Problems of transition to IFRS in developing countries

IFRS does not prescribe a standard layout, but includes a list of minimum line items.

PBU 4/99 The Accounting Reports of an Organization and Order

No. 66n Financial Reporting Forms of Organizations prescribes a specific layout for the balance sheet and other statements.

Balance sheet -- presentation of debt as current versus non-current

Debt associated with a covenant violation must be presented as current unless the lender agreement was reached prior to the balance sheet date.

A long-term loan that is payable on demand following a covenant violation continues to be classified as noncurrent. The appendices to the financial statements should contain the disclosure of the terms of the loan agreement that has the covenant violation

Balance sheet -- classification of deferred tax assets and liabilities

All amounts classified as non-current in the balance sheet.

All amounts are classified as non-current in the balance sheet.

Income statement -- classification of expenses

Entities may present expenses based on either function or nature (e.g., salaries, depreciation).

However, if function is selected, certain disclosures about the nature of expenses must be included in the notes.

Expenses should be classified with regard to function (cost of sales or production, commercial expenses, management expenses, other expenses) in the statement of financial results and should be detailed in the appendices in accordance with their nature.

Income statement -- extraordinary items criteria

Prohibited.

Extraordinary items should be presented as part of other income or other expenses in the statement of financial results and may be disclosed if they are material in the appendices to the financial statements.

Income statement -- discontinued operations criteria

Discontinued operations classification is for components held for sale or disposed of that are either a separate major line of business or geographical area or a subsidiary acquired exclusively with an intention to resell.

PBU 16/02 Information on Discontinuing Operations does not require separate classification on the balance sheet. It is recommended to disclose discontinued operations separately in the statement of financial results and cash flow statement. Information related to discontinue operations should be at least disclosed in the appendices to the financial statements.

Disclosure of performance measures

Certain traditional concepts such as “operating profit” are not defined; therefore, diversity in practice exists regarding line items, headings and subtotals presented on the income statement. IFRS permits the presentation of additional line items, headings and subtotals in the statement of comprehensive income when such presentation is relevant to an understanding of the entity's financial performance.

According to Order No. 66n Financial Reporting Forms of Organizations following subtotals should be presented on the face of the statement of financial results: gross profit, profit from sales and net profit before and after tax. Performance measures other than those required by this order should not be discussed at all.

Third balance sheet

A third balance sheet is required as of the beginning of the earliest comparative period when there is a retrospective application of a new accounting policy, or a retrospective restatement or reclassifications that have a material effect on the balances of the third balance sheet. Related notes to the third balance sheet are not required.

A third balance sheet is required in all cases. The third balance sheet is viewed as a comparative to the prior year balance sheet.

Interim financial reporting

Treatment of certain costs in interim periods

Each interim period is viewed as a discrete reporting period. A cost that does not meet the definition of an asset at the end of an interim period is not deferred, and a liability recognized at an interim reporting date must represent an existing obligation.

There is no relevant accounting guidance in RAP.

Consolidation, joint venture accounting and equity method investees/associates

Consolidation model

Provides a single control model for all entities, including structured entities (the definition of a structured entity under IFRS 12, Disclosure of Interests in Other Entities, is similar to the definition of a VIE in US GAAP). An investor controls an investee when it is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Potential voting rights are considered. Notion of “de facto control” is also considered.

Currently only those Russian entities that fall within the scope of Law 208-FZ directly or indirectly are obliged to prepare consolidated financial statements in accordance with IFRS.

However, certain entities in the scope of Law 208-FZ may postpone adoption of IFRS till 2015. In such case they should file and publish their aggregated financial statements prepared in accordance with Russian Accounting Principles.

Preparation of consolidated financial statements -- general

Required, although certain industry specific exceptions exist (e.g., investment companies), and there is a limited exemption from preparing

Consolidated financial statements for a parent company that is itself a wholly owned or partially owned subsidiary, if certain conditions are met.

See above

Preparation of consolidated financial statements -- Investment companies

Investment companies (“investment entities” in IFRS) do not consolidate entities that might otherwise require consolidation (e.g., majority-owned corporations). Instead, these investments are reflected at fair value as a single line item in the financial statements. However, a parent of an

investment company consolidates all entities that it controls, including those controlled through an investment company subsidiary, unless the parent itself is an investment company.

See above

Different reporting dates of parent and subsidiaries

The financial statements of a parent and its consolidated subsidiaries are prepared as of the same date. When the parent and the subsidiary have different reporting period end dates, the subsidiary prepares (for consolidation purposes) additional financial statements as of the same date as those of the parent unless it is impracticable.

However, when the difference in the reporting period end dates of the parent and subsidiary is three months or less, the financial statements of the subsidiary may be adjusted to reflect significant transactions and events, and it is not necessary to prepare additional financial statements as of the parent's reporting date.

