Vasily Kudrin, Advisory Partner and Head of Corporate Governance, Risk Management and Control (GRC) services at AO HLB Vneshaudit, spoke at FINCONF 2020 on a topic of “Internal Control System Implementation in Accounting and Reporting”.

Presentation: ENG | RUS
VIDEO [Russian; Translation Support]

Coherent exposition of the presentation

1. Context of the Presentation and Professional Framing. Vasily Kudrin opens his presentation by expressing gratitude to the conference organizers and participants, and then briefly outlines his current professional engagements, mentioning work with more than one company. This immediately positions his remarks as grounded in real business practice rather than abstract theory. The presentation is framed as applied and experience-based.

2. Professional Background and Area of Expertise. Mr. Kudrin emphasizes that internal control and financial reporting have been central to his career from the very beginning. He started as a chief accountant in a mid-sized company, gaining hands-on operational experience. His transition to large corporations in the early 2000s coincided with the global development of internal control systems in the United States, Europe, and Russia. Over the years, he has participated in numerous projects in this field. This has allowed him to observe how control methodologies evolved in practice. His expertise combines accounting, management, and control perspectives.

3. Internal Control as a Management System. The speaker clearly distinguishes internal control from accounting as a technical discipline. He describes it as a management system designed to ensure the reliability of financial reporting. Importantly, this reliability concerns not only current reporting but also the company’s future ability to produce accurate information. In this sense, internal control contributes directly to business sustainability. Vasily Kudrin stresses that trust in management is built through effective control systems. Thus, internal control serves as a bridge between management decisions and stakeholder confidence.

4. Applicability Across Different Company Sizes. The expert explains that the proposed approach can be applied to organizations of various sizes. For large companies, it functions primarily as a rapid diagnostic tool, since their control systems are usually more complex and mature. Nevertheless, even large organizations benefit from a structured express assessment. For mid-sized companies, the methodology represents a fully functional working model. For small businesses, it serves as an initial framework and future reference point. Overall, the approach is scalable and adaptable.

5. Focus on Mid-Sized Businesses. Vasily Kudrin places particular emphasis on mid-sized companies with annual revenues roughly between 1 and 15 billion rubles (20-250 mln. USD). For this segment, the approach delivers the greatest practical value as it allows key weaknesses in financial reporting risk management to be identified within one to two months. Based on the diagnostics, a structured improvement program can be developed. The expert stresses that the goal is not formal compliance but genuine managerial improvement. For many mid-sized businesses, this marks a critical stage of organizational maturity.

6. Relevance for Small and Micro Businesses. For micro and small enterprises, the speaker notes that the approach is primarily educational. It helps owners understand why reliable financial reporting is necessary in the first place. Vasily Kudrin links this to the expectations of investors, partners, and counterparties. Small businesses often underestimate how these expectations grow as the company develops. Early awareness significantly reduces future risks. In this sense, internal control becomes part of long-term strategic planning.

7. The Disciplinary Role of Accounting and Reporting. The speaker highlights that accounting and reporting are processes through which both internal and external stakeholders observe the company. Improving these processes inevitably increases internal discipline. Internal control projects involve employees more deeply and raise individual accountability. According to the expert, this effect is clearly visible in practice. Control ceases to be a formal obligation and becomes part of daily operations. As a result, the company’s management culture evolves.

8. Problem Prevention and Efficiency Growth. According to Vasily Kudrin, internal control allows companies to identify problems before they materialize. This applies not only to reporting misstatements but also to operational inefficiencies. Control procedures provide early warning signals about weaknesses in business processes. Management can then take corrective action in a timely manner. Ultimately, overall organizational efficiency improves. Internal control thus becomes a development tool rather than a constraint.

9. Transparency and Trust as Strategic Assets. The expert emphasizes that financial reporting is the primary mechanism of business transparency. Improvements in accounting quality directly affect the level of trust among investors, partners, and senior management. This is particularly important for companies entering the public or semi-public arena. As businesses grow, scrutiny from analysts and counterparties intensifies. Any inaccuracies are quickly detected and criticized. In this context, internal control functions as a reputational safeguard.

