Practicalities of International

Financial Reporting Standards

Implementation:

New International Standards

on Auditing EdgeSergey Moderov

Head of International Financial Reporting Department

Group of Companies Issues

• Control -

is the power to govern the financial and operating policies of an entity soas to obtain benefits from its activities

• Consolidated financial statements -

financial statements of a group presented

as those of a single economic entity

How to find all the entities under control?

• Ask Management;• See internet and professional magazines;• Look at “strange” transactions:

- Loans;

- Non-market price transactions• See data of the Client:

- List of companies “on the walls”;• Ask Client employees

All controlled entities must be consolidated

Entities under common control

• Are widely used for tax and formal independence purposes;

• Using of Special Purpose Entities;• Plan to build traditional holding might be in the place;• Entities under common control might be consolidated

in a aimed Group by:

- applying IFRS 3 “Business Combinations”;

- “carve out” method and “predecessor accounting” method

Example: TGK-14 (RAO UES)

Fair Value

The amount for which • an asset could be exchanged, or a liability settled, • between knowledgeable, willing parties • in an arm’s length transaction.

• Fair value exists always, market value - not• Auditor’s check in:

– Leasing– Business combinations– PPE, investment property revaluations

Audit of fair value

• Look at professional appraisal report;• Perform recalculations;• Look at the market of similar transactions,

average rates;• Look at usual business process and

independence of parties;• Using the work of an expert (within the firm or

not)

New International standards on auditing

• Clarity project – – The same in more simple words;

• Apply or not Sarbannes Oxley or another set of strict rules;

• Follow ethics codes

New International financial reporting standards

• Financial instruments – reducing complexity (10 June 2008);

• Business combinations – next phase:

- Full goodwill approach;

- Minority interest becomes non-controlling interest;

• IAS 1 “Presentation of financial statements” change:

- Balance sheet becomes Statement of financial position; Profit and loss statement becomes Comprehensive income

Drivers of clients adopting IFRS

• Usually such clients are leaders on the market;

• Really aggressive firms;

• Who plan to issue bonds or stocks (IPO);

• Who’s Parent reports in accordance with IFRS;

• Who uses IFRS principles in management accounting

Sergey Moderov

Head of International Financial Reporting Department

Questions or comments?