See above

Uniform accounting policies

Uniform accounting policies between parent and subsidiary are required.

See above.

Changes in ownership interest in a subsidiary without loss of control

Consistent with US GAAP, except that this guidance applies to all subsidiaries, including those that are not businesses or nonprofit activities and those that involve sales of in substance real estate or the conveyance of oil and gas mineral rights.

Currently only those Russian entities that fall within the scope of Law 208-FZ directly or indirectly are obliged to prepare consolidated financial statements in accordance with IFRS.

However, certain entities in the scope of Law 208-FZ may postpone adoption of IFRS till 2015. In such case they should file and publish their aggregated financial statements prepared in accordance with Russian Accounting Principles.

Loss of control of a subsidiary

Consistent with US GAAP, except that this guidance applies to all subsidiaries, including those that are not businesses or nonprofit activities and those that involve sales of in substance real estate or conveyance of oil and gas mineral rights.

See above.

Loss of control of a group of assets that meet the definition of a business

IFRS 10, Consolidated Financial Statements, does not address whether that guidance should be applied to transactions involving non-subsidiaries that are businesses or nonprofit activities.

There is no relevant guidance in RAP.

Equity method investments

An investment of 20% or more of the equity of an investee (including potential rights) leads to a presumption that an investor has the ability to exercise significant influence over an investee, unless this presumption can be overcome based on facts and circumstances.

When determining significant influence, potential voting rights are considered if currently exercisable. When an investor has an investment in a limited partnership, LLC, trust or similar entity, the determination of significant influence is made using the same general principle of significant influence that is used for all other investments.

Accounting at fair value is not available to investors (other than venture capital organizations, mutual funds, unit trusts, and similar entities) to account for their investments in associates. IAS 28 generally requires investors (other than venture capital organizations, mutual funds, unit trusts, and similar entities) to use the equity method of accounting for their investments in associates in consolidated financial statements. If separate financial statements are presented (i.e., by a parent or investor), subsidiaries and associates can be accounted for at either cost or fair value.

Uniform accounting policies between investor and investee are required.

Currently only those Russian entities that fall within the scope of Law 208-FZ directly orindirectly are obliged to prepare consolidated financial statements in accordance with IFRS.

However, certain entities in the scope of Law 208-FZ may postpone adoption of IFRS till 2015. In such case they should file and publish their aggregated financial statements prepared in accordance with Russian Accounting Principles.

See above.

Joint ventures

Joint ventures are generally defined as entities whose operations and activities are jointly controlled by their investors (e.g., equity investors, certain parties with decision-making rights through a contract).

Joint control is defined as existing when two or more parties must unanimously consent to each of the significant decisions of the entity.

In a joint venture, the parties sharing joint control can only have rights to the net assets of the entity. They cannot have direct rights and obligations with respect to the underlying assets and liabilities of the entity. The investors generally account for their interests in joint ventures using the equity method of accounting. They cannot elect to account for their interests at fair value, unless the investors are venture capital organizations, mutual funds, unit trusts or similar entities.

Proportionate consolidation is not permitted, regardless of industry. However, when a jointly controlled entity meets the definition of a joint operation instead of a joint venture under IFRS, an investor would recognize its share of the entity's assets, liabilities, revenues and expenses and not apply the equity method.

Jointly controlled entities are accounted for at cost as investments in accordance with PBU 19/02 Accounting for Financial Investments. Furthermore, PBU 20/03

Information Concerning Participation in Joint Activities addresses participation in joint activities carried out for the purpose of deriving economic benefits in conjunction with other organizations by means of combining contributions without the formation of a legal entity.

Joint activities include jointly conducted operations, jointly used assets (both accounted for using proportionate consolidation) and joint activities under an agreement (accounted for at cost as investments, while the related profit or

losses which are receivable by or have been distributed among the partners are included in other income or expenses).

Business combinations

Measurement of non-controlling interest

Non-controlling interest components that are present ownership interests and entitle their holders to a proportionate share of the acquiree's net asset in the event of liquidation may be measured at: (1) fair value, including goodwill, or (2) the noncontrolling interest's proportionate share of the fair value of the acquiree's identifiable net assets, exclusive of goodwill. All other components of noncontrolling interest are measured at fair value unless another measurement basis is required by IFRS. The choice is available on a transaction-by-transaction basis.

Currently only those Russian entities that fall within the scope of Law 208-FZ directly or indirectly are obliged to prepare consolidated financial statements in accordance with IFRS. However, certain entities in the scope of Law 208-FZ may postpone adoption of IFRS till 2015. In such case they should file and publish their aggregated financial statements prepared in accordance with Russian Accounting Principles

Acquiree's operating leases

Separate recognition of an intangible asset or liability is required only if the acquiree is a lessee. If the acquiree is the lessor, the terms of the lease

are taken into account in estimating the fair value of the asset subject to the lease. Separate recognition of an intangible asset or liability is not required.