10. Why Accounting Standards Are So Highly Developed. Mr. Kudrin draws attention to the fact that financial accounting standards are among the most sophisticated in the economy. Their development has been ongoing since the 19th century. This reflects the critical role of financial reporting in market economies. Financial information underpins economic decision-making. Errors in reporting can have systemic consequences. Therefore, control over financial information has historically become a cornerstone of corporate governance.

11. Control in the Classical Management Model. The speaker recalls the classical management framework: planning, organization, motivation, and control. Control is often treated as the final and least appreciated element. Vasily Kudrin considers this a methodological mistake. He argues that control should be viewed as the starting point of the management cycle. Strengthening control significantly enhances a company’s growth potential. It also reduces the likelihood of major managerial failures.

12. Control and Personal Accountability. The speaker links internal control directly to the prevention of abuse and fraud. Transparent procedures increase personal accountability among employees. Effective control reduces opportunities for manipulation. According to the expert, this is particularly important during periods of rapid growth. Building accountability is one of the key intangible benefits of internal control. It has a direct impact on business resilience.

13. International Regulatory Foundations. Vasily Kudrin provides an overview of the international standards underlying internal control practices. These include COSO, standards of the Institute of Internal Auditors, and U.S. auditing regulations. He notes that modern Russian requirements are largely based on these frameworks. The expert emphasizes continuity in methodological development. Practical application is as important as formal regulation. These methodologies have evolved over decades.

14. Sources of Practical Knowledge. The expert identifies four main sources of professional knowledge: working materials of regulatory commissions, guidance from professional organizations, generally accepted practice, and methodologies of large audit firms. He notes that draft and working documents often contain deeper insights than finalized standards. These sources shape real-world tools for managing risks and controls. Vasily Kudrin highlights the value of accumulated experience and that practice complements regulation.

15. Domestic Regulatory Framework. The speaker outlines the key domestic regulations governing internal control. These include the Accounting Law and the RF Ministry of Finance’s 2013 guidance letter. He strongly recommends the latter as essential reading when launching a control project. Anti–money laundering regulations are also relevant. According to the expert, the country’s regulatory framework is sufficiently mature. The main challenge lies in effective implementation.

16. Risk-Based Approach of Tax Authorities. Vasily Kudrin explains that tax authorities have long applied a risk-based approach. Orders issued by the Federal Tax Service encourage companies to implement internal control systems. This facilitates tax monitoring and oversight. Companies with mature systems face reduced scrutiny. Internal control thus becomes a tool for constructive dialogue with regulators. This, in turn, lowers administrative costs.

17. Six-Step Express Methodology. The expert presents an express methodology consisting of six stages. It begins with planning and analysis of the control environment. This is followed by risk identification and assessment. Next comes evaluation of control design and operational effectiveness. The final stages involve developing an improvement plan and formalizing controls. The methodology is simplified but practical. It is well suited for rapid implementation.

18. Risks Through Management Assertions. Mr. Kudrin introduces management assertions as the basis for risk assessment. These include completeness, existence, occurence, accuracy, cut-off, rights and obligations, valuation and classification. A risk represents the possibility that one of these assertions is violated. This approach is standard in auditing and internal control. It provides a structured analytical framework. The speaker emphasizes its universal applicability.

19. Risk Factors and Typical Misstatements. The expert identifies major sources of risk, including crises, changes in business models, IT systems, and organizational structures. He provides common examples such as revenue overstatement or omission, fictitious receivables, and asset valuation errors. Risks frequently arise during the presentation of financial results. Even accurate financial statements can be misinterpreted. This can lead to serious reputational damage.

20. Scalability and Best Practices. In the final of the speech, Vasily Kudrin compares the express approach with comprehensive projects implemented in large companies. In major organizations, such projects may take up to a year and include corporate-level controls and IT general controls. For mid-sized businesses, timelines are significantly shorter. The expert recommends benchmarking against market leaders and large consulting firms. Best practices are typically developed in these environments, and internal control is presented as a continuous improvement process.