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Russia, officially known as the Russian Federation, is located in northern Eurasia. It is the largest country in the world in terms of land mass with a total area of 17,075,400 square kilometers (6,592,800 sq miles). Moscow is its capital city and Russian is its official language.
According to data from 2009 Russia has a population of 141.9 million. The population is comprised of more than 100 nationalities with 81.5% Russians, 3.8% Tatars, and 3% Ukrainians. It's traditional religions include Orthodox Christianity, Islam, Buddhism and Judaism.
The country is a federation. The leading political parties include United Russia, Communist Party, Liberal Democratic Party of Russia, and Fair Russia.
"The origins of the Russian state can be traced back to the sixteenth century when the trading principality of Muscovy emerged as the dominant player among a number of small principalities and fiefdoms."  Â Ivan IV (1533-1584) was the first Tsar (monarch or emporer) of Russia in 1547.
The Romanov family emerged as Russia's emperors in the early 17th century and ruled Russia for the following 300 years.Â Peter the Great and Catherine the Great are the best known emperors.Â
Discontent within Russian society was rampant during the early 1900's. Difficult working conditions, Russia's defeat in the Russo-Japanese War, and their involvement in Word War I led up to the Bolshevik Revolution in 1917. The Bolshevik revolution was a series of revolutions that overthrew the Tsarist regime and eventually led to the creation of the Soviet Union.
The Bolshevik Party was founded in 1903 by Vladimir Lenin. The ideals of the Bolshevik Party were based on Marxism which is a political ideology that improves society by implementing socialism.
The year after the Bolshevik revolution Russia withdrew from the World War I and signed the Treaty of Brest-Litovsk. Tsar and his family were shot.Â
After the October revolution civil war prevailed.Â On December 30 1922 the Russian Soviet Federative Socialist RepublicÂ combined with three other Soviet republicsÂ and formed the Union of Soviet Socialist Republics (USSR). The first leader was Lenin.
After Lenin's death in 1924 there was a struggle for power in the Bolshevik Party. Joseph Stalin came to power in the end.Â Stalin's government promoted a policy of planned economy that included industrialization of the largely rural country and collectivization of its agriculture. In politics, his leadership was characterized by deportations, executions, and imprisonment on an unprecedented scale.
Germany invaded the USSR in 1941 leading to 4 years of Soviet involvement in World War II. At the end of the war the USSR emerged as an industrial and military superpower.
Khrushchev, Stalin's successor, launched a policy of de-Stalinization and addressed the worst excesses of Stalin's rule. The general easement of repressive policies became known later as the Khrushchev thaw.Â However, his handling of the Cuban Missile Crisis led him loss his credibility. In 1964, he was deposed Leonid Brezhnev.
Brezhnev was Khrushchev's successor. From 1965 to 1971, the government carried out an economic reform known as Kosygin reform. This reform tried to partially decentralize the Soviet economy and shift the emphasis from heavy industry and weapons to light industry and consumer goods.Â However, the reform was impeded by the conservative Communist leadership. Growth rates slowed and social problems increased, the era of 1970s and the early 1980s became known as Brezhnev stagnation.
In 1985 Mikhail Gorbachev came into power. He introduced policies ofÂ openness and restructuring in order to liberalize its political system and modernize its economy. The original goal of Gorbachev was to purse a better form of socialism. However, this political democratization reform led to the emergence of separatist movements.
In 1990, the Russia republic declared its independence in a symbolic gesture. A military coup aimed to stop the fragmentation of the USSR failed. Afterwards, many of the republics of the USSR also declared their independence. In December 1991, The USSRÂ was dissolvedÂ into 15Â post-Soviet states.
After the dissolution of Soviet Union, YeltsinÂ was elected theÂ President of RussiaÂ in June 1991 in the first direct presidential election in Russian history. He initiated an agenda for Russia's transition to a democratic form of government and a market-based economy. The most famous reform was a program of radical economic reforms known as 'shock therapy'.
Among all the fields, privatization is the most prominent change. The privatization largely shifted control of enterprises from state agencies to individuals.
These reforms resulted in a serious economy crisis. Between 1990 and 1995, bothÂ GDPÂ and industrial output declined by 50%. The 1990s were also plagued by armed conflicts between Chechen separatists and the Russia military. Despite all this Yeltsin was reelected in 1996 thoug0068 his second term continued to be clouded by severe economic problems.
Vladimir Putin elected President in March 2000 and served two terms. In May 2008, he was appointed by his successor Dmitry Medvedev, as Prime Minister.
