Accounting History

The Second World War

and Soviet accounting
Arsen Djatej
Eastern Washington University
Robert Sarikas
Ohio University

Abstract
This article examines the rapid changes to Soviet accounting practice
during World War II. The adaptation of the pre-war accounting system
was required to meet the extraordinary demands of a conflict that saw as
much as 40 percent of the national population under German occu-
pation. Many large production facilities were rapidly relocated out of the
war zone to the Urals, Central Asia, and the Far East. Soviet wartime
accounting was focused only on contributing to victory. Sometimes this
meant establishing extremely simplified allocation procedures; some-
times this meant creating new accounts for enterprise assets temporarily
under enemy control, and sometimes this meant extensive and thorough
procedures to safeguard economic resources and military property. For
scholars the war provided an example of how accounting can rapidly
evolve to meet changing national priorities.

Keywords: Accounting history; accounting in the USSR; Russian

accounting; Russian accounting history; Russian accounting profession;
Soviet accounting; Soviet history; World War II

Introduction
This article examines the rapid evolution of the Soviet accounting system during
World War II. The primary focus of this research is on the accelerated adaptation
of existing accounting standards, procedures, and methods under the most extreme
wartime conditions imaginable. The motivation for examining the wartime

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Accounting History Vol 14, No 1–2 – 2009

accounting of the victorious Soviet Union is justified by the fact that Soviet
accounting may have had an important role in helping the Soviet Union to win the
war. A recent and well-received history of the Soviet Union in Word War II has
been written by Bellamy (2007). In this book Bellamy (2007, p.470), says that the
Soviet Union should have, using “all the normal rules”, collapsed and lost the war.
Thus, it seems that Hitler should have won. The overall situation was indeed that
bad for the Soviet Union. How and why did the Soviet Union defeat Hitler, if it
seems he should have won? The fact that the Soviet Union did not collapse is
rightly credited to the countless acts of selfless personal heroism on the part of the
citizens and soldiers of the Soviet Union, and the successful extreme measures
taken by the leadership of the Soviet Union to motivate its citizens and soldiers to
the most extraordinary levels of economic and military effort. This article is about
a subset of the extreme economic measures taken by the Soviet Union in order to
help win a war that was all but lost. Furthermore, this article is about the account-
ing changes and adaptations taken when a modern state is attacked by a powerful,
disciplined, and resourceful adversary and compelled to take maximum
emergency measures.
The authors pay close attention to the war-time realignment of Soviet
accounting and the many adjustments of the accounting process that were made in
order to quickly satisfy the ever-changing demands of extraordinary wartime
circumstances. The primary effort of the country’s leadership aimed first to ensure
the national survival of the Soviet Union. Then, as soon as the Soviet Union had
successfully avoided a quick checkmate, the Soviet focus was immediately placed
on total and absolute victory and the liberation of conquered territories.
The story of the Soviet victory in World War II is in part a case study of total
economic effort energized by the single-minded Soviet administration. Stalin and
his leadership team chose to adapt as necessary in order to achieve victory. This
total willingness to change and adapt quickly in the all-important economic
theater of war can seem to be in contrast to contemporary times in Russia. Today
major accounting change is occurring for different reasons in Russia and with
different results. Some international observers of the contemporary post-Soviet
Russian accounting transition sometimes seem to express frustration at the pace
and the results of accounting change in Russia. If these observers and
commentators on today’s Russian accounting transition took the time to study
carefully Soviet accounting in World War II, they might more quickly understand
a fundamental truth about Russian accounting change that was true in World War
II and remains true today. This simple and straightforward truth is that Russian
accounting institutions, policies, procedures, and methodologies adapt to the
environment, but only in ways that Russians and the Russian government find
useful and acceptable. Rarely will an accounting institution, policy, procedure, or
methodology be imported from outside Russia without modification. It is an

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 Djatej & Sarikas: The Second World War and Soviet accounting

unambiguous truth to Russian accounting leaders that foreign accounting institu-

tions, procedures, polices, and methodologies simply must be adapted to the
unique conditions of Russia. This conclusion is consistent with the research
findings of Sarikas and Djatej (2005, p.63).
Despite long-standing interest in the economics of the Soviet Union during
World War II, the role of Soviet financial accounting throughout that period has
received limited attention from researchers both in the Soviet Union (Russia) and
in the West. This phenomenon is attributed to both the scarcity and the reliability
of primary sources and research materials. Professor James Millar (1980, p.106) has
characterized Soviet economic and accounting data available as “no more than a
paragraph or two for the transition from the late 1930s to the early 1950s”.
However, following the break up of the Soviet Union and opening up of Russia’s
archives, new information has emerged. This information has made possible new
scholarly research on issues related to the Soviet economic policies during the war,
including the subject of accounting. Furthermore, during the Fiftieth Anniversary
of the Soviet Victory in 1995, veterans and other surviving witnesses provided their
own accounts about the process of accounting and accounting issues during the
war. Testimonies of these veterans also occurred during the times of “glasnost”.
These testimonies are not likely to be influenced by political, ideological or
“party” interests, as would have likely happened during Soviet times. It is a contri-
bution of this article that it has incorporated newly available information from the
sources mentioned earlier.
The remainder of this article is organized as follows. The next section
discusses the difficult economic position faced by the Soviet Union during World
War II. It clarifies the significance of the desperate and heroic efforts, including
accounting changes, of the Soviet Union during the war. The third section of the
article reviews the introduction of simplified transactions as the Soviet Union
dealt with the consequences of a rapidly advancing enemy invasion. This is because
the relocation of significant economic assets eastward, out of the path of the
advancing German army, resulted in unique accounting challenges. The fourth
section of the article introduces the new accounting techniques that were imple-
mented to best utilize existing accounting resources in an economy straining to
maximize military production. The fifth section of the article presents the adapta-
tion of wartime Soviet financial reports to changing circumstances. The sixth
section of the article explores developments in the Soviet systems of auditing and
taxation during the war. The seventh section of the article covers certain special
topics of interest, including lend-lease, fraud, and other wartime accounting issues.
The eighth and final section is a conclusion that sums up the contribution of this
article to the literature and provides some suggestions for further research.
The next section examines the Soviet Union’s economic position in the early
months of the war. This was a significant time in the conflict because it was early

