Problems of transition to IFRS in developing countries

The history of Soviet Accounting, in Turkey. Main Stages of Turkish Accounting Development, since establishment of the Turkish Republic in 1923. Practical aspects of the transition to IFRS. The main differences in accounting between RAS and IFRS.

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Federal State-Funded Education Institution of Higher Professional Education

Financial University Under the Government of the Russian Federation

Master thesis

on the topic

Problems of transition to IFRS in developing countries

Made by student

group IFF 2-2M

International Finance Faculty

Aliya Fatkullina

Moscow 2016


From the perspective of a developing country, which is in need of foreign capital and foreign investments to finance its economic growth, the need for high quality financial information has huge importance. At this moment, the largest part of major economies has already adopted IFRS and about 100 countries are adopting IFRS through the process of harmonization of local standards with IFRS IFRS foundation, Annual report 2014, Financial reporting standards for the world economy . The Russian Federation is one of the countries where the process of IFRS adoption is still going on.

The emerging international capital markets insistently demand convergence of existing accounting procedures. Stock market crisis in 1987 and 1998, 2008, affected practically all major markets of the world and have shown evidence of the relationship of capital markets . . : . - .: , 2009. - . 24. . All of this is strongly required the creation of a unified accounting system, otherwise called into question the very existence and further development of the international capital markets, since a variety of accounting systems prevented the effective choice of object for investment. A common tendency is to compare national accounting rules with those, which are applicable in the United States (US GAAP). However, this does not indicate that US accounting rules better than any other. Proof of this was the scandal with the American company Enron, which clearly demonstrated the imperfection of American standards of reporting consolidation.

It should also be noted that US accounting standards - a set of rules and practical instruction, while the IFRS are based on the principle that makes it possible, relying on the professional judgment of accountants, to apply flexibly in a variety of controversial situations. Therefore, the dominance of the US accounting standards is primarily due to the predominance of the US capital markets, comprising more than half of the global market. Many developing countries do not have national accounting standards and as a result are forced to follow the requirements of US GAAP and UK or IFRS.

The relevance of the research topic caused by the presence of problems and issues related to the financial statements formed on the basis of the rules of International Financial Reporting Standards (hereinafter - IFRS). This leads to the preparation of incomplete information about the financial status of the organization, reduce foreign partners confidence in the companies operating in the territory of the Russian Federation and failure of capital market access.

Customers impose higher requirements on the preparation and the comparability of financial statements with reports of other organizations, since in all areas of economic activity observed changes due to world globalization, which creates capital mobility growth, has appeared the need to provide useful and clear information to all interested users at the international level.

According to A. Bagaeva A. Bagaeva, The quality of published accounting information in Russia, Faculty of economics and business administration, 2010 and Goncharov & Zimmermann, international investors prefer financial reports prepared using IFRS, than prepared in compliance with RAS. In addition, international investors motivate companies to provide more accurate financial reports and adopt IFRS as an instrument of international accounting. The implementation of IFRS increases earnings quality and makes the financial reports more understandable for the foreign investors.

In these conditions the improvement of practical application of International Financial Reporting Standards is becoming particularly urgent, since the transition Russian economic entities to the reporting, which is understandable and inspires confidence not only in Russia, but also abroad, is a very important element of the reform of accounting system.

For today, Russia's current legislation only defines the list of forms of financial statements, without specifying their information content. Existing forms are extremely general in nature and does not take into account the specifics of a particular company, organization, enterprise as a business entity. In international practice, financial statements, which are prepared in accordance with IFRS, highlights not only the specifics of any industry, but also provides the opportunity to receive full information about the features of each individual organization. It also actualizes the research topic.

In recent years, it is becoming increasingly important transformation of the financial statements of Russian enterprises in accordance with international standards.

First, in today's world of IFRS is gradually becoming a kind of key to the international capital market. An organization that can provide the relevant financial statements, gains access to the sources of the funds needed for development. If it does not have the required reporting, then, from the perspective of the Western investor, not credible and cannot be regarded as competitive.

Secondly, the international experience shows that statements transformed in accordance with IFRS, is highly informative and useful for users.

Thirdly, the Russian market has a large number of subsidiaries business entities with foreign investment, whose transformed financial statements are required to be included in the consolidated statements of the parent organizations.

Currently, Russia is on the way of economic globalization. In connection with such significant external economic changes, as Russia's entry to the WTO and the establishment of the EAEC (The Eurasian Economic Community), everywhere there is the introduction of international standards and the samples. This requires more and more market opening for foreign partners, investors and creditors. One of the limiting components of the process of integration of the Russian economy into the world economic system is the lack of a system of accounting and reporting, fully compliant with International Financial Reporting Standards and the requirements of the reformed market economy.

