Towards reverse globalization

PricewaterhouseCoopers partner Aleksandr Chmel reflects on tendencies in Russian consolidated reporting through the prism of our Rating.

PricewaterhouseCoopers has long been observing the way we compile our Rating. Has there been any change in the information, presented by companies?

The information quality gets better without any doubts. According to statistics, in 2004 only 56 companies presented their IAS or US/UK GAAP reporting for “Expert-400”. A year ago the figure was 79, and in the current Rating 103 corporations calculated their revenues in keeping with international (or comparable with them) standards. To our mind, it clearly illustrates: the Rating has powerfully induced companies to be more transparent. Presenting their consolidated parameters in line with international standards, Russian holdings position themselves as united groups of companies with common strategy, aimed at achieving set goals.

Do regulators efficiently influence tendencies in compiling consolidated reports?

We know that FSFM included in the list of demands to issuers of securities, which get to listing “A”, presentation of reporting according to international standards. This is how a financial market regulator influences companies interested in trading at the market segment. The practical situation itself gradually pushes us to move in this direction. More and more companies prepare their reporting in keeping with IAS and make its auditing, which will finally result in adoption of a corresponding legislation.

What is a foreign practice in the sphere?

Quite recently European community made International Accounting Standards an obligatory additional demand for companies, whose shares are traded at stock markets. Understandable and common principles of consolidated reporting are actively supported by regulating bodies. For several years special structures, responsible for development of international and American standards, have been carrying on a big project aimed at harmonization of international standards with American ones. The resultant standards should be identical and clear to everybody. Such initiatives make an obvious influence over our domestic practices. For instance, we are involved in TACIS financed project to develop new home rules (standards) of accounting based on international standards.

In the West consolidated reporting culture has been shaped for decades. Are the world achievements in the field applicable to the Russian practices?

In this respect I would mention the process named “reverse globalization”. At present Russian companies together with companies from others countries with dynamic economies, like China, actively penetrate Western markets: markets of capital, markets of distribution; they are also active in purchasing assets abroad. In many cases the use of international reporting standards is a must for conducting business or making deals. Next to standard financial reporting, companies entering foreign markets are expected to present more information on social and environmental programs.

How to encourage social responsibility among numerous companies currently operating at the national level?

In the long run the market, being a final dictator of terms, will put everything in place. We are more and more attentive to the air we breathe, to products we consume, to things at home and in office. It will surely make entrepreneurs more socially responsible. Entering the capital market even inside Russia demands good repute – for this you need more than good corporate governance in its financial and legal aspects, you need to pay attention to environmental and social issues. Therefore, financial and investment institutes, integrated in international networks, strictly observe standards in these particular aspects of business.

Compiling consolidated reporting is getting more and more complicated. Till recently corporations next to purely financial information were recommended to give details of their marketing and investment strategies. Now they need to present assessments of social and environmental business environment.

Social aspects acquire additional importance. The necessity to choose between profits and social responsibility is as old as a shareholder model of capitalism. At the beginning of the previous century almost all large entrepreneurs of the epoch had to decide what was more important for them: dividends to shareholders or social utility. There is nothing new about the notion. After hundred years the issue has remained vital. I can not predict with precision how soon changes in reporting by domestic companies would be obvious to everybody. We - the auditors, dealing a lot with consolidated reporting - may see the changes even now. But the fact is that consolidated reporting pretty often forms the ground for successful operations in different spheres of corporate activity.