There is no relevant accounting guidance in RAP.

Assets and liabilities arising from

contingencies

Initial recognition and measurement Liabilities arising from contingencies are recognized as of the acquisition date if there is a present obligation that arises from past events and the fair value can be measured reliably. Contingent assets are not recognized.

Subsequent measurement

Liabilities subject to contingencies are subsequently measured at the higher of: (1) the amount that would be recognized in accordance with IAS 37,

Provisions, Contingent Liabilities and Contingent Assets or (2) the amount initially recognized less, if appropriate, cumulative amortization recognized in accordance with IAS 18, Revenue.

Currently only those Russian entities that falls within the scope of Law 208-FZ directly or indirectly are obliged to prepare consolidated financial statements in accordance with IFRS.

However, certain entities in the scope of Law 208-FZ may postpone adoption of IFRS till 2015. In such case they should file and publish their aggregated financial statements prepared in accordance with Russian Accounting Principle.

See above.

Combination of entities under common control

Outside the scope of IFRS 3(R), Business Combinations. In practice, either follow an approach similar to US GAAP (historical cost) or apply the acquisition method (fair value) if there is substance to the transaction (policy election).

See above.

Inventory

Costing methods

LIFO is prohibited. Same cost formula must be applied to all inventories similar in nature or use to the entity.

LIFO is prohibited. The same cost formula must be applied to all inventories similar in nature or use to the entity.

Measurement

Inventory is carried at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale.

Inventory is carried at the lower of cost or net realizable value.

Reversal of inventory write-downs

Previously recognized impairment losses are reversed up to the amount of the original impairment loss when

the reasons for the impairment no longer exist.

Previously recognized write-offs are reversed up to the amount of the original carrying amount when the reasons for the write-offs no longer exist.

Permanent inventory markdowns under the retail inventory method (RIM)

Permanent markdowns affect the average gross margin used in applying the RIM. Reduction of the carrying cost

of inventory to below the lower of cost or net realizable value is not allowed.

No guidance is available.

Revaluation of assets

Revaluation is a permitted accounting policy election for an entire class of assets, requiring revaluation to fair value on a regular basis.

Revaluation model may be applied

to an entire class of assets requiring

revaluation to current (replacement) value on a regular basis.

Depreciation of asset components

Component depreciation required if components of an asset have differing patterns of benefit.

Component depreciation required if

useful lives of separate components differ significantly.

Measurement of borrowing costs

Eligible borrowing costs include exchange rate differences from foreign currency borrowings.

For borrowings associated with a specific qualifying asset, actual borrowing costs are capitalized offset by investment income earned on those borrowings.

Borrowing costs are reduced by the amount of income from the temporary use of loans (credits) as long-term and/or short-term financial investments.

Eligible borrowing costs do not include exchange rate differences.

For borrowings associated with a specific investment asset, the actual borrowing costs incurred in this respect are capitalized.

Costs of a major overhaul

Costs that represent a replacement of a previously identified component of an asset are capitalized if future

economic benefits are probable and the costs can be reliably measured.

Subsequent expenditure on property,

plant and equipment can be capitalized only in the case of modernization or reconstruction of fixed assets. The costs of maintenance should be expensed as incurred.

Investment property

Investment property is separately defined in IAS 40, Investment Property, as property held to earn rent or for capital appreciation (or both) and may include property held by lessees under finance or operating lease. Investment property may be accounted for on a historical cost basis or on a fair value basis as an accounting policy election. Capitalized operating leases classified as investment property must be accounted for using the fair value model

There is no corresponding accounting guidance in RAP. Investment property is accounted for at cost or under the revaluation model similar to the accounting method used for property, plant and equipment.

Intangible assets

Development costs

Development costs are capitalized when technical and economic feasibility of a project can be demonstrated in accordance with specific criteria, including: demonstrating technical feasibility, intent to complete the asset, and ability to sell the asset in the future.

Although application of these principles may be largely consistent with ASC 985-20 and ASC 350-40, there is no separate guidance addressing computer software development costs.

Development costs are capitalized when they bring future economic benefit. Development costs related to computer software developed internally can be recognized as an intangible asset.

Advertising costs

Advertising and promotional costs are expensed as incurred. A prepayment may be recognized as an asset only when payment for the goods or services is made in advance of the entity having access to the goods or receiving the services.

Advertising and promotional costs are expensed as incurred. A prepayment may be recognized as an asset only when payment for the goods or services is made in advance of the entity's having access to the goods or receiving the services.

