3. Settlements that transfer to the district level issues that are related to the organization of communal services to the population. It is this set of local issues, which causes the greatest problems, because, in many cases, economies of scale play an important role here. Given the lack of tradition of intermunicipal cooperation (which we have already mentioned above), losses at the level of a separate settlement connected with an insuf ficient scale of operations are highly possible; this can result in a higher price and lower quality of the services provided. It is advisable to pose the questions of maintaining the municipal housing stock at the settlement level. This will allow settlements to become gradually involved in the organization of granting housing and utility services, starting from the easiest (housing) services; at the same time this will help to delineate the granting of housing (potentially competitive) and utility (naturally monopolistic) ser vices that, at present, in most cases is combined within multidisciplinary housing and utility companies operating at the district level. This results in insufficient transparency of financial flows in the housing and utility sector, lower manageability in the sector of services granted by natural monopolies and to artificial monopolization of potentially competitive services markets.
4. Settlements that transfer most of authorities relating to local issues to the district level.
Clearly, in this case it is the smallest settlements that are really unable to implement even the easiest functions assigned to them.
In spite of the fact that, under the law, each settlement must have a local administra tion of its own, it could be more expedient to join the efforts of several settlements to im plement some specialized functions. This could to a certain extent mitigate the problem of insufficient human and organizational resources as well as lower administrative expenses on municipal management without transferring the main settlement authorities to the dis RUSSIAN ECONOMY in trends and outlooks trict level. Moreover, it is not necessary (and, probably, simply inexpedient) to organize such co operation at the district level.
Formation of New Financial Mechanisms The main elements of organization of municipal level funding have been provided for in the new version of the Tax Code and the Budget Code. It is stipulated that both local taxes (the land tax and the tax on property of individuals) and deductions from federal taxes or taxes introduced as part of a special tax regime (the tax on income of individuals, tax on imputed earnings and unified agricultural tax) shall be assigned to municipal forma tions.
A list of sources of income assigned by the federal law to each municipal formation type is presented in Table 11.
Table Tax Incomes Assigned to Local Budgets (%) Deductions to Budgets of Tax Incomes Urban Re Municipal Dis Settle gions tricts ments Local Taxes and Duties Land tax collected on the territories of settlements and urban re 100 0 gions Land tax collected on territories between settlements 0 100 Tax on property of individuals collected on the territories of settle 100 0 ments and urban regions Tax on property of individuals collected on territories between set 0 100 tlements () Federal Taxes and Duties, Including Those Stipulated by Special Tax Regimes Income tax 30 20 Unified tax on imputed earnings 90 0 Single agricultural tax 60 30 State duty payable at the place of registration 100 100 Source: RF Budget Code, dated 31 July 1998. No.145 FZ (version of 20August 2004).
It is possible at the regional level to assign to the budgets of municipal districts or settlements single norms of deductions, established on a permanent basis, from regional taxes or federal taxes assigned to constituent entities of the Federation. In addition, the Federation entity should decide what instruments of interbudgetary relations from the 'menu' provided in the Budget Code will be used in the region.
In 2004, most regions began to work out approaches to the formation of a system of intergbudgetary relations under new conditions and made preliminary calculations (in some of the regions these calculations included the level of the proposed settlements).
Approaches to solving individual issues of a new mechanism to be applied for the funding of municipal formations are being discussed, in particular the following issues:
• On the possibility to assign single deduction norms at the regional level (some regions do not intend to assign additional norms, others contemplate, e.g., assigning part of the tax on corporate property to municipal districts);
• On organizing financial leveling of settlements (some regions propose to do it starting from the regional level, others intend to establish district funds of financial assistance to the population);
Institutional and Macroeconomic Challenges • On the necessity of applying negative transfer119.
However, in 2004 only few regions that set the target to speed up the implementation of the municipal reform or its individual elements did develop full fledged methods of fi nancial leveling on the basis of the new principles. It became clear in the process of this development that distributing financial means under the old and new financial assistance mechanisms differs significantly. Cities (in particular, regional capitals) gained most. In order to make the process of transition to the new financial leveling mechanism smoother, practically all of these regions decided to establish a fund that would in ever smaller por tions partially compensate municipal formations' losses from the introduction of the new financial mechanism throughout the transition period. It is envisaged to compensate percent of losses in 2005.
This measure could become even more efficient if it were accompanied by creation and implementation of special municipal formation level programs. Such programs should stipulate the directions of growth of budgetary income and provide for greater efficiency of budgetary spending. This would allow, by the end of the period of transition, to co ordinate budgetary spending with sources of income under the conditions of leveling the fiscal ca pacity and to guarantee that local issues are solved at the level that corresponds the re quirements of the local community.
4.8. Reform of the accounting system in Russia The harmonization of national accounting standards in Russia with those accepted in the international practice has a long history behind it. The transition to the International Ac counting Standards (IAS) – now International Financial Reporting Standards (IFRS)120 – was set forth as the major avenue of the reforms in this sphere by Resolution of the RF Government No. 283 of March 6, 1998, “On the Approval of the Program for Reforming Accountancy in Accordance with the International Accounting Standards (IAS).” The action plan aimed at the implementation of this program included the improve ment the normative legal regulation; formation of a regulatory framework, formation of a methodological and personnel base; as well as measures of international cooperation in the sphere of development of accounting standards and regulation of accounting. It was planned to implement the whole package of these measures within two years121. Thus, the publication of the International Accounting Standards and the related glossary of terms in Russian translation was scheduled for March of 1998. The measures aimed at the final elaboration of the new standards, in particular, the development of instructions and meth odological recommendations across individual rules (standards) of the accounting, as well as those relating to the training of respective experts and their attestation were delayed until year 2000.