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Accounting History Vol 14, No 1–2 – 2009

in the war when the Soviet Union deliberately chose to go beyond normal wartime
measures by widely implementing the most extreme measures. Perhaps no other
nation was so well positioned to take such extreme measures.

The Soviet economic position early in the war

The German military advance was rapid after the German invasion of Russia
began on 22 June 1941. German forces quickly destroyed many Soviet Army units
and occupied a considerable part of the Soviet Union. In Ziemke and Bauer’s
(1987, p.39) history of the conflict between Hitler’s Germany and the Soviet
Union, they state that the US military attaché in Moscow reported on 10 October
1941 that the end of Russian resistance was not far away. Even earlier, in
September 1941, the British government similarly feared a Russian collapse.
Interestingly, Ziemke and Bauer comment that at this point in time, October 1941,
as bad as the Soviet situation looked to the western allies and the Germans, it was
actually worse. They explain that four months of war and territorial loss had very
drastically reduced Soviet productive capacity.
Harrison (2005, p.153) and Bellamy (2007, p.471) who cites Harrison and
relies on his work, both indicate that in this October 1941 crisis of survival, the
Soviet leadership took emergency extreme measures that in effect made everyone
personally responsible, under pain of death, for doing their duty, maintaining
positive morale, and in no way giving aid or comfort to the enemy. Soldiers who
accepted capture rather than fight to the death knew their families were vulner-
able to punishment. Information about the severity of recent defeats was
suppressed. One measure taken to limit the circulation of eye-witness information
about recent Soviet defeats was to prohibit refugees from entering Moscow or
Leningrad.
While the Soviet Union faced the grave military crisis in October 1941
discussed earlier, the most severe wartime crisis for the Soviet Union came in 1942.
Harrison (2005, p.155), an economist, states that, “It should be considered surpris-
ing that under the pressure of deep invasion and devastating military setbacks, the
Soviet war effort did not completely unravel in 1942”. According to Bellamy
(2007, p. 272) the Soviet Union should have collapsed in 1942 because, according
to Harrison’s (2005, p.138) economic data, the productivity of the German econo-
my in 1942 exceeded the war-damaged Soviet economy by about 50 percent. The
Soviet Union surmounted all of its difficulties in 1942 and the entire war by
heroism, sacrifice and the extreme military and economic measures taken by the
Soviet leadership. The radical economic measures taken by the Soviet government
included all manner of steps taken to expedite desired forms of economic activity.
These steps included the accounting actions that are discussed in the remainder of
this article. Many emergency wartime accounting actions were crude and ad hoc,

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 Djatej & Sarikas: The Second World War and Soviet accounting

but they should be viewed as one part of the national effort that resulted in Soviet
victory.
A review of the dimensions of the Soviet economic losses to German military
activity highlights the desperate situation of the Soviet Union in 1942. Kravchenko
(1970, pp.123–5) reports that the German occupation of the Soviet Union at its
maximum included 40 percent of the population, 32 percent of the total pre-war
labor force and 33 percent of all state enterprises of the Soviet Union. Due to the
rapid German conquest of the industrial areas of the USSR, on 27 July 1941
the Soviet government and the Communist party passed a resolution requiring the
evacuation of the remaining industrial assets from the European part of the Soviet
Union to the Urals, Central Asia or the Far East (Arutyunyan, 1970, p.45). During
the early stages of the war, over 1500 industrial enterprises and more than 10m
Soviet citizens were evacuated to the East (Istoriya Sotsialistitcheskoi Economiki
SSSR [History of Socialist Economy of the USSR], 1978, Vol.5, p.172). The effort
involved in the evacuation of productive assets to the Urals and Siberia put a strain
on available resources. This was because productive economic assets had to be shut
down before they were relocated, and because the relocation of major industrial
assets itself absorbed additional resources. As a result, by the end of the 1941, the
Soviet GNP fell by one third (Harrison, 1996, p.33). However, the ruthless author-
itarian system, and the patriotic enthusiasm of people and their sacrifices under
the slogan “Everything for the front, all for victory” helped the Soviet Union to
avoid a total collapse.
During the war, the Soviet Union faced chronic shortages of raw materials
and resources. These shortages placed great stress on the national economy and
put a significant strain on the finances of the USSR. Soviet leaders wanted to limit
uncontrolled printing of the national currency during the war for fear of uncon-
trolled inflation (Allakhverdyan, 1966, pp.109–15). However, money was still
printed at accelerated speed in order to finance the war. As stated by Voznesensky
(1948, pp.75–6), eventually Soviet authorities had to face the crisis because there
were more rubles in circulation during the war than were needed. To control
spiraling inflation Soviet authorities implemented an unusually strict price control
system. Control of raw materials, semi-finished products and product components
was accomplished with strict bookkeeping and with overlapping responsibility in
extreme cases. Sometimes individual accountants were held to be responsible for
assets, with severe punishment for failure to see that the assets were used only as
ordered (Novodvorskii, 1985, p.24). However, these drastic measures did not stop
inflation and, eventually, monetary stability during the war had to be sacrificed to
the paramount aim of maximum production for the war effort.
Later, monetary reform was needed to reestablish monetary stability after
the military emergency had passed. Berliner (1950, p.238) comments that during
the war, national decision-making became fundamentally a problem of choice.