During his first term, Putin moved to recentralize power, limiting the positions of regional governments and big business. Besides, he came up with an ambitious program of domestic reforms in banking system, taxation system, administrative and judicial system, and anti-money-laundering legislation.
During his second term, the pace of reform slowed down. Nonetheless, during Putin's presidency, Russia enjoys the most prosperous period since the dissolution of the USSR. Progress won him widespread popularity in Russia.
Predominant Economic Model
Russia used to be a socialist country. After the dissolution of Soviet Union in 1991, Russia pursued capitalism through a series of reform and tried to transform from a planned economy to a market economy. Right now, Russia has a market economy. Russia is rich in natural resource particularly gas and oil. Natural resources compose an important part in Russia's economy.
2010 Economic Freedom Index
Economic Freedom Index measures the economic freedom of each country. Russia's economic freedom score is 50.3. It is ranked the 143rd in the 2010 Index. Russia is ranked 41st out of 43 countries in the Europe region. Its overall score is below the world and regional averages.
Corruption perception index
Corruption Perceptions Index (CPI) ranks countries in terms of the degree to which corruption is perceived to exist among public officials and politicians. In 2010 CPI report, Russia ranks 154th with score of 2.4 among 178 countries while America was ranks 22th with score of 7.1.
Global Services Location Index
GSLI analyzes and ranks the top 50 countries worldwide as the best destinations for providing outsourcing activities that includes IT services and support, contact centers and back-office support. Each country's score is composed of a weighted combination of relative scores on 43 measurements. Those measurements are grouped into three categories: financial attractiveness, people skills and availability, and business environment.
In the 2009 report, Russia was ranked 33 among those 50 countries with total score of 4.92. On financial attractiveness, people skills and availability and business environment, Russia got 2.39, 1.45 and 1.08 respectively.
The number one country is India with total score of 6.91. On financial attractiveness, people skills and availability and business environment, India got 3.13, 2.13 and 1.3 respectively.
Cultural Description based on Hoefstede
Hofstede, a Dutch researcher, found four dimensions in his study of national work-related values that can explain differences and similarities in cultures. They are: uncertainty avoidance, power distance, individualism-collectivism, and masculinity vs. femininity.
Uncertainty avoidance describes the degree to which people are comfortable with uncertain situations and with the inability to predict future events with accuracy.
Power distance describes the degree to which members of a society accept difference in power and status among themselves.
Individualism-collectivism describes the emphasis of a culture's norms and values on meeting individual needs or group needs.
Masculinity concerns the degree to which a culture emphasizes assertiveness, dominance, and independence. Femininity describes the degree to which a culture emphasizes interdependence, compassion, and emotional openness.
The following graph from international website shows the comparison between Russia and US in these four dimensions.
PDI, Power Distance Index;
UAI, Uncertainty Avoidance Index;
LTO, Long Term Orientation.
The estimated values of Russia in these four dimensions are 93, 39, 36 and 95.
Compared to the US, Russia is more likely to accept differences in power and status among themselves in a society and put more emphasis on group rather than individuals. Russian culture is also a feminine culture, based on which people value relationships and quality of life. The high score on uncertainty avoidance means Russians are not comfortable with ambiguous situation and prefer to follow explicit rules to enhance the certainty of their lives.
Expected Accounting Values based on Gray
Since the development of accounting systems is influenced by the culture values in which the accounting system develops, Gray tried to identify the relationship between culture areas and patterns of accounting systems.
Gray used Hofstede's four dimensions to reflect social value and identified four couples of the related accounting values:
Professionalism versus Statutory Control
Professionalism is defined as a preference of accountants to exercise individual professional judgment in performing accounting tasks and maintenance of professional self-regulation.
Statutory control means government requires accountants to comply with prescriptive legal requirements using statutory control.
Uniformity versus Flexibility
Uniformity refers to enforcement of uniform accounting practices between companies and for consistent use of such practices over time, while flexibility means individual companies may enforce different accounting practices.
Conservatism versus Optimism
Conservatism refers to a conservative, cautious method of measuring uncertain future events, while optimism refers to a more optimistic, laissez-faire, risk-taking approach.
Secrecy versus Transparency
Secrecy refers to confidentiality and the restriction of disclosure of information about the business.Â Transparency refers to a more transparent, open, and public accounting approach.