Revaluation

Revaluation to fair value of intangible assets other than goodwill is a permitted accounting policy election for a class of intangible assets.

Because revaluation requires reference to an active market for the specific type of intangible, this is relatively uncommon in practice.

Revaluation to fair value of intangible assets other than goodwill is an allowable alternative treatment. However, revaluation needs to be conducted on a regular basis, but not more than once a year. Revaluation requires reference to an active market for a specific type of intangible. Intangible assets may be reviewed for impairment in the manner determined by IFRS.

Impairment of long-lived assets, goodwill and intangible assets

Method of determining impairment -- long-lived assets

One-step approach requires that impairment loss calculation be performed if impairment indicators exist.

PBU 24/2011 Accounting for Exploration of Natural Recourses, requires that impairment loss calculation be performed if impairment indicators exist.

There is no corresponding accounting guidance in PBU 14/2007Accounting for Intangible Assets.

Impairment loss calculation -- long-lived assets

The amount by which the carrying amount of the asset exceeds its recoverable amount; recoverable amount is the higher of: (1) fair value

less costs to sell and (2) value in use (the present value of future cash flows in use, including disposal value).

There is no relevant accounting guidance in PBU 14/2007 Accounting for Intangible Assets. Companies are allowed but not obliged to follow IFRS for impairment rules.

PBU 24/2011 Accounting for Exploration of Natural Recourses contains reference to the requirement of accounting of impairment in respect of intangible assets in accordance with IFRS.

Assignment of goodwill

Goodwill is allocated to a cash-generating unit (CGU) or group of CGUs that represents the lowest level within the entity at which the goodwill is monitored for internal management purposes and cannot be larger than an operating segment (before aggregation) as defined in IFRS 8, Operating Segments.

There is no relevant accounting guidance in RAP. Companies are allowed but not obliged to follow IFRS for impairment rules.

Method of determining impairment -- goodwill

Qualitative assessment is not permitted. One-step approach requires that an impairment test be done at the CGU level by comparing the CGU's carrying amount, including goodwill, with its recoverable amount.

There is no relevant accounting guidance in RAP. Companies are allowed, but not obliged, to follow IFRS for impairment rules.

Method of determining impairment -- indefinite-lived intangibles

Qualitative assessment is not permitted. One-step approach requires that an impairment test be done at the CGU level by comparing the CGU's carrying amount, including goodwill, with its recoverable amount.

There is no relevant accounting guidance in RAP. Companies are allowed, but not obliged, to follow IFRS for impairment rules.

Impairment loss calculation -- goodwill

Impairment loss on the CGU (amount by which the CGU's carrying amount, including goodwill, exceeds its recoverable amount) is allocated first to reduce goodwill to zero, then, subject to certain limitations, the carrying amount of other assets in the CGU are reduced pro rata, based on the carrying amount of each asset.

There is no relevant accounting guidance in RAP. Companies are allowed, but not obliged, to follow IFRS for impairment rules.

Level of assessment -- indefinite-lived intangible assets

If the indefinite-lived intangible asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, then the indefinite-lived intangible asset should be tested for impairment as part of the CGU to which it belongs, unless certain conditions are met.

There is no relevant accounting guidance in PBU 14/2007 Accounting for Intangible Assets. Companies are allowed but not obliged to follow IFRS for impairment rules.

Impairment loss calculation -- indefinite-lived intangible assets

The amount by which the carrying amount of the asset exceeds its recoverable amount.

There is no relevant accounting guidance in PBU 14/2007 Accounting for Intangible Assets. Companies are allowed but not obliged to follow IFRS for impairment rules.

Reversal of loss

Prohibited for goodwill. Other long-lived assets must be reviewed at the end of each reporting period for reversal indicators. If appropriate, loss

should be reversed up to the newly estimated recoverable amount, not to exceed the initial carrying amount adjusted for depreciation.

There is no relevant accounting guidance in RAP. Companies are allowed, but not obliged, to follow IFRS for impairment rules.

Classification

Classification of certain instruments with characteristics of both debt and equity focuses on the contractual obligation to deliver cash, assets or an entity's own shares. Economic compulsion does not constitute a contractual obligation.

Contracts that are indexed to, and potentially settled in, an entity's own stock are classified as equity if settled only by delivering a fixed number of shares for a fixed amount of cash.

Shareholders' capital, additional paid-in capital, reserve capital, other reserves and retained earnings are classified as equity under RAP. Such financial instruments as loans and accounts payable are classified as liabilities.

There is no relevant accounting guidance under RAP for the distinction between debt and equity for convertible instruments. Generally, the classification depends on the legal form of the item.

Compound (hybrid) financial instruments

Compound (hybrid) financial instruments are required to be split into a debt and equity component and, if applicable, a derivative component. The derivative component may be subject to fair value accounting.