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Accounting History Vol 14, No 1–2 – 2009

The choice was usually among means, but also often among ends. Trade-offs had
to be made between quality and quantity, between using workers in military
production and conscripting them into combat units. Accounting and respective
public institutions in the Soviet Union also had to adjust to these limitations of the
war and the national decision-making process. If accountants were drafted in to
the Soviet Army, procedures had to be simplified so that new accountants,
including many women, could cope with their duties as they learned accounting on
the job.
The intensity of the war efforts necessitated fundamental structural changes
in the Soviet Ministry of Finance. Prior to the war, the People’s Commissariat for
Finances (Ministry of Finance) played a key role in establishing, implementing and
reviewing Soviet economic, fiscal and taxation policies. In addition, the coopera-
tion of various Soviet ministries, including the Soviet Central Bank, and the
Ministry of Finance provided the tools necessary to deal with the national needs
for banking, accounting, financial and economic reporting. However, starting in
1941, the Ministry of Finance underwent structural changes and by the end of 1942,
had a new organizational structure finalized that was suitable for wartime finance
(Kudrin, 2002, Vol.3, pp.324–5). Thus, the new Commissariat for Finances incorpo-
rated several additional departments including the department in charge of finan-
cial accounting, reporting and economic statistics (Kudrin, 2002, Vol.3, pp.324–5).
Throughout the following years, these departments became instrumental in
redesigning and converting existing Soviet accounting rules into a new system
which was needed to meet the growing requirements of the war.

Introduction of simplified transactions

Along with administrative and structural changes at the Ministry of Finance, the
principles of Soviet financial accounting also underwent significant adjustments in
order to adapt to war conditions (Ustinyuk, 1985, p.14). At the beginning of the
war, Soviet fiscal officials had to focus on the reporting and accounting for all the
expenses generated by the evacuation of assets and human resources to the Asian
part of the USSR (Kashaev & Shein, 1985, p.16). The chaotic evacuation of all
manner of industrial assets to the east of the country created significant difficul-
ties in conducting financial transactions between enterprises and their suppliers
(Kudrin, 2002, Vol.3, p.214). In addition, communication and the flow of financial
resources between the Gosbank (Soviet Central Bank) and budgetary
organizations were disrupted (Kudrin, 2002, Vol.3, p.214). Because the extreme
measures of the Soviet administration maximized the number of individuals
responsible for protecting assets, it became important, for example, for account-
ants and bookkeepers to control the safety of evacuated industrial assets by
maintaining extraordinarily strict recordkeeping. A Soviet soldier could be shot on

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 Djatej & Sarikas: The Second World War and Soviet accounting

the spot if he could not produce his weapon or other military property. Similarly,
a wartime Soviet accountant needed to maintain total documented accountability
for everything he or she was responsible for, or risk possible execution for failure
to do their wartime job properly. Supervisors were neither kind nor easy, as they
had to look out for themselves. Thus many individuals had their lives at risk in
order to ensure positive control of the same assets. These measures improved
accountability and security for economic resources. The record keeping task itself
presented significant challenges because accountants also had the burden of
accounting for the inventory and assets left behind and under German control in
the occupied territories (Novodvorskii, 1985, p.23).
The structure of payments and related documentation including purchase
orders, invoices, payment confirmation, payment requests, and the balance of
payments was also significantly impaired by the war. To deal with these challenges
Soviet authorities resorted to old pre-war Soviet practices. Different forms of
“innovative accounting” characterized the Soviet systems before the war, espe-
cially the accounting practices in the Soviet transportation network. However,
during the war, Soviet “innovative accounting” was utilized to its fullest. For exam-
ple, if enterprises did not attach invoices or payments requests to shipped goods
then these shipments were re-classified as “un-invoiced shipped merchandise
awaiting payments” (Kudrin, 2002, Vol.3, pp.214–15). Another example of wartime
problems involved the somewhat typical case of one enterprise paying for mer-
chandise, but never receiving the merchandise because the supplier reallocated or
redirected these shipments elsewhere at the last moment. Usually, this problem
occurred when a supplier was responding to some more urgent war needs and,
thus, had altered the destination of the goods. In these types of situations, several
payments to suppliers for the same merchandise became a common occurrence
even though the merchandise had never been delivered.
Sometimes on many important railroad junctions and stations, thousands of
loaded railcars with unknown origins and unidentified final destinations accumu-
lated (Kudrin, 2002, Vol.3, pp.214–15). This unacceptable situation required action.
In order to accelerate the movement of “undocumented” materials and goods, and
to expedite financial transactions, the Soviet government embraced several
measures. Professor Narinskii who worked as an accountant during the war and
managed bookkeeping and accounting for a large enterprise was evacuated to the
east has provided examples of some of these emergency measures. According to
his personal account, he was required to document every piece of equipment
loaded on each railroad car in multiple inventory sheets and registers (Narinskii,
1985, p.32). Multiple copies meant an increased likelihood of the goods arriving at
their targeted destination. Also, multiple copies increased the likelihood of an
accountant being able to satisfy some angry supervisor looking for someone to
punish. Thus, the culture of repression and fear in the Soviet Union was merely