In this connection, it is relevant and meaningful identification of mechanisms of adaptation of the Russian financial accounting to IFRS by improving the system of legal, methodological, organizational and methodical measures, which complex application allows forming transparent form for all categories of users reporting in accordance with international standards.

The object of study is public relations in the process of formation of the financial statements by Russian and foreign organizations engaged in economic activities and represents reporting according to international standards.

The subject of research is the current Russian and Turkish legislation in the field of accounting and financial reporting, theoretical, methodological and practical aspects of the transformation of the financial statements into the reporting, that meets the requirements of international standards.

The aim of this work is to identify, generalize, organize, and analyze the most important problems and prospects associated with the transition to IFRS in developing countries on the example of Russian and Turkish practice of IFRS application. The development of organizational and methodological proposals in the field of accounting and recommendations aimed to improve the legislation in this area. Considering the similarities of accounting system development in Russia and Turkey, it is possible to identify key gaps, issues, possible solutions to the existing problems. Both countries have lot of things in common, such as continental system of law, German influence on development of accounting, also dependence on the tax system.

To achieve this goal the following tasks are set:

- To study the history of the development of accounting in the mentioned countries;

- To identified common features of accounting in the mentioned countries;

- To examine the current situation of the system of accounting and reporting in the mentioned countries;

- To study the fundamentals and the scope of application of IFRS in the mentioned countries;

-To describe main differences between Russian Financial Reporting systems (RFRS) or Russian GAAP and IFRS in practical aspects on the example of IFRS for Small Business Enterprises;

- To describes the main advantages and disadvantages of IFRS;

-To generalize the practice of international financial reporting standards in the Russian Federation;

- To identify the major unsolved problems related to the application of IFRS in Russia;

- To identify shortcomings and make recommendations on improvement of the legislation of the Russian Federation in this field by IFRS.

The scientific novelty of the thesis is the fact that this is the study of the application of IFRS in Russia based on generalization and comparison of practical aspects of IFRS in developing countries. This has allowed identifying the main shortcomings of legal regulation in the sphere of accounting and offering their solutions.

Theoretical and practical significance of the study is to develop practical provisions and recommendations on the preparation of financial statements in accordance with IFRS.

The work consists of introduction, 3 chapters, conclusion and bibliography.

accounting turkish soviet transition

1. Chapter 1. Historical features of accounting development

1.1 The history of Soviet Accounting

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The expression socialism is accounting belongs to Vladimir Lenin. Before the October Revolution (1917), Lenin was involved in the preparation plans for finding ways to benefit from accounting and for using the double entry accounting system in the stages of moving towards the socialist order. Before that, the double entry accounting system had already been used in Russia.

Accounting in the former Soviet Union has not been a well recognized discipline since the 1920s. Under the centrally planned economic structure of the USSR, accounting essentially consisted of record keeping and statistical recording.

In the table 1 we can see the main steps in the development of the Soviet accounting system.

Table 1 Main Stages of Soviet Accounting Development, 1917 -1990/1



Key Features

1917 - 1921

October Revolution

Development and implementation of accounting principles applicable to the country with socialist system, a new system of economic management.

1921 - 1929


Restoration of the traditional accounting system

1929 - 1953

Elimination of the NEP, building of United Socialist Accounting

Building of socialism,

Deformation of accounting principles.

1953 - 1984

A. Kosygin's reform (removal of Nikita Khrushchev)

Improvement of the accounting system, standardization of accounting documentation.

Development of a new accounting theory.

Application of technology to accounting.

Since 1984


Reorganization of all social and economic relations in the country.

The policy of restructuring or reforming the economic and political system. An attempt to recreate the classic accounting principles.

The period since 1917 has been characterized by radical social and economic changes. This period began in the end of July 1918, when the government moved to the communist regime. This led to the collapse of economic life. The elimination of commodity production led to the idea of introducing a cashless account.

Issuance of bank notes in 1922 subsequently allowed returning to stable money.

The ideas of cost accounting and profit were rejected. Its basic ideas were adopted officially in the Basic Regulations on State bookkeeping and Reporting (1920). These regulations were consisted with ideas proclaimed by party and State leaders. Lenin stated 4 requirements for socialist accounting:

1. Openness. There is no place for commercial secrets: all registers must be accessible to everyone.

2. Mass character. All the adult population of the country must participate in the process of accounting.

3. Responsibility. Not only values and the process of their creation and circulation must be under control but also the activities of executives responsible for them.

4. Simplicity. Accounting must be clear to every literate man.

Of these 4 requirements only the third survived.