Compound (hybrid) financial instruments are classified in accordance with their legal form.

Impairment recognition -- available-for-sale (AFS) debt instruments

Generally, only objective evidence of one or more credit loss events result in an impairment being recognized

in the statement of comprehensive income for an AFS debt instrument. The impairment loss is measured

as the difference between the debt instrument's amortized cost basis and its fair value.

Impairment losses for AFS debt instruments may be reversed through the statement of comprehensive income if the fair value of the instrument increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognized

The impairment is calculated only for the financial investments for which the current market price is not available. The impairment is defined as a permanent reduction in the value of a financial asset. PBU 19/02 Accounting for

Financial Investments defines what constitutes a permanent reduction of the financial asset.

Impairment losses for AFS debt instruments may be reversed through the statement of financial results if the value of the instrument increases in a subsequent period.

Impairment recognition -- available-for-sale (AFS) equity

instruments

Impairment of an AFS equity instrument is recognized in the statement of comprehensive income when there is objective evidence that the AFS equity instrument is impaired and the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an equity instrument below its cost is considered objective evidence of impairment.

The impairment is calculated only for the financial investments for which the current market price is not available. The impairment is defined as a permanent reduction in the value of a financial asset. PBU 19/02 Accounting for

Financial Investments defines what constitutes a permanent reduction of the financial asset.

Impairment recognition -- held-to-maturity (HTM) debt instruments

The impairment loss of an HTM instrument is measured as the difference between the carrying amount of the instrument and the present value of estimated future cash flows discounted at the instrument's original effective interest rate.

The carrying amount of the instrument is reduced either directly or through the use of an allowance account.

The amount of impairment loss is recognized in the statement of comprehensive income.

The impairment is calculated only for the financial investments for which the current market price is not available. The impairment is defined as a permanent reduction in the value of a financial asset. PBU 19/02 Accounting for Financial Investments defines what constitutes a permanent reduction of the financial asset.

Definition of a derivative and scope exceptions

The IFRS definition of a derivative does not include a requirement that a notional amount be indicated, nor is net settlement a requirement. Certain of the scope exceptions under IFRS differ from those under US GAAP.

There is no definition of derivative in RAP.

Hedging a risk component of a financial instrument

Allows risks associated with only a portion of the instrument's cash flows or fair value (such as one or more selected contractual cash flows or portions of them or a percentage of the fair value) provided that effectiveness can be measured: that is, the portion is identifiable and separately measurable.

There is no relevant accounting guidance in RAP, and in practice special hedge accounting is not used.

Hedge effectiveness

The shortcut method for interest rate swaps hedging recognized debt is not permitted.

Under IFRS, assessment and measurement of hedge effectiveness considers only the change in fair value of the designated hedged portion of the instrument's cash flows, as long as the portion is separately identifiable and reliably measurable.

There is no relevant accounting guidance in RAP, and in practice special hedge accounting is not used.

Hedge effectiveness -- inclusion of option's time value

Not permitted.

There is no relevant accounting guidance in RAP, and in practice special hedge accounting is not used.

Derecognition of financial assets

Derecognition of financial assets is based on a mixed model that considers transfer of risks and rewards and control. Transfer of control is considered only when the transfer of risks and rewards assessment is not conclusive. If the transferor has neither retained nor transferred substantially all of the risks and rewards, there is then an evaluation of the transfer of control. Control is considered to be surrendered if the transferee has the practical ability to unilaterally sell the transferred asset to a third party without restrictions. There is no legal isolation test.

The derecognition criteria may be applied to a portion of a financial asset if the cash flows are specifically identified or represent a pro rata share of the financial asset or a pro rata share of specifically identified cash flows.

Derecognition of financial assets occurs at the moment of transfer of the right of ownership.

Measurement -- effective interest method

Requires the original effective interest rate to be used throughout the life of the instrument for all financial assets and liabilities, except for certain reclassified financial assets, in which case the effect of increases in cash flows are recognized as prospective adjustments to the effective interest rate.

There is no accounting under the effective interest method in RAP. Interest is accrued on a straight-line basis.

Measurement -- loans and receivables

Loans and receivables are carried at amortized cost unless classified into the "fair value through profit or loss" category or the "available for sale" category, both of which are carried at fair value on the balance sheet.

Loans and receivables are carried at cost less the allowance.

Day one gains and losses

Day one gains and losses on financial instruments are recognized only when their fair value is evidenced by a quoted price in an active market for an identical asset or liability (i.e., a level 1 or level 2 input) or based on a valuation technique that uses only data from observable markets.

Not applicable because valuation techniques are not used.

Practical expedient for alternative investments

No practical expedient to assume that NAV represents the fair value of certain alternative investments.

There is no relevant accounting guidance in RAP.

