The Challenges of Analyzing Russian Financial Statements
15 Pages Posted: 13 Oct 1997
Date Written: June 1997
Abstract
Russian financial statements appear to be very similar to their western counterparts. However, there is a lack of transparency due in part to the emerging nature of the Russian market, which includes the lack of effective regulatory oversight, no universally recognized GAAP, and managers unaccustomed to western-style financial reporting practices. Time-series analysis is hampered by the short public life of companies, annual inflation rates which peaked at 2600% in 1992, and changing and inconsistently applied GAAP through the years. Cross-sectional analysis is very difficult. Russian financial statements have limited footnote disclosure and use a hybrid cash/accrual accounting system. For example, accounts receivable are on the balance sheet but revenue is determined under a cash basis. Intangible assets are rarely recognized and tangible assets owned before 1994 were erroneously revalued by the State. Finally, with marginal tax rates exceeding 90%, net income is often significantly understated.
JEL Classification: M41, F30
Suggested Citation: Suggested Citation
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