The main features of the Soviet centrally planned economy were designed in the early 1930-s and were based on the interpretation of Marxian socialist theory. The main principles included the following:

1. The state owns and controls most of the nation's property.

2. The plan is the main element of the economic mechanism: the plan is the law.

3. Plans are worked out within central economic agencies and are vertically imposed and controlled.

4. Procurement and distribution of products are centrally planned and organized.

5. Practically all prices are fixed centrally, and basically, so are wages.

6. Accounting, reporting, auditing and statistics are plan oriented.

7. The bank (actually one) is a controlling rather then a credit institution.

8. All foreign transactions are monopolized by the State through a few institutions.

9. The whole economy is based on obedient execution of orders coming out of the center which always knows best.

In these conditions, the key function of accounting was to control the fulfillment of the plans.

After the New Economic Policy (NEP) was initiated in 1921, the traditional accounting methods practice and principles were reintroduced. While the NEP was in effect, joint stock companies and joint ventures with foreign firms were established and foreigners were given the right to take concession in Soviet territory. The use of commercial credit and notes became wide-spread.

The NEP had begun to be eliminated by 1930, a process that had a serious negative effect on further development of accounting in the Soviet Union:

1. Economic accounting in the country was completely destroyed. Imaginary Economic accounting was designed, no one bears any responsibility and do not cover, you can have losses and receive awards ( ).

2. Almost all accountants were labeled as Bourgeois (), and those who were accused of bringing harm to the national economy were physically eliminated.

3. The economic life of the country was simplified radically. Joint ventures and joint stock companies were stigmatized, as was commercial credit. Trusts were forced out, and management of factories passed to the Commissariats (ministries). Factories remained formally responsible for their own accounting, but the more this self-accounting was advertised, the less it was implemented in practice.

Under the new conditions, the so called self-accounted factory could not become bankrupt. Both profitability and nonprofitability were of symbolic character, and the main criterion for every factory became the plan. When a factory fulfilled its plan, losses were not taken into account, but if the plan was not fulfilled, even giant profits could not help the management escape punishment. Thus, fulfillment of plans became the most important objective of accounting. This approach fully corresponded to the principle of the administrative command system and led to the unique concept of socialist accounting, which retained the basic principles of the double-entry system but introduced many original features. Building of United Socialist Accounting gave the opportunity to use of the balance sheet to reflect the structure of the entire national economy.

But there were also some advantages of that period:

1. The mechanization of accounting and distribution bookkeeping on free sheets reduced the role cards, but not eliminated it completely. The use of computing technology in accounting became widespread.

2. The transition to a daily balance. This decision opened the possibility of receiving daily information about the state of the company.

3. Graphical accounting methods was of great importance, became widely spread and as a means of reporting information (Gantt charts ), and as a means of workflow within the enterprise (operogrammy).

Every aspect of accounting was proclaimed an integral part of national economic accounting itself comprised three kinds of accounting: bookkeeping (accounting), statistical accounting and operational accounting - but their unity was mostly for show.

Accounting was carried out in factories, and the information was taken from the system of accounts. Financial Statements of factories were summarized first by central branch administrative boards and then by ministries. Thus, all the information required to be reported to the upper levels of the hierarchy was provided by accounting, which summarized but did not consolidate balance sheets.

Statistical accounting included all forms required by the state offices of statistics.

Operational accounting, which provided financial statistics on operations, was carried out by the factory for its own rather then external use.

Picture 1 shows the system of Soviet accounting and reporting. According to Geoffrey Townsend.

Since the economic reform of A. Kosygin went into effect in 1964, the previously dominant goal of controlling plan fulfillment has almost disappeared. That goal has been replaced by two new principle goals:

1. Control for safeguarding material and monetary values.

2. Control of business transactions.

The first goal arises from the legal functions and the second from the economic functions of accounting. The same accounting elements - documentation, inventory taking, chart of accounts, double entry, balance sheet, calculation, valuation and reporting - are used whether measuring the legal or the economic functions.

The balance sheet is the basic reporting form that predetermines the chart of accounts and at the same time has as its basis the accounts of the general ledger. Accounts comprise synthetic (main) and analytic (supporting) accounts. During the entire Soviet period, the balance sheet has been defined as the instrument that shows the assets of an enterprise, along with the funding sources for those assets, at a definite moment in time. That is, the balance sheet is a statistical conception of groups of assets correlated and in balance with their respective liabilities.

Financial reports are the sources of most statistical information in Russia and other republics. The state regulates the composition and the structure of these reports.

The ministry of Finance in coordination with the statistical offices (SCS), carries out methodological supervision of reporting: determines its volume, structure and forms: and also prepares instructions for filing. The procedure for report preparation and submission is set out in the Regulation on Accounting Statements and Balance sheets. SCS agencies have the right to cancel departmental reporting that is not in accordance with acting statutory regulations.