Translation/ functional currency of foreign operations in a hyperinflationary economy

The functional currency must be maintained. However, local functional currency financial statement amounts not already measured at the current rate at the end of the reporting period (current and prior period) are indexed using a general price index (i.e., restated in terms of the measuring unit current at the balance sheet date with the resultant effects recognized in

income), and are then translated to the reporting currency at the current rate.

There is no relevant accounting guidance for a hyperinflationary economy in RAP.

Consolidation of foreign operations

The method of consolidation is not specified and, as a result, either the "direct" or the "step-by-step" method of consolidation is used. Under the "direct" method, each entity within the consolidated group is directly translated into the functional currency of the ultimate parent and then consolidated into the ultimate parent (i.e., the reporting entity) without regard to any intermediate parent. The choice of consolidation method used could affect the cumulative translation adjustments deferred within equity at intermediate levels, and therefore the recycling of such exchange rate differences upon disposal of an intermediate foreign operation.

There is no corresponding accounting guidance in RAP. However, as a result of IFRS adoption in Russia for consolidated financial statements, no such guidance under RAP is needed.

Lease of real estate

The land and building elements of the lease are considered separately when evaluating all indicators unless the amount that would initially be recognized for the land element is immaterial, in which case they would be treated as a single unit for purposes of lease classification.

There is no 25% test to determine whether to consider the land and building separately when evaluating certain indicators.

Accounting for leases is governed by Federal Law On Financial Lease No. 164 and the corresponding Guidance on Accounting of Leasing Transactions order No. 15 (in case of financial lease), and the type of lease and the lessor are defined in the lease contract.

Under RAP, the treatment of land and a building does not differ from the treatment of other property, plant and equipment and is determined with regard to the contractual arrangement of the parties.

Recognition of a gain or loss on a sale and leaseback when the leaseback is an operating leaseback

Gain or loss is recognized immediately, subject to adjustment if the sales price differs from fair value.

There is no corresponding guidance in RAP, but in practice a gain or loss is recognized immediately.

Recognition of gain or loss on a sale leaseback when the leaseback is a capital leaseback

Gain or loss deferred and amortized over the lease term..

There is no corresponding guidance in RAP, but in practice a gain or loss is deferred and recognized when the payments are made

Tax basis

Tax basis is generally the amount deductible or taxable for tax purposes. The manner in which management intends to settle or recover the carrying amount affects the determination of tax basis.

Tax basis is not defined in RAP where the income statement approach is used for accounting for deferred tax. However, by substance, the tax basis is generally the amount taxable or deductible for tax purposes according to the tax code.

Taxes on intercompany transfers of assets that remain within a consolidated group

Requires taxes paid on intercompany profits to be recognized as incurred and requires the recognition of deferred taxes on temporary differences between the tax bases of assets transferred between entities/tax jurisdictions that remain within the consolidated group.

There is no relevant accounting guidance in RAP and in practice no deferred tax is recognized in such circumstances.

Following the adoption of IFRS for the purposes of consolidated financial statements in Russia in 2011 this issue is no longer relevant for RAP.

Uncertain tax positions

IFRS does not include specific guidance. IAS 12, Income Taxes indicates that tax assets and liabilities should be measured at the amount expected to be paid based on enacted or substantively enacted tax legislation. Some adopt a "one-step" approach that recognizes all uncertain tax positions at an expected value. Others adopt a "two-step" approach that recognizes only those uncertain tax positions that are considered more likely than not to result in a cash outflow. Practice varies regarding the consideration of detection risk in the analysis.

No specific guidance; tax assets/ liabilities should be measured in the amount expected to be paid.

Initial recognition exemption

Deferred tax effects arising from the initial recognition of an asset or liability are not recognized when: (1) the amounts did not arise from a business combination, and (2) upon occurrence, the transaction affects neither accounting nor taxable profit (e.g., acquisition of non-deductible assets).

There is no relevant accounting guidance in RAP. However, as the income statement approach is used in RAP, no deferred tax is recognized for so called 'permanent' differences which, in many cases, have the same effect as applying of initial recognition exemption in IFRS.

Recognition of deferred tax assets

Amounts are recognized only to the extent it is probable (similar to "more likely than not" under US GAAP) that they will be realized.

Amounts should be recognized if there is a possibility (with no indication of degree of probability) that they will be realized.

Calculation of deferred tax asset or liability

Enacted or "substantively enacted" tax rates as of the balance sheet date must be used.

Enacted and effective as at the reporting date tax rates must be used.

Classification of deferred tax assets and liabilities in balance sheet

All amounts classified as non-current in the balance sheet.

All amounts classified as non-current in the balance sheet.