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Accounting History Vol 14, No 1–2 – 2009

extended to accounting in order to ensure that the accounting process was

performed efficiently and with maximum documentation. Everyone involved was
personally responsible with their lives at risk, with reasonability not being an issue.
Thus, all individuals involved in the evacuation process including train engineers,
general help, accountants, and others were designated as “materially responsible”
individuals. These so-called “materially responsible” people included ordinary
bookkeepers or others trying to maintain some shipping or merchandise records
under extraordinary circumstances. At the point of destination, another group of
“materially responsible” bookkeepers had to match all merchandise to accompa-
nied registers and inventory sheets (Narinskii, 1985, p.32). These bookkeepers
were required to report to supervising accountants and controllers on a regular
basis. According to “the regime of socialist property during the war”, these book-
keepers were vulnerable to harsh punishment for any alleged mistakes or any
alleged criminal activities (Narinskii, 1985, p.32).
Soviet authorities introduced new and simplified techniques to solve the
problem of unaccounted payments and transactions that had taken place in the
past between evacuated enterprises and economic entities left in the occupied ter-
ritories. Furthermore, in order to simplify or, even, defer the recordings for these
payments, the Ministry of Finance introduced certain new accounts including:
“Goods and services allocated to evacuated enterprises”; “Goods and services
allocated to enterprises remaining on the occupied territories and staying idle”;
“ Disputed liabilities risen due to the war”; “Loans of the Federal Bank as collat-
eral for the shipped goods to the evacuated enterprises”; “Loans of State Bank as
collateral for the shipped goods to enterprises left in the occupied regions and
ceased to exist” (Kashaev & Shein, 1985, p.17). When Russian territory was liber-
ated by the Red Army and an enterprise resumed operations, accountants were
allowed to use specialized accounts such as “Liabilities deferred until special
instructions”, “Bank loans payable deferred until special instructions” (loans
incurred before the war), “Notes payable until special instructions”, and so on, in
order to quickly resume the orderly flow of accounting information (Kashaev &
Shein, 1985, p.17).
In this simplified world, assets were carefully documented and looked after.
Depreciation accounting was not an important issue. Liabilities remained on the
books for the duration of the war without a thought of interest accrual. A Soviet
wartime accountant wanted to maintain total control of all assets under his authority,
with any irregularities documented and approved. Assets and liabilities were all
important. The balance sheet maintained its place as the most important financial
statement throughout the war. Profit and loss issues were simply not very relevant,
especially if production budgets were met. The next section discusses new accounting
techniques that became commonplace during the war as the Soviet Union attempted
to meet its accounting needs with fewer and fewer seasoned professionals available.

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 Djatej & Sarikas: The Second World War and Soviet accounting

New accounting techniques

Economic hardships during the war directly affected the accounting profession as
a whole. As the labor resources declined, the best possible utilization of each work-
er available became more and more important. As all efforts were focused on the
production of planes, tanks, ships and shells, everything that was “not directly
productive” in terms of the war effort, such as office and accountancy work,
became secondary areas of interest (Singer, 1944, p.63). To satisfy these primary
objectives, most of the industrial enterprises heavily exploited principles of the so-
called “boiler [pot] accounting” (Mazdorov, 1972, p.159). “Boiler accounting” first
appeared in early 1930s following the introduction of the standard cost system in
the USSR. By the end of the war, the vast majority of Soviet enterprises utilized
this system. Boiler accounting often meant different things to different account-
ants during different times of the war. It was fundamentally the use of estimation
techniques as a substitute for orderly bookkeeping and accounting for the proper
costs of production. Error checking procedures were frequently non-existent. The
products of accounting work were reviewed from a viewpoint of identifying bot-
tlenecks to production. Procedural correctness was not a wartime priority.
Materiality reached new limits of tolerance as quick and dirty estimates often
became mainstream. These estimation techniques were very acceptable in most
cases. However, the authorities were always concerned about such procedures
being used to hide fraud or sabotage.
The principles of “boiler accounting” allowed Soviet accountants to bypass
norms and regulations. Under the rules of “boiler accounting”, the enterprise
might simply add up all the expenditures at the end of the period without any
classification or itemization of accounts. This was done to approximate the cost of
goods of batch orders (Mazdorov, 1972, p.159). In addition, under “boiler account-
ing”, Soviet accountants often accepted inaccurate and irrelevant allocations of
indirect costs. Furthermore, in order to simplify the calculation of the costs for
some items, Soviet accountants utilized the so-called “coefficient method”
(Kondrakov, 2004, p.551). This method was applied in metallurgical, military and
other industries where common costs were allocated to different products. At the
heart of this method was the use of a unique coefficient to allocate a portion of the
total cost of production to specific products. In peacetime this coefficient was
calculated on the basis of cost drivers or other known and measurable relation-
ships. During the war many such coefficients were employed that were not the
result of formal calculations. Instead they were working estimates approved for
wartime use. Sometimes these wartime coefficients represented only the educated
guesswork of higher authorities. In other cases, wartime special coefficients were
old coefficients that had been accurate at some time and place in the past, but were
still nonetheless considered to be reliable enough for current use. An example of