The Balance sheet is the central and most important reporting form because it contains a full and detailed description of both assets of the enterprise and sources of their creation. The form has two columns, one for the beginning and the other for the end of the period. All other reporting forms only clarify the balance sheet or provide more details and analysis.

The Soviet Union was a state with a socialist structure. The accounting objectives and functions have been different from those of the Western because of distinct socioeconomic conditions and objectives. In setting principles or norms, for example, western countries have been motivated by profit making, while in the Soviet Union the focus has been more on physical production to serve public requirements. The Soviets have been applying a single system with three subsystems:

1. Statistical record keeping for aggregate economic data, including volume of production, cost of production, productivity, productive capacity and resources.

2. Operational - technical record keeping, which physically monitors the movement of materials and products within a plan.

3. Financial record keeping dealing with assets, liabilities, revenues and expenses in financial terms.

Comparability is achieved by using the standard chart of accounts, by which various pieces of accounting information are accumulated and systemized. The present chart of accounts for business activities was approved originally in march 1958 by the USSR Ministry of Finance and by the USSR Goscomstat (the State Committee for Statistics (the statistical office)). The Chart contains over 70 so-called synthetic accounts (that is aggregated, combined or 1st level) and subaccounts (second level) that are used in bookkeeping depending on the requirements of control and reporting. This chart was revised in October 1991. It was adopted in Russia in December 1991.

Balance sheet and income statements are drawn up, based on the chart of accounts. The objective of these financial reports is to provide information about the financial position and performance for a given period. The financial reports must fully reflect the results of all economic operations, as well as the availability of cash, fixed assets and inventory.

On the picture 2, we can see the Post-reform version of accounting and financial reporting in Russia.

Following the collapse of the Soviet Union in 1991 and economic reforms in the country, the new era of Russian accounting had began. All economical transformations required the changes in the accounting system and accounting principles. In 1994 the Ministry of Finance approved the first accounting standard and marked the beginning of new Russian Accounting Standards (RAS). The Federal Law On Accounting was issued at the end of 1996.

Existing Russian Accounting Standards (RAS) consist of laws enacted by the Russian Federation, and rules and regulations issued by The Ministry of Finance of the Russian Federation (Minfin). This includes the Federal Law on Accounting (Federal Law No. 129-FZ of the Russian Federation) signed by Boris Yeltsin in 1996 and Russian Accounting Standards or PBUs ( Polozheniya po Bugalterskomu Uchetu) developed and approved by Minfin to provide additional interpretation and guidance, and orders of Minfin on management, maintenance and reporting of accounting records Ernst&Young, IFRS, US GAAP and RAP, Comparison and Basics, 2014.

Picture 3 briefly overviews and summarizes the most important events of the development of the current Russian accounting system starting from the dissolution of the Soviet Union until 2010.

Picture Accounting in Russia

Source: The quality of published accounting information in Russia, A. Bagaeva, Faculty of economics and business administration, Oulu, 2010

In the table below I provided most important legislation of the mentioned period from the dissolution of the Soviet Union.

Table 2. Historical overview of the Russian accounting system from 1991 - 2018



Key Features

1991 - 1998

The beginning of reforming

1994 - Minfin order 100 On approval of Provision on accounting "Accounting Policies of organization

1996 - Federal Law 129 On Accounting

1998 - Government resolution 283 On approval of the Accounting Reform Program in accordance with the International Financial Reporting Standards

1998 - 34 Minfin order Approval of the Regulation on accounting and financial reporting in the Russian Federation

1998 - 2011

Unification and standardization

2000 - Minfin orders: On the forms of accounting in organizations, On Methodological Recommendations on the procedure of formation of indicators of the accounting reporting of the organization,

2004 - Minfin order 180 On approval of the Concept of development of accounting and reporting in the Russian Federation in the medium term

2005 - Draft Federal Law On the consolidated financial statements

2007 - Draft of the new Federal Law On Accounting

2010 - Minfin order 66 On the forms of accounting in organizations

2010 - Federal Law 208 On the consolidated financial statements

Since 2011

Global convergence of accounting systems

2011 - Oficcial publication of new Federal Law 402 On accounting

2011 - Resolution of Government 107 and Minfin order 160 Approval of the Regulations on the Recognition of IFRS and Interpretations IFRS for use in the Russian Federation

Russian companies first began to prepare their financial reports when the question of their introduction into European Stock Exchanges became apparent.

The pioneers were Gazprom, which issued IAS accounts in connection with its admission to the London Stock Exchange in 1996, as well as several major oil companies Gazprom Sustainability Report 2008 - 2009 Natural gas - Energy for Present and Next Generation, p.10 . A parallel process has also been underway in the Russian banking sector, driven by the need to present IAS-compliant financials to partners among Western financial institutions.