Recognition of deferred tax liabilities from investments in subsidiaries or joint ventures (JVs) (often referred to as outside basis differences)

Recognition required unless the reporting entity has control over the timing of the reversal of the temporary difference and it is probable ("more likely than not") that the difference will not reverse in the foreseeable future.

There is no relevant accounting guidance in RAP. According to practice, no temporary difference of this kind is recognized.

Recognition threshold

A loss must be "probable" (in which probable is interpreted as "more likely than not") to be recognized. More likely than not refers to a probability of greater than 50%.

Similar to IFRS.

Discounting provisions

Provisions should be recorded at the estimated amount to settle or transfer the obligation taking into consideration the time value of money. The discount rate to be used should be "a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability."

Similar to IFRS.

Measurement of provisions -- range of possible outcomes

Best estimate of obligation should be accrued. For a large population of items being measured, such as warranty costs, best estimate is typically expected value, although midpoint in the range may also be used when any point in a continuous range is as likely as another. Best estimate for a single obligation may be the most likely outcome, although other possible outcomes should still be considered.

The best estimate of an obligation should be accrued. For a large population of items being measured, such as warranty costs, the best estimate is the typically expected value, although the mid-point in the range may also be used when any point in a continuum is as likely as another. The best estimate for a single obligation may be the most likely outcome, although other possible outcomes should still be considered.

Restructuring costs

Once management has "demonstrably committed" (i.e., a legal or constructive obligation has been incurred) to a detailed exit plan, the general provisions of IAS 37, Provisions, Contingent Liabilities and Contingent Assets apply. Costs typically are recognized earlier than under US GAAP because IAS 37 focuses on the exit plan as a whole, rather than individual cost components of the plan.

Restructuring costs in RAP are within the scope of the requirements of PBU 8/2010 Provisions, Contingent Liabilities and Contingent Assets which prescribes the conditions when provisions for restructuring should be booked. These conditions are generally in line with IFRS requirements.

Sale of goods

Revenue is recognized only when risks and rewards of ownership have been transferred, the buyer has control of the goods, revenues can be measured reliably and it is probable that the economic benefits will flow to the company.

Revenue is recognized when the following conditions are met: a) The entity has the right to receive revenue that arises from a contractual arrangement or is supported by other means b) The amount of revenue can be measured reliably c) It is probable that the economic benefits will flow to the entity transaction. An increase in economic benefits is probable when the entity received an asset as settlement or there is no uncertainty regarding the receipt of the asset d) The legal title (right of ownership, use and disposal) for the products (goods) was transferred from the entity to the buyer or work has been accepted by the buyer (a service has been rendered) e) The costs incurred or to be incurred in respect of the transaction can be measured reliably If at least one of the above conditions is not met, the entity should recognize payables and not revenue in respect of cash or other assets received by the entity as settlement.

Rendering of services

Revenue may be recognized in accordance with long-term contract accounting whenever revenues, costs and the stage of completion can be measured reliably and it is probable that economic benefits will flow to the company.

Similar to the recognition of revenue from the sale of goods, except for the recognition of revenue from transfer to temporary use (temporary ownership and use) of its assets and rights resulting from patents for inventions, production prototypes and other kinds of intellectual property or income from equity investments in other entities. In these cases, the conditions set out in (a), (b) and (c) in respect of revenue from the sale of goods and services are to be simultaneously met.

Multiple elements

IAS 18, Revenue requires recognition of revenue related to an element of a transaction if that element has commercial substance on its own; otherwise, the separate elements must be linked and accounted for as a single transaction. IAS 18 does not provide specific criteria for making that determination.

There is no corresponding accounting guidance in RAP, but, in practice, the general principles for revenue recognition criteria are applied to each element of a transaction based on the contractual prices.

Deferred receipt of receivables

Considered to be a financing agreement. The value of revenue to be recognized is determined by discounting all future receipts using an imputed rate of interest.

Discounting is not permitted.

Construction contracts

Construction contracts are accounted for using the percentage-of-completion method if certain criteria are met. Otherwise, revenue recognition is limited to recoverable costs incurred.

The completed contract method is not permitted.

Construction contracts are combined or segmented if certain criteria are met. Criteria under IFRS differ from those in US GAAP.

PBU 2/2008 Construction Contracts outlines the method of revenue recognition for construction contracts: percentage-of-completion. The percentage-of-completion method may be applied when the amount of expenses and the amount of work completed can be reasonably estimated. Otherwise, revenue recognition is limited to recoverable costs incurred.

Transactions with non-employees

IFRS has a more general definition of an employee that includes individuals who provide services similar to those rendered by employees.

Fair value of the transaction should be based on the fair value of the goods or services received, and only on the

fair value of the equity instruments granted in the rare circumstance that the fair value of the goods and services cannot be reliably estimated.

