Audit confirmation for phased deduction of intangible assets from bank capital
As import substitution in software has gained momentum, banks are facing mounting costs on domestic software solutions. Under the regulator's general requirements, intangible assets (IAs) are subject to an immediate one‑time deduction from core capital, which places considerable strain on capital adequacy ratios.
The Bank of Russia has provided a mechanism to ease this burden — banks may apply a deduction of IA cost from equity capital gradually over a period of four years. However, the preferential treatment can only be utilised if four mandatory conditions are simultaneously met, one of which is obtaining independent audit confirmation.
In this context, FBK helps banks lawfully exercise this right to a phased deduction. We perform a thorough review of your assets' compliance with the provisions of Executive Order No. 16 dated 30 March 2022, and Federal Law No. 187‑FZ dated 26 July 2017, and also verify that the software is duly recorded in the official registers of the Federal Service for Technical and Export Control (FSTEC) and the Ministry of Digital Development of Russia. This approach enables banks to manage the impact on capital adequacy ratios, mitigate regulatory risks, and reduce potential claims from the Bank of Russia.
The service is structured as an assurance engagement providing reasonable assurance in accordance with ISAE 3000, and encompasses the following four stages of verification:
- Intended purpose and status. We confirm that the IAs were established to ensure the technical independence of critical information infrastructure. We check the software's presence in the FSTEC and Ministry of Digital Development registers, as well the existence of governing body resolutions documenting the procurement objectives.
- Cost and acquisition procedures. We verify that asset valuation complies with Bank of Russia Regulation No. 448‑P of 22 December 2014. For purchased software, we review adherence to the bank's internal documents and contracts; for in‑house developments, we review the correct capitalisation of payroll costs and allocation of expenses.
- Commissioning. We rule out work‑in‑progress. Our checks cover commissioning acts, committee minutes, and interviews with system owners to confirm that the software is genuinely operational. We identify possible discrepancies in names between contracts, registers, and categorisation documents.
- Deduction amount calculation. We check the arithmetical accuracy of calculations, the even spread over 48 months, and compliance with the limit: the difference between the full deduction and the phased deduction must not exceed 5% of the bank's own funds.
Upon completion of the engagement, the client gains:
- Capital relief: the ability to spread the deduction for domestic software costs over four years, thereby reducing the immediate burden on capital adequacy ratios.
- Reduced regulatory exposure: protection against potential claims from the Bank of Russia regarding the completeness of the IA deduction, as audit confirmation is a key regulatory requirement for accessing the preferential treatment.
- Audit confirmation — an independent auditor's report confirming that the IAs satisfy regulatory conditions under ISAE 3000.
Import substitution at no cost: turn mandatory spending on domestic software into a strategic capital management tool
FBK fully complies with the Bank of Russia's recommendations on the selection of an auditor to confirm the right to phased IA deduction. The firm is included in the register of audit entities rendering services to public interest entities. Over the past 5 years, we have successfully delivered more than 100 engagements for the audit of annual financial statements of credit institutions.
FBK is a market leader in audit and consulting services, according to the RAEX ranking agency. In the ‘bank audit’ category, the firm has consistently ranked first every year since 2019.
Each project is entrusted to a team of experts with a flawless business reputation, extensive experience in accounting, and a unique vision of regulatory and market changes.