The relation between cultural values and accounting values
Professionalism versus Statutory Control
Gray finds out "the higher a country ranks in terms of individualism and the lower it ranks in terms of uncertainty avoidance and power distance, the more likely it is to rank highly in terms of professionalism."
Since Russia ranks high in terms of uncertainty avoidance and power distance and low in terms of individualism, Russia ranks low in terms of professionalism. In other words, Russia is on the statutory control side.
Uniformity versus Flexibility
According to Gray, "the higher a country ranks in terms of uncertainty avoidance and power distance and the lower it ranks in terms of individualism then the more likely it is to rank highly in terms of uniformity."
The high rank in uncertainty avoidance and power distance as well as the low rank in individualism, reflect that Russia is a country with high level uniformity.
Conservatism versus Optimism
The research of Gray shows "the higher a country ranks in terms of uncertainty avoidance and the lower it ranks in terms of individualism and masculinity then the more likely it is to rank highly in terms of conservatism."
Base on that, Russia is considered as a conservative country. It ranks low in terms of individualism and masculinity and high in terms of uncertainty avoidance.
Secrecy versus Transparency
Gray finds out "the higher a country ranks in terms of uncertainty avoidance and power distance and the lower it ranks in terms of individualism and masculinity then the more likely it is to rank highly in terms of secrecy."
Since Russia ranks low in terms of individualism and masculinity and high in terms of uncertainty avoidance, Russia shows a high level secrecy.
Based on the relationship between cultural value and accounting value, Gray indentified culture area classifications in the context of combinations of accounting values. He divided the accounting system into two aspects:
Authority and enforcement of accounting systems, which determined by Professionalism versus Statutory Control and Uniformity versus Flexibility, and
Measurement and disclosure characteristics of accounting systems, which determined by Conservatism versus Optimism and versus Secrecy versus Transparency
Two graphs below shows the results of culture area classifications in the context of combinations of accounting values.
Since Russia is on statutory control side and Russia ranks highly in terms of uniformity, it should reside in the upper right corner of the authority and enforcement graph.
Also, because of the high rank in terms of conservatism and secrecy, Russia should belong in the upper right corner of measure and disclosure graph.
These results are consistent with what Gray found that near Eastern belongs in the right corner in both graphs.
Part two: Accounting Environment of Russia
Standards and Law
The history of accounting in Russia goes back to at least to thirteenth century. The country has evolved through the times of tsars and even the end of the era of the Soviet Union. It has continued to experience dramatic changes in the past 20 years as the Russian Federation.
In the USSR, accounting was used to implement control activities in the whole society to fulfill the central plan of government. Accounting standards and relevant laws were constituted to satisfy this function and to maximize the values in which Soviet government believed in.
After the collapse of the USSR, essential changes occurred to Russian Accounting Standards. "Regulation on Accounting and Reporting in the Russian Federation", the principal documentation, was approved by the government in February 1992. This regulation published a new chart of accounts, a new format of financial statements, and other prime changes in the accounting and auditing fields.
In 1998, in order to establish a set of accounting standards in accord with IFRS, the Russian government approved the "Accounting Reform Program". This program defined that Russian accounting standards should consist with IFRS in the following main respects:
Employing double entry bookkeeping system.
Keeping balance sheet continuity.
Recording assets on the basis of its historical cost.
Adopting going concern principle
Using dominant exchange rate to value foreign currency assets and liabilities.
In 2002, the Russian Prime Minister required all Russian banks and companies to prepare financial statements and comply with IFRS since fiscal year 2004. A detailed timeline for IFRS adoption entitled "Concept of Mid-Term Development of Accounting and Financial Reporting in the Russian Federation for the period 2004 - 2010" was announced by the Ministry of Finance (MOF) in 2004. However, the legal procedures made Russia fall behind the plan.
Nevertheless, promoted by the government, increasing numbers of Russian corporations are switching from traditional RAS to IFRS. It's common for big Russian companies to prepare two editions of financial statements, based on RAS and IFRS respectively. The former is prepared for tax return purposes while the latter is issued to satisfy the need of investors from the global capital market.
Similar to western countries, Russian accounting regulations are based on various enterprise categories, which are based on a company's ownership and size. Those categories include:
Public companies and enterprises listed on Russian trade organizations and international capital markets. Companies belong to this category are required to issue financial statements not only based on RAS, but also base on either IFRS or US GAAP.
Not listed public companies. Not listed public enterprises in Russia are entitled to use RAS only for financial reporting purposes. At the same time, the Russian government is still trying to improve RAS to make it more comparable with IFRS.