Measurement date is the date the entity obtains the goods or the counterparty renders the services. No performance commitment concept exists.

There is no corresponding accounting guidance in RAP.

The measurement date is the date when the obligation arises and the criteria for its recognition have been met

Measurement and recognition of expense -- awards with graded vesting features

Entities must recognize compensation cost on an accelerated basis and each individual tranche must be separately measured.

There is no corresponding accounting guidance in RAP, but in practice an expense is measured and recognized when share-based payment is exercised.

Equity repurchase features at employee's election

Liability classification is required (no six-month consideration exists).

There is no relevant accounting guidance in RAP, but in practice it is measured and recognized when exercised.

Deferred taxes

Calculated based on the estimated tax deduction determined at each reporting date (e.g., intrinsic value).

If the tax deduction exceeds cumulative compensation cost, deferred tax based on the excess is credited to shareholders equity. If the tax deduction is less than or equal to cumulative compensation cost, deferred taxes are recorded in income.

There is no relevant accounting guidance in RAP.

Modification of vesting terms that are improbable of achievement

Probability of achieving vesting terms before and after modification is not considered. Compensation cost is the grant date fair value of the award, together with any incremental fair value at the modification date.

There is no relevant accounting guidance in RAP

Actuarial method used for defined benefit plans

Projected unit credit method is required in all cases.

The amount is expensed as incurred.

Consequently, actuarial methods are not applicable.

Calculation of the expected return on plan assets

Limited to the "net interest" on the net defined benefit liability (asset) calculated using the benefit obligation's discount rate.

Not applicable

Treatment of actuarial gains and losses in net income

Must be recognized immediately in other comprehensive income. Gains and losses are not subsequently recognized in net income.

Not applicable

Recognition of prior service costs from plan amendments

Immediate recognition in net income.

Not applicable

Settlements and curtailments

Gain or loss from settlement is recognized when it occurs. Change in the defined benefit obligation from a curtailment is recognized at the earlier of when it occurs or when related restructuring costs or termination benefits are recognized.

Not applicable

Multi-employer pension plans

Plan is accounted for as either a defined contribution or defined benefit plan based on the terms (contractual and constructive) of the plan. If a defined benefit plan, must account for the proportionate share of the plan similar to any other defined benefit plan unless sufficient information is not available.

Not applicable

Contracts that may be settled in shares or cash at the issuer's option

Such contracts are always assumed to be settled in shares.

When diluted earnings (loss) per share are determined, the basic earnings and the weighted average number of outstanding ordinary shares used in the reporting period to calculate basic EPS are adjusted for the corresponding amounts of a possible increase due to the , conversion of all convertible securities of the entity into ordinary shares and the execution of agreements to purchase the issuer's ordinary shares below their market value.

Computation of yearto-date and annual diluted EPS for options and warrants (using the treasury stock method) and for contingently issuable shares

Regardless of whether the period is profitable, the number of incremental shares is computed as if the entire year-to-date period were "the period" (that is, do not average the current quarter with each of the prior quarters).

There is no specific accounting guidance in RAP.

Treatment of contingently convertible debt

Potentially issuable shares are considered "contingently issuable" and are included in diluted EPS using the if-converted method only if the contingencies are satisfied at the end of the reporting period.

Potentially issuable shares are included in the diluted EPS.

Determination of segments

All entities determine segments based on the management approach, regardless of form of organization.

Only companies with publically traded securities are obliged to disclose segments. The management is to determine reportable segments based on the management approach

Disclosure requirements

If regularly reported to the CODM, segment liabilities are a required disclosure.

If regularly reported to the authorized persons (term similar to CODM), segment liabilities are a required disclosure.

Date through which subsequent events must be evaluated

Subsequent events are evaluated through the date that the financial statements are "authorized for issue." Depending on an entity's corporate governance structure and statutory requirements, authorization may come from management or a board of directors.

PBU 7/98Events Occurring after the Reporting Date provides guidance similar to IFRS.

Reissuance of financial statements

IAS 10, Events after the Reporting Perioddoes not specifically address the reissuance of financial statements and recognizes only one date through which subsequent events are evaluated, that is, the date that the financial statements are authorized for issuance, even if they are being reissued. As a result, only one date will be disclosed with respect to the evaluation of subsequent events, and an entity could have adjusting subsequent events in reissued financial statements.

If financial statements are reissued as a result of adjusting subsequent events or an error correction, the date the reissued statements are authorized for reissuance is disclosed.IAS 10 does not address the presentation of re-issued financial statements in an offering document when the originally issued financial statements have not been withdrawn, but the re-issued financial statements are provided either as supplementary information or as a re-presentation of the originally issued financial statements in an offering document in accordance with regulatory requirements.

PBU 7/98 Events Occurring after the Reporting Date provides guidance similar to IFRS.