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the wartime use of a special coefficient found in the literature is an approximated

monetary value for the Cost of Goods of a specific product calculated by multi-
plying the appropriate special coefficient for that product by the total production
costs (Kondrakov, 2004, p.551). According to the “coefficient method”, accounting
for subsidiary and supplemental expenses could not be conducted separately.
Instead, all expenditures were totaled and then allocated (Kondrakov, 2004, p.551).
The “coefficient method” was also applied to estimate the cost of individual items
produced (Novodvorskii, 1985, p.23). In small and mid-size enterprises most of the
expenses were simply totaled without any breakdown or itemization
(Novodvorskii, 1985, p.23).
Some industries adopted a kind of direct costing in which only labor expense
and the procurement cost of raw materials were accounted for. Since iron and
other metals constituted the primary components for the production of arma-
ments and other military equipment, large and mid-size enterprises applied new
and stricter rules when accounting for iron ore, copper, aluminum, lead and other
metals and metal substitutes. Therefore, some factories used tightly controlled
limits and a quotation system to account for metal production and allocation.
Some versions of this system assumed that only the budgeted amount of metal was
used for production, since with all the security controls and standardized produc-
tion procedures there were unlikely to be any significant variances in the use of
metal inputs. Thus the cost of production for the batch products was routinely
accounted for by simply accounting for the labor cost allocated to each respective
batch (Mazdorov, 1972, pp.157–8).
Soviet bookkeepers also utilized other simplified accounting methods and
cost control in order to categorize itemized expenditures. Thus, the classification of
overhead and non-operating expenses had been abolished in some cases with such
costs reclassified as operating expenses. In small and medium level factories,
expenses for separate shops were assigned to one general expense account. In this
case, in order to calculate total operating expenses accountants used a simple
averaging method (Mazdorov, 1972, pp.157–8).
Shortages of food and materials required significant changes in the financial
system of the Soviet Union during the war. Instead of using a double-entry
financial accounting system to control and document the proper distribution of
food and other rationed items, ration cards were issued and summary journal
entries were made. Thus ration cards eliminated many requirements for recording
monetary transactions for food staples and commercial goods (Kornilov, 1994,
p.191). Control of food staples was still necessary and these items were accounted
for in separate accounting systems that used such non-monetary measures as
kilograms or liters of commodities. As a result, accounting procedures for these
commodities became cumbersome and a major administrative nuisance. Professor
Yaroslav Sokolov of St Petersburg State University, a leading expert on Russian

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 Djatej & Sarikas: The Second World War and Soviet accounting

accounting, as a teenager lived through the harsh winters of the Leningrad block-
ade. He has dedicated a significant part of his research to the history of Soviet
Accounting to the principles of accounting during the war. Among other issues, he
has also focused on accounting for items distributed only to individuals with ration
cards. Items that were subject to overuse by consumers were regulated by
rationing. Since bread was the primary dietary staple, the authorities initially
utilized ration cards for the distribution of bread. According to Sokolov (Sokolov,
1985, p.35). Soviet accountants had to embrace a method of accounting for
rationed commodities using physical quantities of these commodities. This
accounting for physical quantities in the Soviet Union was labeled “off-balance
accounting” and utilized its own double-entry system. Since the “off-balance
accounting method” did not use monetary values to record balances, the Soviet
government introduced six new accounts: “Issuance of Ration Card” (liability),
“Ration Cards Inventory” (asset), “Circulation of Cards” (liability), “Return of
Cards” (liability), “Disposition of Cards” or “Cards Destined for Destruction”
(asset), and “Shortage of Cards” (asset). Soviet authorities also introduced strict
control and accountability measures for retail stores. Shopkeepers and sales per-
sonnel were required to account to higher organs and audit bureaus for all sales of
merchandise using non-monetary measurements such as kilograms, meters, liters,
and so on. Complex and arbitrary measurements involving stubs and receipts for
individual ration card were used to account for groceries and other commercial
merchandise (Kornilov, 1994, p.191).
Soviet bookkeepers and accountants had no choice but to use these complex
procedures to compile reports on sales of rationed merchandise. These modifica-
tions for trade and retail operations also required significant bookkeeping
resources and increased the need for bookkeepers and accountants. Soviet fiscal
managers hoped that the introduction of ration cards would, at least, reduce the
inflation rate and provide overall monetary stability. However, the introduction of
the ration cards system could not stop inflation and it did not result in the
prevention of monetary payment for merchandise purchased utilizing ration cards.
Much of the previous discussion provided details on the addition of new
accounts during World War II. It is important in that regard to note that the Soviet
Union had a standardized chart of accounts that was mandatory. There was always
a set of regulations and interpretations that required certain journal entries for
certain transactions. Typically a Soviet Union accountant’s work had always been
largely restricted to concerns about how to follow locally implemented regula-
tions, with a strong focus on correct balances in the individual accounts. Financial
statement formats were also strictly controlled with the regulations linked to the
mandatory standardized chart of accounts. However, during the war economic
conditions gave rise to new approaches for aggregating accounts and for new
sections of the Soviet balance sheet. The next section discusses certain new

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aggregating approaches for accounts and sections of the Soviet balance sheet that
appeared during the war.