Small businesses. This type of enterprise is free to choose simplified form of financial reporting and bookkeeping method.
Limited liability companies and closely held joint stock companies other than small businesses. Enterprises in this category either have no outside owner or whose outside owners are related parties. In this case, they are allowed to use RAS and can disclose less information because of the lack of public interests.
Accounting legal framework
Accounting in Russia is basically regulated by the Federal Law on Accounting and Russian Accounting Standards (RAS), which supplement the requirements set forth in the legislation and are the base of rules, principles, and methods set by other relative government departments.
The chart below shows the basic legal framework for Russian GAAP:
The auditing standards went through even bigger changes than accounting standards. The word "auditor" was not even included in former Soviet Union's accounting glossaries. Before that, the auditing in times of Trars considered more on inspection and control, which are not main targets of auditing according to the western sense.
The current Russian auditing standards are based on the 1999 version of International Standards of Auditing (ISA) and several special audit rules adopted by the Russian audit community.
Using the 1999 translated edition of ISA means the standards that Russia borrowed from ISA not only have several years lag behind the latest edition of ISA, but also have potential misunderstandings caused by translation. In order to solve this problem, some scholars started to write their own textbooks in Russian based on their own understandings.
The particular rules involved in Russian auditing standards actually enhance the applicability of standards, since they are made for certain circumstances in Russia. A good example of these rules is "Rights and Obligations", which complement the standards that some entities believe don't apply to them under a widespread comprehension.
Since 2002, because the Russian finance Ministry approved these drafts of audit standards that are close to ISA, the audit procedures in Russia have became tighter. More and more Russian auditors implement ISA instead of creating their own procedures and judgment standards.
As mention above, in Russia only "small businesses" are entitled to choose simplified bookkeeping method, like cash basis. Other kinds of enterprises are all supposed to use accrual basis. There is no difference on this point between RAS and IFRS.
Fair-Value vs. Historical
Fair value is defined by US. GAAP as an amount at which an asset can be bought or sold or a liability can be incurred or settled, in a transaction between willing parties. Disclosure of fair value could provide useful information about the accurate value of assets or liabilities to financial statements users. This information helps users evaluate companies' value and risk, and make further decisions accordingly. That is why more countries tend to adopt accounting policies that require companies to present the fair value of their assets and liabilities in financial reporting.
In order to bring RAS closer to IFRS on the fair value points, RAS 19/02 "Accounting for financial investments" was published in December 2002. According to this, financial investments are requested to be recognized at their fair values initially in all financial statements prepared in fiscal year 2003 and thereafter. If it's possible for companies to assess the fair value of the financial instrument acquired before 2003, a revaluation in 2003 is also required by RAS 19/02.
The assessment and revaluation should take place at least once a year. Companies can also do that on quarterly or monthly basis if they feel necessary. The changes in fair value should be recognized under "other income" on the income statement.
Though the RAS 19/02 was established to consist with the relevant policies of IFRS, it has two specific rules that go beyond IFRS:
Corporations should match investments to subsidiaries to their fair value.
The total amount of unrealized fair value adjustments should be disclosed in the notes of financial statements.
Besides the investment instruments, property, plant, and equipment (PPE) are also permitted to be revalued to their replacement costs. However, different from IFRS, RAS doesn't allow intangible assets to be measured to fair value.
Other than PPE and investment instruments, items in financial statements will be recorded at their historical cost.
Russian Accounting Standards (RAS), whose status is similar to the Generally Accepted Accounting Principles (GAAP) in the US, is the fundamental accounting standard of Russia. It is a term used unofficially to indicate the whole body of Russian regulatory documents governing accounting and reporting. The information prepared based on RAS is mandatory and the only document that Russian tax authorities would accept.
Though RAS comply fully or partly with IFRS, its major tax return function limits the form of financial statements, as well as the information they disclose. Lack of detailed disclosure requirements influences the comparability, reliability, and transparency of the financial statements. It also gives Russian accountants many chances to provide the information less important, not material, or even has potential misleading risks. All these disadvantages of RAS encourage more and more big companies to work on financial statements based on IFRS.
RAS is still the most widespread standard used in Russia. Enterprises that have no plan to attract investments from international capital markets prefer to prepare financial statements based on RAS and for tax purposes only. On the other hand, companies that intend to finance from global capital market must satisfy the needs of foreign investors, who don't know RAS very well and only accept financial statements based on US GAAP or IFRS.
