Finance Where I'm From: Legislative changes in Russia test Microsoft Dynamics ERP solutions

You can face many strange requirements when trying to implement a Microsoft Dynamics ERP system in Russia. Many of them stem from the accounting department. How should you deal with them? And what differences between European and Russian standards of accounting and taxation might affect your implementation?

Some of the differences are driven by the nature of legislation. Russian legislation has undergone considerable changes within last few years. It still does. Lot of changes happen every year, and it keeps a localization team busy. However, in general it looks similar to IFRS principles in many aspects, and there is a trend is to comply with IFRS standards more and more in the future.

The major difference in accounting principles between common European standards and Russian accounting standards is that in Russia the accounting is more formal. Paper forms still prevail, in contrast to IFRS and GAAP accounting principles which require that you book a known cost regardless of whether there is a paper document to support it. This means that all transactions in accounting should be correctly supported by corresponding documents. Unless paper documents are present, no transaction can be booked. In order to be cost deductible in tax accounting, the transaction should satisfy two principles: It should be economically justifiable and correctly documented. For example, there should be a document from the supplier, properly filled in, to allow a bookkeeper to book a cost and VAT transaction, otherwise it cannot be deductible (or has a certain risk of being non-deductible if the tax inspection can't verify it). Here I should mention that electronic signature and electronic documents appeared in Russia a few years ago, but remain very rarely used.

Most differences with European legislation come in VAT settlements, currency control and currency exchange rates, advance payments, banking transactions, and print forms.

Microsoft localizations for Dynamics products in Russia are among the most complex in the world, similar in difficulty to Brazil, India, and China. Specific local accounting and tax processes drive frequent changes and additions to the objects.

Basically, there are two types of accounting: Bookkeeping accounting and tax accounting. Whereas bookkeeping produces a Profit and Loss Statement and Balance Sheet, aiming to satisfy the reporting needs of relevant users (like owners, creditors, and investors), tax accounting focuses on the amount of taxes to be calculated and paid.

Russian government authorities aren't very interested in the results of bookkeeping, rather paying attention to how much a company should pay in taxes. Traditionally there has been a tendency to conform to these two accountings to avoid handling of differences between tax accounting and bookkeeping. To satisfy the needs of management reporting needs, companies often need a third accounting method: Management accounting. However bookkeeping should in principle act exactly as management accounting, and can play this role. The historical tradition of matching bookkeeping with tax accounting is still very strong in Russia and should be considered when performing an ERP system implementation.

Both bookkeeping and tax accounting are rigidly limited by legislation. Bookkeeping allows more flexibility to the users, whereas tax accounting has significant limitations. But, both accounting approaches allow certain flexibility and choices. An accounting policy is a special document, created by a company, that describes the principles of accounting and taxation selected by the organization. This document might include the method of calculation of Cost of goods sold (COGS) the company uses, the weighted average or FIFO, how to treat additional expenses (such as whether to include the cost of the items or write-off the costs immediately). When doing implementations involving accounting and taxation, always start by asking for a copy of the valid accounting policy. It will save lot of effort in the future if you read it beforehand.

The European concept of "invoice" has a different meaning in Russia

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