New forms of presentation in financial reports

Rules and regulations on how accounts were aggregated and presented changed
during the war. Furthermore, there were changes to how financial reports were
compiled and adaptations on how information was presented in the financial
statements. A new aggregation of accounts came about when it was decided that
all expenses and losses reflecting war-related activities would be listed in a new
comprehensive account called “Expenses and Losses” (Mazdorov, 1972, p.157).
This account recognized all expenses related to blackouts, construction of anti-
tank trenches, supplies for self-defense units, support for air-defense and anti-air-
craft units, construction of shelters, and so on (Mazdorov, 1972, p.157). Wages and
salaries for irregulars, reconnaissance groups, fresh draftees and individuals
mobilized for the military and defense activities were also debited to this account
(Kashaev & Shein, 1985, p.17). Expenditures for evacuated assets and their subse-
quent reinstallation, compensation for unrecoverable assets and personal belong-
ings lost during the war, restoration of destroyed homes and factories,
compensation for idle time due to the extended air-raids of the Luftwaffe were
also debited to this account (Mazdorov, 1972, p.158). Expenses related to trans-
portation, warehousing, packaging were reclassified as “operating losses”. Fixed
assets destroyed during the war were recorded separately and under many differ-
ent categories. If the government expropriated a company’s assets or reduced
equity for war needs, these actions were reflected in the “owner’s equity” accounts.
In order to more precisely present information on the amount of damages
caused by the war, on 1 April 1942 a special balance sheet section titled Section
“D” was introduced (Sokolova, 2005). In the balance sheets of the evacuated
enterprises the current and long-term assets left behind or still in transit were
recorded in the new Section “D” (Sokolova, 2005). Liabilities and long-term debt
that became irrelevant due to war conditions were also recorded in the Section
“D”. Restored and rebuilt enterprises in liberated territories used section “D” to
account for short-term assets, property, plant and equipment destroyed, looted and
lost during the war (Novodvorskii, 1985, p.23).
On 15 October 1943 Narkomfin and the Central Statistical Department at
the Gosplan approved new additions to the Section “D” of the balance sheet.
Thereafter, Soviet wartime balance sheets included certain new itemizations
including “Assets Not Evacuated” or “Raw Materials Not Evacuated”, “Finished
Goods Not Evacuated”, “Destroyed Or Damaged Assets”, “Partially Damaged
Assets”, “Destroyed And Enemy-Looted Assets”, and “Assets Evacuated, But Not
Arrived To The Destination”, and so on (Kashaev & Shein, 1985, p.16). On 1

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 Djatej & Sarikas: The Second World War and Soviet accounting

January 1945, all amounts itemized in Section “D” of the balance sheet were trans-
ferred to section “A” of the balance sheet (Novodvorskii, 1985, p.23). The itemized
information about enterprise war damage presented in Section “D” (and later
Section “A”) allowed the Soviet authorities to prepare a summary of the total
material damages inflicted by the war.
Section “D” was also used during most of the war when the balance sheet did
not reconcile due to an imbalance in total debits and credits. In this case a charge
for the “differences between debit and credit balances” was presented (Kashaev &
Shein, 1985, p.16). Furthermore, when general ledgers, accounting journals,
documentation and all the accounting paperwork for evacuated enterprises were
lost, management was ordered by higher authorities to conduct a complete
physical inventory. Based on this data, a new balance sheet was created. The new
data was compared to the balance sheet used before the evacuation if it was
available. Any monetary difference that was discovered had to be recorded in the
account called “Difference between liabilities and assets resulting from the war”
(Kashaev & Shein, 1985, p.16; Mazdorov, 1972, p.158; Novodvorskii, 1985, p.23).
This account was also utilized in order to record other unknown losses. If the cause
of those losses were discovered later, then these losses were reallocated back to
their respective accounts.
In the Soviet Union, documentation and paperwork were always more of a
way of life than in the West. Signatures and seals of an Enterprise Director and the
Enterprise Chief Accountant were included on all manner of documents including
even the menus of state-owned restaurants. All of these documents were subject to
audit by the state. The nature and focus of state auditing changed during the war,
as did the nature and focus of taxation in the Soviet Union. The next section of this
article discusses auditing and taxation in the Soviet Union during World War II.

Auditing and taxation

Soviet systems of auditing and taxation were also redesigned to satisfy war needs.
The role and the function of the Soviet Directorate for Control and Auditing
underwent some very fundamental changes. Its structure was reorganized by
reducing the number of auditing and other subordinated departments in its central
office. The auditing directorate focused on ensuring that all possible resources
were allocated for the USSR’s war budget. Enterprises could also be audited for
compliance with all war directives. Consequently, the responsibilities of all-union
and republican controllers were expanded. During the war controllers could
penalize organizations and individuals for causing economic and financial damage
to the state. Penalties and fines were imposed after controllers from the
Directorate for Control and Auditing at the Narkomat of Finances and controllers
on the republican level thoroughly investigated the matters. In addition, during the