One big problem met by the second type company is that they are under pressure from international investors to have their statements audited by a large foreign audit firm, such as one of the Big-Four. The auditing service offered by the Big-Four usually cost more money and time than that from local firms. The reason why foreign investors don't believe the auditing job of Russian accounting firms are:
Most local firms are not capable enough to do the audit based on the standards they are not familiar with.
There is no accounting organization in Russia like the American Institute of Certified Public Accountants (AICPA), who can police its members and offer moral support to audit firms who don't want to sign the unqualified reports. Some small organizations do exist in Russia but have either no authority or incentive to perform this function.
Adopting IFRS in Russia is difficult because of the fundamental differences between national and international language, attitude, culture, and governance structure.
The language challenge
Till now, neither IFRS nor US GAAP has an original Russian edition. Even accounting experts and professional translators had a difficult time translating certain English words into Russian. Translation that is no precise will lead to inaccurate interpretation and comprehension, and therefore weaken the implementation of standards. Significant misunderstandings between Russian standards users and English users could lead to loss in international trade.
The attitude challenge
Until a few years ago, many accountants still believe that the reason why companies prepared financial statements was to fulfill the requirements of tax authorities. This attitude was rooted during the Soviet period, when accounting was a tool of government central control. After RAS assimilated IFRS in the last few years of 20th century, more and more accountants began to realize that taxation is not the single use for financial statements. They also began to realize that the basic goal of financial statements is to provide information to shareholders for decision making.
Unfortunately, this idea is only popular in big companies who need to get funds from the international capital market. Many accountants from local businesses still share the perception that RAS is just as good IFRS and no change needs to be made. This outdated attitude comes from the lack of desire of their company to implement IFRS, as well as the formal education they accepted a long time ago. It's difficult for older accountants and auditors to change their mind after years of doing business in this way.
The culture challenge
Being simple bookkeepers under the old centrally planned system, accountants were not required to make decisions. Therefore, many Russian accountants are accustomed to a high level of certainty and not used to making professional judgments. Even when a decision has to be made, their first reaction is to search for rules tell them how to handle that step by step. However, IFRS and US GAAP are not based on rules but principles. They require professional judgment that can cause Russian accountants to feel unconfident and uncomfortable. Most scholars believe this problem is not only an individual problem but also one that is a product of the cultural differences between Russia and western countries. People living in the Russian culture refuse to take risks and feel uncomfortable with the unknown because they grow up in an unstable and highly changing society.
There is no doubt that this challenge to adoption and implementation of IFRS will be worn down with time if the modern Russia state can become more stable, but it could take a generation or more.
The governance structure Challenge
Till now, all the accounting and auditing regulations were published by either government departments or accounting and auditing organizations authorized by the Russian government. There are no large independent organizations that are capable enough to do time principle research, govern members such as audit firms, and update accounting and auditing standards.
The lack of private organization will increase the risk of system corruption and hurt the effectiveness of standards. The regulations and laws constituted by government may more intend to fulfill the interests of current government and sacrifice the fairness and stakeholders' benefit to some extent. Moreover, it usually takes more time for government departments to update the standards because of the power hierarchy and complicated procedures. A good example of this point is that Russian Civil Code never adopted any new ISA updates after it accepted the 1999 edition. Though several updates may apply to Russia, there is very little chance for Russian Duma to find enough time keeping auditing principles to comply with ISA or to allow ISA to become part of the Russian rule immediately, because of the national pride and sovereignty.
Facing the challenges mentioned above, Russia still gained a lot of accomplishment after partly adopting IFRS.
Big companies began to use IFRS or US GAAP voluntarily
In the past 10 years the Russian economy experienced a dramatic growth, largely driven by high demand for Russian natural resources. This promoted Russian enterprises to look abroad for access to additional sources of capital for further growth. Many Russian companies in industries such as utilities, mining, energy, and metal have prepared their financial statements in both RAS and IFRS or US GAAP. The adoption and implementation of IFRS or US GAAP enhances their communication with the world and allows them to be global players in their respective fields.
The involvement of the Big-Four speeds the implementation of international standards.
Since 2000, International accounting firms like the Big-Four extended their business in Russia significantly by offering services and expertise relate to new RAS, IFRS, or US GAAP. Though they captured a big percent of market share from local accounting firms and raised resentments, it helped big Russian companies get used to the new standards and developed a series of standard procedures for Russian enterprises auditing. Also, the existence of the Big-Four motivates local a firms to implement IFRS faster and to increase training to their employees.
