Below there are practical events, connected with the formation and the change of the accounting policy in the organization.
Disclosure of Accounting Policies
The procedure of disclosure of accounting policies established by RAS 1/2008 has almost not been changed.
Paragraph 18 of RAS 1/2008 lists only those methods of accounting record-keeping, which should be established in the accounting policy of the organization. These methods are as follows
– amortization of fixed assets;
– amortization of intangible and other assets;
– evaluation of inventories;
– evaluation of goods;
– evaluation of unfinished and finished goods;
– acknowledgement of profit from the sale of production, goods, work, services;
– other existing methods.
The methods of accounting record-keeping, without knowing of which the users of accounting reporting cannot accurately estimate the financial position of the organization, are considered to be essential (par. 17 RAS 1/2008). Apart from the methods indicated in par. 18, RAS 1/2008, the organization may foresee other aspects of business accounting in the accounting policy.
The existing methods of accounting record-keeping established in the accounting policy are disclosed in the notes to the accounting reports of the organization for the reporting year (par. 24 RAS 1/2008). The interim accounting reports (which are reporting forms for the quarter, half-year period or 9 months) may contain no information on the accounting policy, if there have been no changes made from the time of preparation of annual accounting reports for the preceding year.
RAS 1/2008 contains a new paragraph 21, which was absent in RAS 1/98. It contains information, which should be disclosed by the organization in case of change of the accounting policy.
The information consists of:
– the reason of changing of the accounting policy;
– the essence of changes of the accounting policy;
– the procedure for the reflection of the effects of accounting policy changes in the accounting reports;
– the revised amounts, connected with changes in the accounting policy, on every entry of the accounting report, for every reported period; but in case the organization needs to disclose the data on the profit due to one share it should provide the data on the base and diluted earnings (losses) per share;
– the corresponding revised amounts, referred to the reported periods, preceding to the submitted accounting reports to the most possible extent.
Changing of Accounting Policy
Norms, which regulate the procedure of changing of the accounting policy, are transferred to section III of RAS 1/2008 (they used to be located in section IV RAS 1/98). Paragraph 21, RAS 1/98 established that when the changes of accounting policy were not conditioned by the changes of legislative and normative bases, the effects of changes should be calculated and reflected in the reports minimum two years prior.
Paragraph 15, RAS 1/2008 now establishes that the minimum period for the calculation is excluded, but the notion “retrospective reflection” (effects of changes in the accounting policy) is being introduced, which means the reflection of recalculated indices for the maximum possible period of time. In this respect only one restriction for the duration of a period is established: “except when the estimation of such effects money value cannot be conducted with sufficient accuracy regarding the periods, which precede the reporting one”.
Alternately stated, it is proposed to recount until the necessary data is present. Practically this means that the maximum duration of the stated period is restricted by five years (Article. 17 of The Accounting Law).
At the same time it is well to bear in mind that the situation is possible when the organization (at the changed accounting policy) begins to apply a new accounting method, which was allowed to be used one or two years ago. In such conditions a retrospective reflection beyond the period from the beginning of the established method loses its significance. People, who are interested in the accounting reporting, but who are not aware of the introduction of new methods, may understand the work of the accounting department or the management of the organization as a whole in a wrong way.
RAS 1/2008 has an exception, however, according to which there is an assumption at the retrospective reflection of the effects of changes in the accounting policy that the changed method of the accounting record-keeping should be applied from the moment of origin of the type of economic event (a similar norm was reflected in par. 21, RAS 1/98). But this exception is not what is needed, because the same economic events may be reflected differently in the accounting.
The retrospective reflection of the effects of changes in the accounting policy consists of the correction of the remain on the line “Inappropriate Balance (pending loss)” for the earliest period provided by the accounting reports; as well as the value of associate entries of the accounting reports disclosed for every provided period of the accounting reports, as if a new policy would be applied from the moment of origin of the type of economic event”.
In this particular case it is actually referred to the corresponding accounts in the accounting, which may be indirectly considered as an indication on the possibility of the execution of corresponding accounting entries in the system accounting.
If changes are made in reports only (but not in the accounting registers) this is out of keeping with fundamental accounting principles (balance and double entry, as well as going concern assumption): by the next year it will be clear that there are no grounds for the change of the accounting indices (the corresponding transactions in the present report).
Alongside with the term “retrospective reflection” RAS 1/2008 introduced a term “perspective reflection”.
The given novelty is not a normative novation, because it is a bit reformulated norm of RAS 1/98.
Unfortunately, RAS 1/2008 does not only establish the complete list of cases, when the re-calculation of reporting indices is necessary or possible (due to the introduction of changes in the accounting policy), but it does not define the principles, on which these indices should be selected.
