Designing Chart of Accounts and Analytical structure: Russian accounting habits

When a company goes to Russian market and wants to roll-out its corporate solution, it would face a need of designing chart of accounts and a set of analytical dimensions for Russian accounting database.

According to Russian practice, chart of accounts is usually quite unified and rigid. It is mainly so because historically it has been dictated by legislation what should be the structure and even numbering of accounts. If you would now ask Russian accountant, he will tell that the structure of accounts and its numbering is predefined by law. It is not exactly so, however indeed there is a legally recommended chart of accounts with its recommended numbering. The following basic numbering is recommended:

01 - Fixed Assets (BS)

02 - Depreciation (BS)

09 - Deferred tax assets (BS)

10 - Materials (BS)

19 - VAT unrealized, accumulated

20 - Production, WIP (BS)

25 - Production Overhead (PL)

26 - Administration Expenses (PL)

40 - Ready products (BS)

41 - Trade items (BS)

44 - Sales expense Overhead (PL)

50 - Cash and cash equivalents (BS)

51 - Bank (BS)

57 - Bank in transit (BS)

58 - Loan investments (BS)

60 - Accounts payable (BS)

62 - Accounts receivable (BS)

66 - Loans

68 - Taxes (VAT, Profit, Property, etc.)

69 - Salary related taxes (social security tax, pension fund payments, etc.)

70 - Salary and Wages payables (BS)

71 - Other Personnel payables/receivables (BS)

73 - Personnel charges and penalties

75 - Shareholders payables/receivables (BS)

80 - Share Capital (BS)

84 - Unallocated profit (BS)

90.01 - Sales (PL)

90.02 - COGS (PL)

91.01 - Other Revenues (PL)

91.02 - Other Expenses (PL)

97 - Future Expenses (BS)

98 - Future Revenues (BS)

Regardless the fact that a company in Russia has legal right to select ANY chart of accounts with ANY structure and numbering, the common rules are so that it would be much wiser to keep existing practice in numbering. Doing this will allow you to speak on the same accounting language with any Russian accounting person, as well as would allow you customer to speak the same language with the tax office (as tax authorities often require some breakdowns of certain accounts, just addressing them by numbers).

As you understand, each of that account might have unlimited subaccounts. This is quite typical for a normal ERP implementation to have a chart of accounts with hundreds or thousands of accounts and subaccounts. In Russian practice, indeed, some of the accounts mentioned historically were divided into subaccounts. E.g., account 10 "Materials" usually is divided by general types of materials used, and account 19 "Unrealized VAT" is usually divided into the types of outcoming VAT: VAT from purchases of Fixed Assets, of materials, of trade items and of services - separately.

However the biggest difference is that Profit & Loss accounts usually are not divided into subaccounts in Russian practice, but this division is rather handled by dimension values on analytics level. Thus, instead of having numerous subaccounts for 26 "Administrative Expenses", you would rather face this one account and a separate dimension called "Expense types" with values, aimed to divide the costs into analytical categories. Note that this is very common thinking of typical Russian financial or accounting person and you should consider this opinion when you deal with your roll-out.

Personally I'm more keen on having the division rather on CoA level then on the analytical dimension level, as it is done in many other countries. Please note that it is absolutely not prohibited by legislation to have any kind of accounts structure and as many subaccounts as needed, in case company describes it correctly in its accounting policy. (However you will certainly face people who would try to persuade you in opposite :-) ). Thus, when doing a correct implementation, it is needed to achieve a balance between quantity of accounts in CoA and number of analytical dimensions and their values.

The general rule might be so that if you would have an analytics that can be applied to any account in your chart (e.g., a Division or Department), it is wise to put it into analytical dimension. This can be then applied to both cost accounts and profit accounts. On the other hand, if you need to divide just some of your accounts - e.g., your revenue, - to different types (e.g., Sales of Services and Sales of Items), it can be wise to have two separate subaccounts for Sales account in the chart.

Another general rule is to look at the corporate CoA in the headquarters when designing CoA for Russian entity. Normally Russian subsidiary will have a need of corporate reporting, and you will save a lot of efforts if the structure of Russian accounts in the chart and analytics will be as much closer to corporate requirements as possible. It is not always achievable to have one-to-one relationship between corporate accounts and Russian accounts, however this could sound as a target :-) (I would probably write another special blogpost about that). You can always ask a local partner to provide you with assistance on drafting the correct accounts and analytical structure with relation to corporate chart of accounts, which would not contradict with Russian legislation principles.

Summary:

There is a strong accounting habit in Russia to have a short chart of accounts, with all the subaccounts breakdown put to analytical dimensions. There is also a common thinking that the structure and numbering of accounts is defined by legislation, which is in reality not so - there exists only recommended CoA. It is wise to plan and organize the CoA for Russian entity, considering common sense in balancing between the quantities of accounts in the chart and numbers of analytical dimensions and their values. Also, when designing Russian CoA, consider the headquarter company corporate chart of accounts to make the financial reporting more easy, but also do not violate Russian legislation principles - consult with local partner!