Accounting education become more widespread.
During the time of Soviet Union accountants were just called bookkeepers. Their position only required some training and a diploma from a vocational school. That's why there were only few of universities that had an accounting major. After the perestroika, more and more universities and companies realized the importance of accounting education. Now, about 30% of universities in Russia have an accounting major and about half of them have the authority of issuing an accounting degree. Moreover, on-the-job training has become a larger part of many companies' schedule after they decided to adopt IFRS or US GAAP. Accountants who left school a long time ago can still get chance to update their knowledge and get a certificate.
Part three: Legal Environment
The economic reforms of 1985 through 1988 and the fast paced privatization that occurred between 1993 and 1995 made the legal framework of Russia inadequate. Russia needed a legal system designed to protect the rights of citizens and free market. On October 24, 1991, Russian Parliament established the "Judicial Reform Concept", which covers the aspects of judicial reform needed.
The main legal acts are the Constitution, federal constitutional laws, federal laws, presidential decrees, governmental regulations, and laws of regional constituents of the Russian Federation. The Constitution includes international law and international treaties as part of the domestic legal system.
Russia has seen a huge improvement in its legal environment. However, a comprehensive legislation system still has not been enacted in some key sectors, like ownership, torts and taxation. The absence of necessary laws, chaos in implementation, insufficient information disclosure, and difficulties from state-owned enterprise create chance for economic crime.
The biggest challenge confronting Russia is how to efficiently and equitably convert state-owned enterprise to private ownership. In November 1994, a federal law called the Civil Code was signed to regulate all enterprise's formation, ownership, legal status, liquidation and shareholders' rights.
Finally, the privatization was completed through the sale of state-owned property to public investors with the consent of government. After that, the Civil Code recognized a variety of legal forms of business entities. However, state-owned enterprise still accounts for a sizable portion of the Russian economy, especially in certain key sectors:
Limited liability companies;
Additional liability companies;
Joint-sock companies (corporation);
Unitary enterprises (state-owned entities).
The government regulator of market competition in Russia is the Federal Antimonopoly Service (FAS). Its primary objective is to ensure compliance with anti-monopoly regulations. The FAS has the power to prevent monopoly, unfair competition and government aids that harm competition. Because of the history, monopolies and settled pries still exist in some markets, such as electricity, water and railways. Even for those companies, their activities are subject to the control of the FAS.
The competition laws prescribe that granting government aid must receive formal approval from the FAS, and any agreement that might result in the control over prices or reduced market competition will be prohibited. FAS has the right to audit companies' adherence to the law and impose fines on any entities that violate.
Another problem coming with privatization is taxation chaos, which was caused by the collapse of the central collection system and considerable "off the books" transactions. Therefore, Russia made tax reforms and redesigned the tax system. Now, the Federal Tax Service is responsible for collecting and submitting taxes to the Ministry of Finance, which has the ultimate right to settle the federal budget and taxation policies. Tax disputes are common in Russia. Taxpayers can ask the Ministry of Finance or the tax authorities for clarification or submit claims to courts.
To resolve the budget deficit, the Russian government imposes a high tax burden on corporations and individuals. In all, there are more than 100 different taxes in Russia. In some industries, tax spending constitutes 20 to 30 percent of total income. However, tax evasion is still a chronic problem for the government.
Figure Tax Category in Russia
The Russian tax system has three levels: federal, regional and local. All taxes are legislated by the federal, and rates are decided by the regional and local authorities. Each entity must register with the tax authorities when forming. Every month, they are required to file a tax return. The final payment for the year is due on March 28th of the following year.
In Russia, tax residence is determined by the number of days stayed in Russia. From January 1, 2007 a 13% flat personal income tax rate applies to resident's income.
As Russia is increasingly becoming a stable investment climate with plentiful natural resources and a huge consumer market, it attracts more and more foreign investment. Consequently, Russia makes a huge effort to improve its investment climate, especially the regulatory system.
Currently, many restrictions on foreign investment have been removed, even though some sectors remain closed. In May 2008, Russia established the law "On Strategic Industries" and "On Foreign Investment" to regulate foreign investment. The "On Strategic Industries" defines those companies with strategic importance to Russia and require foreign investors to get approval from the government before starting business.
Part four: Impact of Globalization
Today, globalization should not be merely conceived as economic forces and financial flows, but is actually a process of social and cultural reengineering. As Michael Cox insists, globalization makes "states into agencies of the globalizing world". For Russia, the challenges come not only from the transnational flows of capital and commodities, but also from a transformation of global political prospective, which means increasing international interference in democratic policies, politic system, national security and economic transition.