The choice of methods of amortization of fixed assets indeed has an effect on the financial performance of the organization’s activity. At the same time application of the new methods in the accounting is possible only with relation to reacquired or created objects (as opposed to tax accounting, where starting from the year 2009 it is allowed to change the methods of depreciation repeatedly during the useful service, which concerns all amortizable assets only). It appears that the conduction and reflection of adjustment will have an artificial nature in this case only and actually misrepresent the returns. RAS 1/2008 has specified the list of information, which should be disclosed by the organization at the introduction of mentioned changes. In particular, the organizations should disclose not only the reason for changing the accounting policy, but also the contents of the change and the order of reflection of effects of change of the accounting policy in accounting reporting. Besides, it is supposed that the order of reflection of effects is not unique, but will be developed by each organization individually. Furthermore, the obligation of disclosure of the revised amount is established, which are connected with the changes in the accounting policy, on every entry of accounting reporting for each of the presented accounting periods, but if the organization is liable to disclose the information on the profit due to one share, it should provide the data on the base and diluted earnings (losses) per share, as well as the sums of the corresponding correction, related to the reporting periods, preceding the given one in the accounting reporting to the most possible extent (but not exactly two years prior as it used to be).
Therefore, the contents and volume of information, liable to disclosure, are provided to be expanded substantially, which may condition the emergency of assumption for errors and inaccuracy, as well as the decrease of appeal from their use (аs differentiated from the used in the taxpayer) of methods of accounting organization and record-keeping.
RAS 1/2008 regulates the procedure for the reflection of effects of changes in the accounting policy in the cases, when the changes are connected with the first application of the normative legal act or its modification. On the one hand, such facts are subject to separate disclosure. On the other hand, in accordance with paragraph 23, RAS 1/2008, the organization is liable to disclosure of the facts of non-application of normative acts, which have not been in operation yet
The Notion of Imputation and its Development
The project of RAS 1/2008 contained the provision, which expanded the sphere of its effect on the principles of acknowledgment and disclosure of information in the accounting reporting on the change in imputation. Therefore, it was originally supposed, that the given RAS will extend to every organization not only in terms of formation of the accounting policy, but in terms of disclosure of information on the changes of imputations in book-keeping reports.
It is an absolute novation for the Russian normative legal regulation. It is evident that the causes for appearance of the present RAS is a further proximity of domestic standard accounting norms to the international ones, where, as it is known, the imputations have an extremely wide range of application and are used together with indices, which are supported by primary accounting documents. In accordance with par. 3, RAS 21/2008, the imputations are a reserve supply capacity on the doubtful debts, a reserve for the deterioration in value of inventories, other valuation reserves, useful service of basic assets, intangible assets and other depreciable assets, the evaluation of the consumption process of future economic benefits from the use of depreciable assets etc.
As for the created valuation reserves, the procedure of their creation and usage in the documents of the regulatory accounting system are regulated quite tough at present: practically all reserves are created at the start of the year (by means of increase of the reserve amount and the sum of miscellaneous expenses), and the balance of unused reserves is added to non-operating revenues and, finally, to the balance sheet profit at the end of the reporting year. Consequently, the change of imputations is possible only within the current year, as in the new calendar year (the year following the reporting year) a corresponding reserve is not corrected, but actually is created again.
The norms of RAS, 21/2008 establish the procedure of reflection of imputation changes in reporting throughout the year. On the contrary, in accordance with paragraph 4, RAS 21/2008 changes in imputation are generally liable to the acknowledgment in the accounting records by means of inclusion into income or expenses of the organization (potential). In other words, it is suggested, that any imputations are made for the future periods and are corrected at their end (at the presence of corresponding conditions and liabilities).
According to the standards of bookkeeping legislation, the ending inventories may take place only on the limited reserve range (for the payments of vacation allowances, seniority benefits payments, repairs of fixed assets etc.). However, these reserves are not imputations and have no direct influence on the financial performance of the organization’s activity (in fact, the question here is not in the size of expenditures, but in the distribution of depreciation periods).
It is not quite clear what is meant here.
As for the evaluation of the usage process of future economic benefits from the use of depreciable assets, it is necessary to notice that it is a change of amortizable assets use for the proper activity or for renting. However, such a change in the sphere of property use falls within the norms, which regulate the change in the accounting policy (change in the volume or the kind of activity).
Paragraph 5, RAS 21/2008 regulates the change of imputations, which have a direct effect on the capital value of the organization. Such a change is liable to acknowledgment by means of adjustment of corresponding entries of capital in the accounting balance-sheet over a period wherein the changes have taken place.
At the same time, it is not clear, which specific business situations are meant here. The use of imputations in relation to the size of the registered capital is hardly possible. It is connected with the fact that the Russian civil (and bookkeeping) legislation has adopted a legal conception of capital maintenance (contrary to industrial or financial ones according to IAS). This implies, on the one hand, that the procedure of changing the size of registered capital is regulated extremely hard, and, on the other hand, change of organization’s capitalization does not affect the evaluation of the registered capital in any way. Besides, the procedure of change of the registered capital (both increased and decreased) is restricted in time (for one year as a rule), which practically rules out the possibility of change of imputations beyond the period, on which the accounting policy of the organization is established. The additional capital is subject to variation due to the revaluation of the capital assets and intangible assets, as well as at the reception of share premium. In both cases the expected amounts of change of additional capital (as well as the terms of reflection of changes in accounting) are known in advance, which means that the changes of imputations are absent here. At the change of size of the reserve capital one may speak about the structural change of the capital resources of the organization only, but not about the change of its size.
The size of undistributed profit can be affected by almost any industrial or economic factor. However, the conduction of impact assessment of the production cost redistribution, for example, in a specific calendar month for the amount of undistributed profits of the reporting year, is rather complicated. Therefore, such imputations may be estimated as rather conventional.