According to the Program, the key element of the reform of the accounting and fi nancial reporting in Russia should be the development of new and elaboration of the previ The law of a constituent entity of the RF can introduce the negative transfer (subvention transferred from municipal forma tions' budgets to the budgets, whose funds are used for the financial leveling of the corresponding type of municipalities) for settlements, whose estimated fiscal capacity level is at least the double of the average level for the settlements in such a region. The amount of a negative transfer cannot exceed 50 percent difference between the estimated fiscal capacity of this settlement and the double average fiscal capacity of the region's settlements in the past reporting year. At present discus sions are under way whether it is expedient to introduce amendments to the Budget Code that would allow wider application of the negative transfer practice and increase the related revenues.
On April, 1st, 2001 International Accounting Standards Board (IASB) has come in stead of former Board of the Interna tional Accounting Standards Committee (IASC). Eventually the International accounting standards will be improved by IASB and to be added to new International financial reporting standards (IFRS). IFRS includes earlier accepted standards (IAS).
See the Supplement to Resolution of the RF Government No. 283 of March 6, 1998, “On the Approval of the Program for Reforming Accountancy in Accordance with the International Accounting Standards (IAS).” RUSSIAN ECONOMY in trends and outlooks ously approved rules (standards) of accounting and introduction of these rules and stan dards to practice. It should be noted that such an approach to the harmonization of the na tional accounting standards to IFRS has not in fact required the Russian accountants’ community to familiarize itself with the system of International Standards per se. It only re quired the implementation of the new Accounting Rules (AR) developed and approved by the RF Finance Ministry. This became one of the reasons, which generated the grave legis lative and personnel problems relating to the switching of Russian enterprises to the pres entation of their financial statements in accordance with IFRS they face at present122.
At the same time, the new Accounting Rules only in part correspond to IFRS. The fundamental principles of the International Financial Reporting Standards – the under standability, relevance, and reliability of the information contained in the reports have not been clearly set forth in the AR. The principles underlying the formation of reports – the completeness, prudence, and priority of economic substance over the legal form are set forth in item 7 of the AR 1/98 “Accounting policy of the organization.”123 However, the ac counting policies of organizations reflect the specifics of accounting at individual enter prises, what creates an ambiguous situation with respect to these fundamental principles.
A certain exception is the principle of neutrality of information in the financial state ments. This principle is set forth in item 7 of AR 4/99 “Financial reporting of the organiza tion.”124 According to this Rule, information is not neutral in the case it influences the deci sions and estimates of users due to the selection or forms of presentation of such information aimed at the achievement of predetermined results or consequences. In spite of clear formulation, at present this principle is not completely complied with, since it does not contain the prohibition to use the financial statements of enterprises for the purposes of tax administration and control.
The reform of the Russian accounting carried out in accordance with the Program of 1998 did not bring the expected results. The system of accounting and reporting formed at present has failed to provide the users of financial statements with reliable and useful in formation necessary to take economic decisions. An evidence of this is the fact that the majority of large Russian enterprises having counterparts abroad draw up their reports not only in accordance with the national standards, but in accordance with the standards ac cepted in the international practice, like IFRS or US GAAP, as well. Therefore, the reform of the accounting system in Russia is still far from being completed.
In 2004, there was made a significant step towards the creation of a system of ac counting disciplines in Russia meeting the modern requirements to the quality of financial information. As compared with the Program of 1998, there was taken another approach to the reform in this sphere – the harmonization of national accounting standards with inter national practice began to transform into the transition to the International Financial Re porting Standards. For instance, there was taken an attempt to grant IFRS a legal status in Russia.
The following documents indicate the origination of this new trend:
1. The “Concept of Development of Accounting and Reporting in the Russian Federation in a Medium Term Outlook”;
2. Draft federal law “On Consolidated Financial Statements.” For details, see: Russian economy in 2003. Trends and outlooks. M.: IET, 2004. Chapter 4.5 “Reform of the accounting system in Russia.” Approved by Order of the RF Finance Ministry No. 60 n of December 9, 1998.
Approved by Order of the RF Finance Ministry No. 43 n of July 6, 1999.
Institutional and Macroeconomic Challenges At the same time, these documents contain a number of provisions, which may have a significant negative impact on the progress of the reform of the Russian system of ac counting.
4.8.1. The Concept of Development of Accounting and Reporting in the Russian Federation in a Medium Term Outlook The “Concept of Development of Accounting and Reporting in the Russian Federa tion in a Medium Term Outlook” (2004–2010) was approved by Resolution of the RF Gov ernment No. 180 of July 1, 2004. The Concept stated that it was aimed at the improvement of the quality of information formed in accounting and reporting and at ensuring of guaran teed access to such information for interested users.
In order to achieve this aim, it was decided to develop accounting and reporting in Russia along the following key avenues:
• Improvement of the quality of information formed in accounting and reporting;
• Creation of the infrastructure of the use of IFRS;
• Changes in the system of regulation of accounting and reporting;
• Increase in control of the quality of financial statements;
• Training and improvement of skills of the personnel.
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