In Ponarin's dramatized interpretation, "Since the end of the Cold War, Russians have encountered a powerful, alien culture that makes them feel powerless, disadvantaged, and inferior. Globalization has nurtured the emergence of a global culture rooted in the North-European Protestant ethic and epitomized by US culture." 
In 1991, the year that communism failed and the Soviet Union broke up, there was high expectation for Russia's economic and democratic development. However, more than ten-year independence, billions of dollars international assistance and considerable foreign advice cannot turn around Russia's slipping situation. Difficulties in fiscal reforms and a dependence on short-term borrowing to finance budget deficits led to a serious financial crisis in 1998.
Under the Putin administration, Russia went through a vigorous recovery. Its Gross Domestic Product (GDP) doubled and climbed from 22nd to 11th largest in the world. As the economy gets increasingly integrated into the international, Russia meets numerous new challenges, like investment confidence, a decline in ruble, a vulnerable financial system, trade deficit, high inflation, wealth inequality, and financial crime.
Now, trade makes up a large part of Russia's economy. The large majority of exports are raw materials and fertilizers. From 1999, the trade surplus ballooned to $33.2 billion, more than double the previous year's number. However, in 2001, the trend shifted, resulting from the worldwide declining prices in the export market. From then, international prices on raw materials market began to dominate Russia's export performance and even its commodity-driven economy.
Figure: Russia Trade Composition in 2009 
Russia tried to protect the surplus by using trade barriers, which will be removed in the near future after Russia's participation in the WTO. On January 1, 2004, the Stabilization fund of the Russia Federation was established to balance the federal budget if the oil price falls. Additionally, to defend against worldwide financial crisis, the National Prosperity Fund was established and to be investment in some risky instruments and foreign companies.
Moreover, Russia developed a long-term strategic and economic partnership with nearby countries in Europe and Asia. In addition to raw materials trade, the cooperation also includes travel, finance and technology.
For years, India has been the top choice for off-shoring software. However, the new trend for the last several years is towards Russia. Advantages of off-shoring to Russia include strong mathematical and engineering backgrounds, a strong government-supported IT industry, cultural similarity to the West, and low labor expense.
Over the next few years, Russia will significantly increase it's research investment and strengthen its position in the world market.
Crime and Terrorism
In the twenty-first century, the handling of transnational crime and terrorism has become an important part of international policy.
Taking advantage from technology and the explosion of international media influence, terrorism became a major threat to national security during the 1970s and 1980s.
In Russia, Islamic terrorists attacked citizens by taking hostages and suicide bombing against public infrastructures. At the same time, the government has long been criticized by the international press for its human rights violations in its counter-terrorism operations.
Human Rights Watch and Amnesty International made great efforts to stimulate condemnation of both sides. In the June 2008 G8 Summit, eight nations agreed to cancel some of Russia's old Soviet debt in exchange for them using those funds towards Russia's security. On June 3, 2010, Russia hosted the international anti-terrorism forum and invited top security officials from 63 countries and the UN counter-terrorism bodies.
Globalization undoubtedly facilitated the transnational organization crime in the last decade. The expansion of international business, the under-regulation in international legal system and development of technology communication systems all trigger organized criminals to move beyond boards. As of 2001, more than 200 Russian mafia groups operated transitionally, many in the West.
The two common features of global terrorism and the organized crime - money laundering and proliferation - require an effective international law system and sustained multilateral coordination among nations.
Since the Asian financial crisis, the IMF has included transparency and anti-corruption in its members as the core mission.
Corruption has a long history in Russia and appears to expand beyond the governments control. In the 15th Annual Transparency International Report, Russia slid from 146th place to 154th, out of 178 countries. Corruption disturbs the market, dispels foreign investment, and increases Russia's vulnerability to currency crisis. Corruption has become a huge obstacle in Russia's economic development.
Since the Soviet collapsed, there appears to be a cultural vacuum in Russia. Although the so-called Russia Orthodoxy tries to defend the Western culture expansion, Russia is still a European nation. The idea of freedom, human rights, justice and democracy take central positions in the Russian value system.
In recent years, Russia closely cooperates with western countries and NGOs in reforms of Enlightenment, establishment of parliamentarianism, formation of judicial system and transition from central planning toward a free-market system. Although the prospect of Russian's acceptance into European Union is still remote, it is agreed that Russia is naturally integrating into the West.
