SichenPENG

Following the further deepening and development of the global economic integration and globalization， convergence of financial reporting becomes the focus of attention across countries. Especially， in those large developing or transition economies who want to attract more international investors to maintain the growth of economy. Based on the purpose of improving the quality and comparability of financial statement， convergence of financial reporting implies to adopt one set of accounting standards throughout the world （Patel， 2010， pp.331）， for instance， International Financial Reporting Standards （IFRS）. As for the advantages and disadvantages of convergence， the opinions diverge from individual to individual. However， this essay selects Russia as the subject to analyze that the advantages from convergence are greater than the disadvantages.

In traditional perspective， Russia was one of the major European powers in the Czarist era whose economy was developing along with the Western model. However， history made this country to choose a totally different way to develop itself. The Soviet Union and the Western World had been ideological opposites since the October Revolution， which also influenced the economic system. The centrally planned economics not only provided a platform for the high-speed development of economy in 1920s but also shifted the economic structure far away from the market oriented model.

Even through Russia had self-contained planned accounting model in Soviet system， Kim （2013， p.527） thought that the real modern era of Russia began in 1991， from then on， the centrally planned economics was transferred to market oriented model under the pressure of dissolution of the Soviet Union. The fall of Berlin wall is a sign of end of the Soviet Union， which also provides an opportunity to those formerly closed society to open to the world again （McGee， 2008， p.141）. The process of transforming the planned system to the market-oriented system is bound to be painful to Russia. The overall institutional environment in Russia is characterized by low investors protection， poor corporate governance， high levels of corruption， low levels of enforcement （Pistor & Xu， 2005， p.10）. Moreover， the lack of transparency and comparability would the obstacle of the growth in economy.

The convergence of financial reporting seems to pave a way for Russia to be the worlds top exporter again. In 1990s， the harmonization of financial reporting was spontaneous. On one hand， the leading Russian companies wanted to achieve the global recognition through listing on the worlds major market， such as NYSE and LSE. On the other hand， Russian government had not enough energy to adopt IFRS in Russian accounting system， as the country tried to minimize the effects of two important reforms， that is， the liberalization of price to promote free competition and privatization of state-owned enterprises （Blinnikov， 2011； Melloni， 2006）. At the beginning of 21 century， the national government implemented the top-down convergence with IFRS， that is， mandatory convergence. This change is normal in a country that is influenced by centrally planned model. Generally， there are two main advantages from adoption of IFRS.

Convergence of financial reporting through adoption of IFRS is helpful to attract international investors and facilitate international mergers and acquisitions （Patel， 2008， pp.331）. For this perspective， convergence of financial reporting brings a win- win effect on Russia and the international investors. As a growing market which has significant influence on the worlds economy， the potential opportunity of Russia attracts the attention of the international investors who want to benefit from the development of Russian economy. On the other hand， Russia is a country rich in natural resource， such as oil and gas， while the foreign capital plays an important role in developing these resources （Preobragenskaya & McGee， 2003）. According to the announcement of national government in 2011， Russia plans to invest 1.5 trillion USD in modernization of national economy （The World Bank， 2011）. However， the original national accounting system in Russia could not meet the requirement of international investors who need financial information with high quality and transparency. In order to attract the foreign investors， the firms of Russia have to improve the quality and comparability of financial information （Bagaeva， 2008， p.158）. To improve the institutional environment， in 2004 the Russian Ministry of Finance approved Russia's transition to IFRS over the period 2004–2010. Bagaeva （2008， p. 161） thought that the adoption of the IFRS provided the confidence for Russia to attract more international investments. In the process of convergence of financial reporting， Russia maintained the growth of economy with high speed and the international investors benefit from developing the natural resources.

