BGP Litigation partner Alexander Golikov speaks with Vedomosti about entering financial investments in a company's books and their revaluation

Alexander Golikov says that in cases where the market value of financial investments can be determined, it is wrong not to revalue them in the books.

He explained that the accounting of financial investments is governed by Bookkeeping Regulation 19/02. According to that regulation, financial investments for which the current market value can be determined are to be entered in the books at year end at their current market value. Changes in the value of such investments are reflected in the books as other income or expenses.

It is wrong not to record losses in a company's books caused by fluctuations in its subsidiaries' share prices, says the BGP Litigation partner. At the same time, if this nuance is set out in the company's bookkeeping regulations and the explanatory notes to its financial statements then it cannot be held to be illegitimate. Bookkeeping Regulation 19/02 does not address the question of an organization's objectives with respect to financial investments, i.e., whether it wants to receive profit from operating activity or from fluctuations in share price. Following the Bookkeeping Regulation, the only important thing is the possibility of determining the market value of shares according to the currently applicable procedure.

Bonuses paid to employees , says Alexander Golikov, may be tied not to the financial results determined according to Russian Accounting Standards, but for example to the financial results determined according to IAS or the financial results determined according to Russian Accounting Standards but adjusted to reflect the results of financial investments. Therefore it is easier for a company to change its employee incentive policy.

The full article (in Russian) is available here: "«Русгидро» не переоценила финансовые вложения".