Until 2004, using the IFRS was voluntary. Subsequent reformation of the national accounting leads to legislated regulation of the financial reporting according to the IFRS. At the end of 2003 the Central Bank issued a directive which obliges all banks to present their consolidated financial statement for 2004 according to IFRS. At the first stage the statement according to IFRS should be presented to the Central Bank together with Russian financial reporting.

In 2004 the Ministry of Finance of the Russian Federation approved The Conception for accounting and finance reporting development in the Russia Federation on the medium-term perspective, which defines the main directions of transition to finance reporting according to the IFRS for Russian companies. The Conception raises the question of the necessity for the legislative approval of the IFRS. It is supposed that consolidated accounts, made according to the IFRS, will get legislated status. The conception provides two stages in the transition:

1 Stage : 2004 - 2007

Compulsory transition to IFRS of consolidated accounts for companies of major national interest, except for those companies listed on other stock exchanges and which prepare their financial reports according to other international standards (for example US GAAP).Approval of the Russian financial reporting standards for legal persons, prepared on the basis of the IFRS.

2 Stage : 2008 - 2010

Compulsory transition to the IFRS of consolidated accounts for the other companies, including companies, listed on other stock exchanges and which prepare their financial reports according to their international standards. Evaluation of the possibility of preparing the individual financial statements for certain types of companies directly according to the IFRS (instead of RAS).

According to the Federal Law About Consolidated Financial Statements, which was adopted in the second reading by the State Duma on December 25, 2005, consolidated accounts should be presented by Russian companies listed on Stock Exchange and also banks and other companies, obliged to make their financial statements according to IFRS be the Russian legislation.

In the picture 3, we can see the extension of financial reporting system in Russia, according to Geoffrey Townsend.

The last important step in the process of the IFRS adoption was the order no. 160 On implementation of IFRS and interpretation of IFRS in Russia signed by the Ministry of Finance in November 2011 (Minfin 2011). This order requires obligatory financial reporting under IFRS for all listed companies, credit institutions and insurance companies. This means that IFRS are mandatory for these entities and the first official reporting for year 2013 should be provided in compliance with the international standards. The Ministry of Finance expects to finalize the process by 2018, when all entities will report according to the international standards.

It can be said that the adoption of IFRS started in 1996-1998 when the Federal Law On Accounting was approved by the Russian State Duma. The first version of RAS was issued by the Ministry of Finance in 2000. The further process of adoption were separated into two stages according to Concept of the Development of Accounting and Financial Reporting in the Russian Federation for the Medium term issued by the Ministry of Finance in 2004.

Finally, Russian companies began to prepare consolidated financial statements since 2011, after the Federal Law About Consolidated Financial Statements and Order 160 On implementation of IFRS and interpretation of IFRS in Russia signed by the Ministry of Finance in November 2011.

In March 2012 with the help of Ministry of Finance of the Russian Federation the Inter-Agency Working Group on the application of IFRS was established. Working group consisted of regulators (Ministry of Finance of the Russian Federation, Federal Financial Markets Service, CBR), and practicing accountants and auditors.

The results of the work of the Inter-Agency working group was realization of a document entitled "Generalization of IFRS practice on the territory of the Russian Federation", which gave clarifications on the preparation of the consolidated financial statements under IFRS to meet the requirements of the Russian legislation The transition to IFRS in Russia, Requirements of Federal Law About Consolidated Financial Statements KPMG webinar Dec. 2012.

In accordance with Article 2 of the Federal Law About Consolidated Financial Statements, the following companies are in its scope:

1. Credit and insurance companies (With the exception of health insurance companies, operating exclusively in the field of compulsory health insurance)

2. State pension funds, management companies of investment funds, mutual funds and private pension funds

3. Clearing organizations, Federal state unitary enterprises, according to the list approved by the Russian Government;

4. Joint stock companies, which shares are federal property and according to the list approved by the Russian Government;

5. Companies whose securities are admitted to trading, organized by their inclusion in the quotation list.

6. Organizations (not listed above), if their constitutive documents provided obligation of the presentation and (or) the publication of the consolidated financial statements

7. If federal laws are provided drafting, and (or) representation, and (or) the publication of the consolidated financial statements

From 2014 to the list of companies joined the companies, which have issued only bonds admitted to trading, organized by their inclusion in the quotation list.

From 2015 to entities reporting under IFRS, joined also companies whose securities are admitted to organized trading, by their inclusion in the quotation list and which make up the consolidated financial statements other than IFRS, internationally recognized rules1. Federal Law On Consolidated financial statements from 27.07.2010, 208 FZ, Sec. 2, Art. 8 . These standards are the only US GAAP (US GAAP).