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Accounting History Vol 14, No 1–2 – 2009

investigation stage and after the imposition of any penalty, the controllers had to
keep informed all-union and republican Narkomats of Finances (Ministry of
Finance) about the progress of each individual case (Kudrin, 2005, Vol.3, p.273).
In the Soviet Union all enterprises of consequence were owned by the state.
Taxation of enterprises was one mechanism in which resources were remitted to
the state for use elsewhere according to state priorities. Individuals were also
taxed. On 3 July 1941 the Soviet government added the so-called “war surtax” both
to the agriculture tax and the personal income tax (Kudrin, 2002). The agricultur-
al surtax was 100 percent across the board, with exemptions for rural families with
a member serving in the armed forces (Arkhipkin, 2005). The personal income tax
surcharge was differentiated by social category, total monthly wages, and by the
type of service the individual was rendering to the war effort (Arkhipkin, 2005).
However, these changes to the levies proved to be inadequate in that insufficient
additional revenues were generated. Also, these surcharges did not affect those not
liable for either the agricultural or the income tax. In consideration of these facts
and for other reasons, the Soviet surtax system was replaced by a special war tax
on 1 January 1942. This new tax was essentially a poll tax on all men and women
over 18 years of age (except servicemen and certain families eligible for govern-
ment relief status), graduated according to income for urban workers and salaried
officials and by geographical region for the agricultural population
(“Nalogooblozhenie v Rossii v period Velikoy Otetchestvennoi Voiny 1941god”,
2005). Those eligible for military service, but not mobilized, were subject to an
additional tax. Few exemptions were permitted. After the war the tax remained in
place until it was abolished on January 1, 1946 (“Nalogooblozhenie v Rossii v peri-
od Velikoy Otetchestvennoi Voiny 1941god”, 2005). In November 1941 another
special tax was introduced that taxed bachelors and all single-member and child-
less families (“Nalogooblozhenie v Rossii v period Velikoy Otetchestvennoi Voiny
1941god”, 2005). This tax did not generate the revenues anticipated, nonetheless,
after the war, the tax remained in place.

Lend-lease, fraud and other war-time accounting issues

Lend-lease is used in this article as a term to generally describe Allied economic
and military aid in the form of fuel, food, clothing, boots, metal, aircraft, tanks,
trucks, and other items provided to the Soviet Union by the USA and the UK. The
term originated in the period between the beginning of the European war in 1939,
and the entry of the USA into the war late in 1941. During this period, the US
government wanted to provide aid to the Allied side, but was constrained by the
fact that the US population wanted to stay out of the war, and by the fact that
giving military aid directly to the Allies would be considered an act of war.
The technical solution was to lend or lease military items to the Allies. This legal

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 Djatej & Sarikas: The Second World War and Soviet accounting

nicety allowed the USA to transfer military goods to the Allies without technical-
ly giving war materials directly to the Allies.
Our interest in lend-lease concerns the accounting for it by the Soviet Union
and the economic and military significance of this aid to the Soviet Union.
Harrison (2005, p.155) has estimated that lend-lease aid to the Soviet Union
amounted to five percent of Soviet GNP in 1942, and 10 percent of Soviet GNP for
war years subsequent to 1942. Harrison does not say the Soviet Union would have
collapsed in 1942 without lend-lease aid, he only states that the Soviet Union
would have been, “nearer” to the point of collapse without it. Accounting for the
delivery, reception, and recording of “lend-lease” assets provided by the West dur-
ing the war has received only limited attention from Russian and western scholars.
This limited attention is attributed to several reasons. According to Harvey (1970,
p.82) until recently the vast majority of primary sources in Russia concerning the
allied contribution to the Soviet war effort have not been accessible to the
research community. During the Cold War, and under the influence of official
Soviet ideology, Soviet scholarship consistently minimized or ignored the value of
the allied aid to the Soviet Union (Munting, 1984, pp.495–6).
Some revisionist western historians placed responsibility for the Cold War on
the USA because it ended lend-lease on 11 May 1945 (Herring, 1969, p.93). This
one-sided viewpoint prevented Russian researchers from developing an objective
assessment of the subject. However, recently several well-researched works about
the vital role of “lend-lease” to the Soviet Union’s war effort have been published
(Munting, 1984, pp. 505–6). Boris Sokolov of the Moscow State University of
Social Science has authored one of the most comprehensive research inquiries
about the role of “lend-lease”. In his book, The Truth About the Great Patriotic
War, he dedicated an entire chapter to the issues of lend-lease, (Sokolov, 1989). The
chapter is titled “The Role of the Lend-Lease in the Soviet War Efforts
1941–1945”. In his investigation of the relevant Soviet accounting records, Sokolov
uncovered massive overstatements and understatements, to include deliberate
fraud of accounting reports for military hardware and war supplies delivered by
the Allies during the war. He employed research methods that utilized data from
official records. The newly discovered availability of lend-lease documents has
helped to verify the fraud uncovered by Sokolov. For example, by comparing
accounting records of the total metric tons of metal rail manufactured in the Soviet
Union to estimates of the total metric tons of metal rail installed in the Soviet
Union, Sokolov concluded that more than half of the metal rail was supplied by
the USA (Sokolov, 1989). Thus, Sokolov questioned the reliability of some of the
Soviet accounting records.
According to another prominent scholar, James Millar, (1980, p.112) the data
presented in Soviet financial statements during the war was misleading at best.
Thus, in the columns for itemized expenditures in the financial statements for all

