statements prepared under IFRS by law.


In situation when the company incorporated in Russia is a subsidiary of a foreign company located overseas, Russian company is often required to prepare its financial statements under IFRS for reporting to its shareholders or consolidation purposes. Such Russian companies are often guided by foreign shareholders to implement IFRS concepts to management reports to enable better understanding of the business conducted in Russia and assist with decision making. If a Russian subsidiary falls under requirement of foreign holding company to prepare consolidated financial statements under IFRS, there is no other way to escape the transforming of accounts prepared under Russian Accounting Principles (RAP) to IFRS as well.


The benefits of adopting IFRS for management accounting and further decision making are well known among many companies successfully conducting its business in Russia. In spite of all the efforts and changes undertaken towards unification and harmonisation of RAP, it still differs a lot from IFRS. The main difference is based on due to the economic nature of transactions and events under IFRS prevail over its legal form, while in RAP it is vice versa. Due to this fact, financial statements prepared under UFRS give a much better understanding of the real standing of the business to enable better decision making. The concepts placed in the foundations of the IFRS enable more prudence, transparency and comparability of information included to financial statements under IFRS.

When the company realised the necessity to provide its financial statements under IFRS the question about how to perform transformations of accounts prepared under RAP to IFRS arise. There are two main ways how to solve this question: to either hire an in-house specialist or to outsource this work to another company.

The first option is more preferable for comparatively large companies which require regular transformation to be performed for a large number of projects and can cover expenses for keeping such specialist in-house. The second option is more attractive for small and medium sized companies which do not wish to incur expenses for keeping a separate specialist as permanent staff.

We can help you by outsourcing your companies IFRS reporting needs. Contact us to see how we can assist.

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