1.2 The history of Accounting in Turkey

Turkey is a developing country. For both countries, accounting environment was dependent on government and tax authorities for a long time. Russia, as a part of Soviet Union, had a centrally planned closed economy for more than 70 years. In contrast, Turkey's economy was open to foreign investment and heavily influenced by the practices of a number of western countries. In addition, for the last 15 years the volume of foreign investment in Turkey has increased significantly. Besides, in both countries International Financial Reporting Standards has prepared, adopted and enforced under the guidance of the government. In this way, we can analyze the future of IFRS in Russia by making comparative analysis.

The development of accounting profession and practice in Turkey was influenced by the combination of economic development, legislative process, tax laws and cultural factors.

In the table below we can see the main steps in the development of the Turkish accounting system.

Table 3. Main Stages of Turkish Accounting Development, since establishment of the Turkish Republic in 1923



Key features

1923 - 1960

Establishment of the Turkish republic

State Economic Enterprises (SEE)

Strong German influence.

TTC (Commercial code) in 1956 and Tax Procedure law 1950

Banking law in 1933


Establishment of Uniform Accounting System.

Application of Uniform Accounting System in 1972.

Strong German influence.


The establishment of accounting profession in Turkish Republic

Anglo-Saxon influence

Law 3568: "The Law of Independent Accountancy

Establishment of Capital Markets Board

Capital Markets Law in 1981

Issuance of first regulation about accounting and financial reporting, name Standard Financial Statements and Reports


World wide crisis

The new uniform accounting system

Turkish economy was often exposed crisis

1992 General Declaration for Implementing an Accounting System (Ministry of finance, became effective on 1994)


First IFRS implementation

2002-Establishment of Turkish Accounting Standards Board and Turkish Accounting Standards issuance.

2006 Banking law

2010 -

New commercial code

2013 - New Commercial code application and Turkish Accounting Standards (translated IFRS).

1923-1960 - In the early years of the Turkish State, the economic system was not truly capitalistic. The capital for private sector did not exist and most of the economic activity was managed by the State Economic Enterprises (SEE) owned by the state. Accounting reports were prepared for the state. The aim of the accounting regulations in Turkey was to protect the interests of the Treasury. Therefore, accounting practices for most companies in Turkey has been strongly influenced by the need to produce information to tax authorities Accounting in Turkey with reference to the particular problems of lease transactions T. E. Cooke and T. Curuk, 1996. Republic of Turkey's first Commercial Code is date 1926 and no: 865 code. This code is referred to German resources and brought two important renewals. First renewal was about the joint stock companies' regulations in the code and second renewal was concerning about obligatory keeping books by companies. This code could not develop accounting practices as expected from business environments.

New Turkish Commercial Code was enacted in 1956. The Commercial Code (TCC) No. 6762 of 1956, which is still in force, was prepared by a committee headed by German Professor Hirsch. TCC No. 6762, is broadly divided into two books. The first books address general principles of commercial trading, including requirements for bookkeeping and the second book addresses commercial partnerships and companies, including limited liability and joint stock companies. Essentially, TCC has shortcomings on the accounting regulations. For instance, it does not take in to consideration depreciation. TCC also leave all companies free to choose their amortization methods. On the other side, taxation plays very important role in the formulation and application of accounting in Turkey. Therefore tax laws which issued 1950's should be noted here. These are: The Income Tax Law (No: 193), the Corporate Tax Law (No: 5422) An analysis of the companies' compliance with the EU disclosure requirements and corporate characteristics influencing it: A case study of Turkey Original Research Article, Turgut Curuk, 2001.

Tax Law which was enacted in 1949 based on German model, had a major impact on accounting practices. The law not only included principles of bookkeeping, but also economic assets evaluation measures. Instead of providing information to interest groups, financial statements were mostly used for tax purposes Accounting in Turkey with reference to the particular problems of lease transactions T. E. Cooke and T. Curuk, 1996

1960-1980 - Application of Uniform Accounting System was established in 1972. Uniform Accounting System was mandatory for SEEs and included fundamental concepts of accounting and accounting principles, reporting system, uniform chart of accounts, uniform accounting methods, and organization of accounting, finance and auditing departments within SEEs. The accounting plan has been prepared with the help of German consultants increasing the German influence on Turkish accounting practices.

1980-1990 - The establishment of accounting profession in Turkish Republic starts with Law 3568 "The Law of Independent Accountancy, Certified Public Accountancy and Sworn-in Certified Public Accountancy", which became effective in 1989. The law established the accounting and auditing as a profession and established the necessary qualifications to become a member of the profession. In addition, it provided a basis for organization of the profession as the Union of Chambers of Certified Public Accountants of Turkey (TURMOB). Anglo-Saxon influence was strengthened by the return of accounting scholars educated in American universities and establishment of Capital Markets Board in 1980s. Firstly In 1981 the Capital Market Law (CML) was issued and with respect to this law Capital Market Board (CMB) established N. Altintas, F. Yilmaz, The Accounting Profession: A Descriptive Study of the Common and Code Law Countries, Journal of Modern Accounting and Auditing, July 2012, Vol. 8, No. 7, 932-950.