Patel （2008， p.356） pointed that the strategy of IASB is to identify and recommend the best standards around the world. Kim （2013， p. 547） also found that the adoption of IFRS push forward the reform of Russias economy system and social system. According to Kim （2013， pp.527-9）， these improve embodied in four aspects， that is， accounting system， credit institution， capital market and legislation. Firstly， for the stand of accounting information， one of the most important innovations was the acceptance of “substance over the form” accounting developing method. Based on this concept， Russian accounting standard transferred accounting basis from cash to accrual basis， specifically， the revenue and expense are recognized in accordance with the substance rather than the legal from which is different from the planned accounting model used before （Kim， 2013， p.528）. Secondly， as for the credit institution， in 2004 the Central Bank of Russia （CBRF） required all banks in Russia should comply with IFRS. Banks always play a special role in macroeconomic regulation and control， the convergence with IFRS in credit institution can help the transition from planned economy system to market oriented model. The requirement of CBRF means that the national government is reducing the government intervention in Russian economy. Thirdly， RAS-IFRS transition process improved the capital market conditions in Russia. Depended on Kims （2013， p.530） analysis on data of Russian public companies during the period of 1995-2010， the financial information disclosed on Moscow Interbank Currency Exchange （MICEX） is different from that of Russian Trading System （RTS）， because they operated in different environment. In 2012， Russia completed the process of merger MICEX and RTS into Moscow Exchange， which is treated as the landmark of improving the local market liquidity and local investor base. Lastly， convergence with IFRS also pressed Russia to improve the legislation. The situation of that Russia had no protection of shareholders in the law became the history. With the revision of Russian corporate law， provisions that protect all categories of shareholders are issued， including minority and foreign groups （Kim， 2013， p.529）. Kim （2013， p.529） also predicted that the success from these four reforms would be achieved post-2015， when the transition to IFRS is completed.

However， the mandatory convergence also brings some challenges to Russia. Due to Russian government intervention， the spontaneous harmonization was replaced by the mandatory convergence. According to Alons （2013， p.45） research， voluntary harmonization with IFRS is more likely to have positive perception than mandatory convergence. The mandatory convergence may lead to some negative effects on the adopters. For Russia， the mandatory convergence with IFRS would result in raising the cost of financial reporting other than reducing its cost. All listed holding companies should have to prepare consolidated financial statements in accordance with IFRS； meanwhile， companies should have to prepare the RAS-based financial statements for tax purpose （Minister of Finance， 2011）. The process of maintaining parallel accounts under both accounting standards is time-consuming and subject to error （Barabanov， 2003）. In addition， the national government has no relevant plan to reform the tax system， which also brings the uncertainty to the listed companies. McGee and Preobragenskaya （2005， p.5） figured that the translation between English and Russian might influence the quality of using IFRS， and the Russian accountants lack of the necessary knowledge to utilize IFRS appropriately. But time will solve the problems about translation and education.

In conclusion， the convergence with IFRS received the mixed reactions from people. However， with regard to Russia， a country with special culture and history， the convergence with IFRS do “more good than bad” under the theme of globalization. Certainly， the limitations should not be ignored. The Russian government should bridge the gap between the reality and limitation in the process of mandatory convergence. If it is possible， Russian government should increase input in accurate translation and human resource training in accounting.

References：

[1]Alon，A 2013，‘Complexity and dual institutionality：the case of IFRS adoption in Russia，Corporate Governance：An International Review，vol.21（1），pp.42-57.

[2]Bagaeva，A 2008，‘An examination of effect of international investors on accounting information quality in Russia，Advances in Accounting，Incorporating Advances in International Accounting，vol.48，pp.157-61.

[3]Barabanov，A 2003，IFRS -overview，viewed 26 June 2012，.

[4]Kim，O 2013，‘Russian accounting system：value relevance of reported information and the IFRS adoption perspective，The International Journal of Accounting，vol.48，pp.525-47.

[5]McGee，R 2008，Accounting reform in transition and developing economies，Springer Science + Business Media，New York.

[6]McGee，R & Preobragenskaya，G 2005，Accounting and financial system reform in a transition economy：a case study of Russia，Springer Science + Business Media，Boston.

[7]Ministry of Finance 2011，viewed 27 October 2014，< http：//www.minfin.ru/en/>

[8]Patel，C 2010，Current issues in accounting，McGraw-Hill， Sydney.

[9]Pistor，K & Xu，C 2005，‘Governing emerging stock markets：legal vs administrative governance，Corporate Governance，vol.13（1），pp.5-10.

[10]Preobragenskaya，G & McGee，R 2003，‘The role of International Accounting Standards in foreign direct investment：A case study of Russia.Florida：Working paper，Barry University.

[11]The World Bank 2011，viewed 27 October 2014，< http：//www.worldbank.org/>.