At the same time, some Eurasianism experts hope Russia will constitute a crucial bridge between Europe and Asia.
Part five: Impact of NGOs
International Monetary Fund (IMF)
The International Monetary Fund is a special financial forum that the main purpose of which is to openly discuss fiscal policies of its members and to avoid severe exchange restriction on international currencies. IMF also provides short-term specialized loans to developing countries.
In January 1992, Russia applied for membership in the IMF and joined in June. Until now, Russia received more than $22 billion in financial assistance from IMF to finance its economic and judiciary reforms. Since IMF has no experience in emerging post-Soviet countries, many of the programs failed.
The scale of the reforms and initiatives launched has been criticized. However, the main foundational reason of the failure is the underestimation of the country size, political instability and chaotic legal system. U.S. - Russia relations might be another reason.
Additionally, public debt to IMF and World Bank has become one of Russia's major concerns. Until 2000, large trade surpluses brought a rapid appreciation to the ruble. It is the first time that Russia could meet its external debt obligations and they were also able to make large advance payments on IMF loans.
Inspired from the failure in Russia, IMF and World Bank continue to influence Russia's legal reform and implementation through the Justice Sector Reform (JSR).
United Nations (UN)
Russia succeeds the Soviet position in the United Nations on January 31, 1992, including the permanent membership on the UN Security Council. This dramatic transition makes the UN move its focus from the global ideological struggle to other concrete problems. In 2002, the UN adopted the Millennium Development Goals (MDGs).
Currently there are six United Nations Theme Groups in Russia helping it to achieve the MDGs.
Economic Development. Two reasons - an unstable economic climate and increased income inequality - contribute to Russia's increasing rate of poverty during the period of economic transition. In November 2004, the United Nations Development Program (UNDP) launched a three-year program, "Sustainable Reintegration and Recovery in the North Caucasus". In addition to the economic view of poverty, UNDP uses an ethically formulated perspective to evaluate development in terms of freedom and social justice.
Education. Due to economic and social reasons, the secondary education rate in Russia has decreased during the last decade. The Priority National Project "Education" and UNESCO program are aimed at enhancing the education system and education quality, especially the methodology.
HIV/AIDS. Russia is experiencing one of the fastest growing infection rates of HIV/AIDS in the world. The Joint United Nations Team on AIDS is including Russia in HIV prevention, treatment, and strategic planning.
European Union (EU)
The European Union is Russia's largest trading partner, accounting for more than 50% of all foreign Russian trade. When the EU was established, Russia chose not to join, but be included as an "equal partner". With the Common Economic Spaces and the Partnership and Co-operation Agreement (PCA), the EU and Russia work to create an open and integrated market without barriers to trade and investment. The Common Space also promotes mutual visa-free travel, anti-terrorism, and crisis management.
Besides the bilateral trade, the EU and Russia also cooperate in international affairs. On November 24th 2010, Russia finally reached an agreement with EU and ended its 17-year long battle for WTO membership. The new export tax agreement will replace the current Common Spaces and PCA.
Now, the prospect of Russia joining EU is still unclear. Some analysts said that Russia is "decades away" from qualifying for EU membership, while some hold an optimistic attitude about their cooperation.
World Trade Organization (WTO)
After nearly 17 years' effort, Russia will finally become a member of the World Trade Organization in 2011.
Russia first applied for membership of WTO in June 1993. However, many of its policies were not compliant with WTO requirements. Russia has made several accession commitments:
Non-Agricultural Market Access;
Services Commitments, includes banking & securities, telecommunications and business;
Agriculture Issues, includes market access and non-tariff barriers.
The most difficulty thing that Russia will face is a new set of prices for imports and exports on the world markets. Other problems include opening up its key sectors to foreign investment and increased financial vulnerability.
World Bank estimates that a successful completion of Doha Development Agenda will bring all households a 7.3 percent welfare gain in percentage consumption, the poor will be slightly higher than the rich.
In June 1992, Russia became a member of World Bank.
World Bank's primary objective in Russia is to smooth the economic transition. From 1993 to 2001, the Bank has provided Russia with 55 loans that average $1 billion per year, a commitment representing 0.4 percent of GDP. Most loans are concentrated in natural resource exploration and technical assistance. However, like IMF, the Bank does not play as much of an active role in Russia's economic reform as it expected.
Experts from Russia argued that the weakness of the Bank's assistance is timing: most loans were supplied in before 1998 when Russia had not started the reform.