Capital Markets Board issued a standard general accounting plan for listed companies. Transparency and accounting uniformity was important for listed companies for attracting foreign direct investment to their businesses. The Board also promoted the entry of foreign investors to Istanbul Stock Exchange. During this period in early 1980s, big four auditors also entered the Turkish market. Another major event was, establishing of Istanbul Stock Exchange (ISE) in 1986.

Approximately after two years of its establishment, Capital Market Board, issued its first regulation about accounting and financial reporting. The name of this communique is Standard Financial Statements and Reports which was introduced in 1983. Also CMB issued a General Standard Accounts Chart as a supplement for the companies in 1987. In CMB's first communique involved in; uniformity in the accounting, general accepted accounting principles, financial statements formats and footnotes.

Communique No. VIII/2 remained in force till 1989. Capital Market Board amended and developed its previous communiques. As a result, CMB enacted Communique No. XI/1. The aim of the Communique XI/1 summarized in the Article 1, is to establish principles and rules for the preparation, presentation and publication of financial statements and reports that apply companies controlled by Capital Market Board. The financial statements stated in Art.1 include a balance sheet, and income statement, cash and fund flow statements, a statement of costs of goods sold and profit distribution statements and reports comprising the annual report and the audit board's report, as specified in Arts. 2 and 53 of the Communique Curuk, T., An Analysis of Factors Influencing Accounting Disclosure in Turkey, Istanbul Stock Exchange, Istanbul, 2001 . Additionally, Uniform Accounting Plan for Bank Enterprises is issued in 1982.

1990-2000 - In 1992, the General Declaration for Implementing an Accounting System had been published by the Ministry of Finance to create an accounting system for all enterprises except financial institutions. The new uniform accounting system including basic accounting concepts, principles and chart of accounts as well as implementation guidance became effective on 1994. Concurrently, Turkey Accounting and Auditing Standards Board (TMUDESK) was established in 1994 by TURMOB (Accounting and Auditing Standards Commission of Turkey) to publish accounting standards. The Commission published some accounting standards in line with International Accounting Standards. But these standards were not used due to lack of sanction. However, work done by TMUDESK increased awareness about International Accounting Standards within the accounting profession and business world.

2000-2010 - In 2001, the Board issued a communique on inflation accounting and a revised communique on consolidation of financial statements which were compatible to related IASs. The first financial statements prepared using these communiques were published as of December 31, 2003. In addition, the Board issued a broad set of financial reporting standards that are mostly compatible with IASs and IFRSs in 2003. These standards became effective for listed companies from the beginning of 2005 which set the time for mandatory adoption of IFRS for listed companies at Istanbul Stock Exchange.

The other important evolution in 2002 was the establishment of Turkish Accounting Standards Board by legal regulation. The board has legal power for setting Turkish Accounting Standards and sanction for all companies in Turkey. The Board started publishing accounting standards which were fully compatible with IASs and IFRSs. Searching for accounting harmonization within the country BRSA and CMB has abolished their standards for accounting standards published by the TASB which are compatible with the IFRSs adopted by the European Union in 2006 and 2008 respectively. These events made TASB the only publisher of IAS and IFRS compatible standards. Additionally, TASB accepted a harmonization (uniformity) with IFRS in order to achieve international acceptance.

As of 1 January 2005, publicly-owned companies whose shares are traded in the Istanbul Stock Exchange are required to prepare their financial statements in accordance with Turkish accounting standards that are based on International Financial Reporting Standards (IFRS).

In the table we can see important events that shows first application of IFRS in Turkey.

Table 4 - Important events for the application of IFRS in Turkey

2010 - The most important step in the IFRS implementation came with the issuance of new Turkish Commercial Law. In 2012, the new Turkish Commercial Code was enacted after several years of discussion in legislative process and in public. The new commercial code was a major change in orientation from German to Anglo-Saxon influence. The new commercial code promotes fair competition, transparency, corporate governance principles and most importantly accounting and auditing standards. The new Turkish Commercial Code, effective for accounting periods beginning on or after 1 January 2013, requires companies meeting certain criteria to report under Turkish Accounting Standards (translated IFRS). In addition to the list announced by the Council of Ministers, a Company that meets two of the following three criteria: (1) total assets of 150 million Turkish liras and greater; (2) net sales of 200 million Turkish liras and greater; and (3) average personnel 500 people and greater will prepare its financial statements according to the Turkish Accounting Standards.

