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Practicalities of International Financial Reporting Standards Implementation:

Practicalities of International Financial Reporting Standards Implementation: New International Standards on Auditing Edge. Sergey Moderov Head of International Financial Reporting Department. Group of Companies Issues. Control -

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Practicalities of International Financial Reporting Standards Implementation:

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  1. Practicalities of International Financial Reporting Standards Implementation: New International Standards on Auditing Edge Sergey Moderov Head of International Financial Reporting Department

  2. Group of Companies Issues • Control - is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities • Consolidated financial statements - financial statements of a group presented as those of a single economic entity

  3. How to find all the entities under control? • Ask Management; • See internet and professional magazines; • Look at “strange” transactions: - Loans; - Non-market price transactions • See data of the Client: - List of companies “on the walls”; • Ask Client employees All controlled entities must be consolidated

  4. Entities under common control • Are widely used for tax and formal independence purposes; • Using of Special Purpose Entities; • Plan to build traditional holding might be in the place; • Entities under common control might be consolidated in a aimed Group by: - applying IFRS 3 “Business Combinations”; - “carve out” method and “predecessor accounting” method Example: TGK-14 (RAO UES)

  5. Fair Value The amount for which • an asset could be exchanged, or a liability settled, • between knowledgeable, willing parties • in an arm’s length transaction. • Fair value exists always, market value - not • Auditor’s check in: • Leasing • Business combinations • PPE, investment property revaluations

  6. Audit of fair value • Look at professional appraisal report; • Perform recalculations; • Look at the market of similar transactions, average rates; • Look at usual business process and independence of parties; • Using the work of an expert (within the firm or not)

  7. New International standards on auditing • Clarity project – • The same in more simple words; • Apply or not Sarbannes Oxley or another set of strict rules; • Follow ethics codes

  8. New International financial reporting standards • Financial instruments – reducing complexity (10 June 2008); • Business combinations – next phase: - Full goodwill approach; - Minority interest becomes non-controlling interest; • IAS 1 “Presentation of financial statements” change: - Balance sheet becomes Statement of financial position; Profit and loss statement becomes Comprehensive income

  9. Drivers of clients adopting IFRS • Usually such clients are leaders on the market; • Really aggressive firms; • Who plan to issue bonds or stocks (IPO); • Who’s Parent reports in accordance with IFRS; • Who uses IFRS principles in management accounting

  10. Questions or comments? Sergey Moderov Head of International Financial Reporting Department

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