We can identify common features of development in the mentioned countries:

Both countries belong to the continental law system. A significant German influence on the development of accounting. The crucial role of legislative and other normative acts, rather than jurisprudence and dependence on the tax system.

Capital for private sector did not exist.

Accounting reports were prepared for the state.

The aim of the accounting regulations was to protect the interests of the State and Treasury.

Chapter 2. Practical aspects of the transition to IFRS

Current situation

As of today in the methodical manual of the Ministry of Finance are listed applicable federal accounting standards, translated and adopted 41 IAS and 13 IFRS.

According to a study audit and consulting company "Baker Tilly" the number of survey participants reporting under IFRS in 2014, 2015 and 2016 is as follows. 79 % of companies plan to prepare reports according to IFRS for 2015, and 82 % for 2016. (Graph 1).

The main segment of companies that are engaged in the preparation of IFRS financial statements, are companies that make relatively small group - up to 10 companies. This is because larger structures more difficult to manage and they are governed at a higher level (transnational groups).

Small groups (up to 10 companies) - companies with revenues of up to 3 billion rubles was approximately 50 % of the respondents, with revenue from 3 billion to 6 billion rubles - about 70 %, from 6 billion to 15 billion rubles. - 50 per cent higher than 50 billion rubles. - About 60 percent. Shown in graph 2.

The group of companies consisting of from 30 to 60 companies - with revenues of 3 billion to 6 billion rubles. - only about 17 %. Biggest companies whose revenue is from 15 billion to 50 billion rubles - are more than 80 percent of study participants, and revenues exceeding 50 billion rubles - 50 %. Shown in graph 3.

The main reason for the preparation of IFRS financial statements in almost all of the companies surveyed - demands of owners. The results are also valid for companies with revenues of up to 3 billion rubles. and for groups with revenues of over 50 billion rubles.

Exception are the companies with revenues of 3 billion to 6 billion rubles - they have a determining factor for the preparation of IFRS-reporting - it islegal requirement (33%).

Reasons for the preparation financial statements under IFRS

Owners requirements

Search for investors

Creditors requirements

Legislative requirements

More than 50 billion rubles





From 15 to 50 billion rubles





From 6 to 15 billion rubles





From 3 to 6 billion rubles





Up to 3 billion rubles





For the average business, owner's requirement is often a requirement of the foreign parent company to provide audited IFRS statements for the understanding the Russian business and the inclusion in its consolidated financial statements.

The owners of the large holdings can not imagine RAS standards, and want to see the statements of the companies in the international format, and therefore show a high level of 50 percent. 38 % of the companies with revenues of more than 50 billion rubles also are preparing financial statements under IFRS, due to the legal requirement. Companies with revenue from 3 billion to 6 billion, from 6 billion to 15 billion and 15 billion from up to 50 billion rubles show high percentages (from 17% to 25%). It means that they prepare IFRS financial statements for potential investors.

The same high percentage of companies that prepare financial statements in accordance with IFRS for lenders shows confidence to IFRS. Banks rely on IFRS-reporting, but its presence is not an essential requirement. Many banks evaluate the activities the company and its risks on the basis of Russian accounting standards.

2.1 The main differences in accounting between RAS and IFRS

The main requirement for reporting under the international standards - a true and fair reflection of the financial state of the company, that is, the true size of its capital. That is why there is a large number of different approaches, assessments and definitions between Russian and international accounting.

1. The RAS unlike IFRS does not contain a definition of assets. IFRS assets - is a resource controlled by the company as a result of past events (i.e. existing.), From which the company expects the economic benefits in the future (see paragraph 49 standards "Principles of Preparation and Presentation of Financial Statements"..). Thus, if the asset do not have income, it is partially impaired or completely loses its status as an asset and becomes a expenditure.

2. The RAS unlike IFRS does not contain a definition of liabilities. IFRS liabilities - is already existing company debts arising from past events, the repayment of which will lead to an outflow of the company's resources, bringing the economic benefits.

3. In the RAS there are no models of accounting elements evaluation on discounted cost (referred only to 19/02 and can be used for additional disclosure), on the recoverable or fair value .

4. It is necessary to pay attention to a very important feature of IFRS - options for assessing for reporting elements. The standard applies to many kinds of cost, that are not existing in the RAS, there are significant differences in the approaches.

Discounted value - is the present value of future net cash flows expected to be obtained by using the asset (or be required to settle the obligation).



Financial statement presentation

Financial periods required

Comparative information must be disclosed with respect to the previous period for all amounts reported in the current period's financial statements.

Comparative information must be disclosed in respect of the two previous periods for the balance sheet, one previous period for the statements of financial results, changes in equity, cash flows and appendices to the financial statements.

Layout of balance sheet and income statement

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