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Accounting History Vol 14, No 1–2 – 2009

five years of the war, the category of the “war expenditures” did not incorporate
data related to transportation and conversion of plants, purchases of new assets,
labor expenses, financing of new projects, subsidies to state enterprises, and so on
(Millar, 1980, p.112). Millar based his arguments on claims of postwar Soviet
official historians who insisted that expenditures for war absorbed 55 percent of
the Soviet national income in 1942. In contrast, in 1940 expenditures for war
absorbed only 15 percent of national income (Istoriya Velikoy Otechestvennoy
Voiny Sovetskogo Soyuza.1941–1945, 1965, p.46).
Long before the perestroika and glasnost, others also began questioning the
validity of Soviet accounting records regarding lend-lease aid. In fact, in 1942,
German intelligence services began reporting that the Soviets were intentionally
distorting accounting and statistical data (Schellenberg, 1956, p.274). According to
Boris Sokolov (Sokolov, 1989) this phenomenon was attributed to the inability of
Soviet production capacity to fulfill imposed quantities of the central plan.
Exploiting weak auditing and control systems, management overestimated the
quantities produced or supplied defective hardware. In 1946, the Soviet Air Force
chief Aleksandr Novikov was arrested and interrogated for accepting defective
planes and other military hardware during the war (Gribanov, 1998). At his trial
Novikov argued that the Soviet leadership at the highest level knew about
accounting fraud and deception. However, this argument did not improve his
chances for early pardon (Sokolov, 1989). The Soviets were unable to combat
accounting fraud during the war, and, according to Sokolov, even if they had
attempted to introduce significant improvements, this move would have disrupted
the war effort and disorganized the management of military enterprises (Sokolov,
1989). Overall, lend-lease records are essential to the task of estimating Soviet
economic production during the war. In addition, issues of accounting for lend-
lease assets and the interaction of American and Soviet registers and inventory
records can provide important information concerning Soviet accounting during
World War II.
To the Soviet Union, victory over Germany meant more than the end of
hostilities. It meant that long-occupied Soviet territories would be recovered, and
that the economic resources of these territories could be reincorporated into the
Soviet economy. However, because of war damage, and especially because of the
retreating German Army’s “scorched earth” policy, the reconstruction necessary to
return the newly liberated territories to productivity would generate a new set of
accounting issues.

Conclusion
During World War II, the Soviet Union seemed close to collapse in both 1941 and
1942. Credible experts such as Bellamy and Harrison cited in this article believe

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 Djatej & Sarikas: The Second World War and Soviet accounting

that under normal conditions, the Soviet Union should have collapsed in 1942. If the
Soviet Union should have collapsed, it becomes very significant to explore why the
Soviet Union did not collapse. The short answer is that the Soviet Union took
extreme measures to adapt to the crisis and that these extreme measures included
many adaptations of its very standardized accounting and reporting system.
Estimation procedures not permitted in peacetime become common. Record
keeping and documentation continued to be important because it became even
more vital that assets be protected from loss and used only for the purposes that
were directed. Just as a Soviet soldier could be disciplined or executed for losing
his rifle, a Soviet accountant or bookkeeper, or other “materially responsible”
person could face extreme punishment if assets under his or her control disap-
peared, were allocated for the wrong purpose, or were simply unaccounted for.
Extreme and unreasonable demands placed on individual accountants and the
Soviet Accounting profession in general produced extreme and heroic efforts to
meet those demands. In an environment where few excuses were accepted, many
found a way to meet the extreme performance levels demanded by a totalitarian
regime determined to win at all costs. The demands of the war led to dramatic
changes in principles of accounting, the introduction of new charts of accounts and
adjustments in taxes and tax rates. Recognizing the successes of the wartime
accounting system, some of the newly created mechanisms remained after the war,
and the government used them on its postwar reconstruction projects.
To enhance the effectiveness, reliability and consistency of financial reporting,
during the war, significant measures were taken to simplify operational accounting
procedures (Kashaev & Shein, 1985, p.15). These measures included adaptation of
the formats of financial reports. Accounting for the procurement of raw materials,
inventories, transactions with suppliers and customers were also modified. There
were simplifications of the allocation procedures for management and service
expenses. Accounting was in general centralized and consolidated because many
experienced accountants were taken to fight in the front lines. With fewer experi-
enced accountants available, the number of accounts and account categories in the
national chart of accounts were sharply reduced. For example, the number of item-
ized expenses in individual shops was reduced from 69 to 21 (Atlas, 1944, p.59).
Soviet financial accounting significantly complemented military efforts by
rapidly reorganizing its methods and structure to the needs of the front lines and
the rear. During the war, the Soviet accounting system embraced the entire eco-
nomic system of the country. As a “complicated state-prescribed system” , account-
ing embraced every economic unit all the way to the bottom (Campbell, 1958,
pp.77–8). During the war, the Soviet government significantly modified the objec-
tives of accounting. Prior to the war, the state viewed accounting as essential tool
for traditional ends, such as observation and recording of financial transactions.
During the war, the role of accounting and accountants was significantly elevated.

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Accounting History Vol 14, No 1–2 – 2009

As a result, it enabled enterprises to obtain viable economic results and to develop

methods that would more efficiently exploit material, labor and financial
resources. Furthermore, after the majority of economic activities were relocated to
the east of the country, the government used accounting information to manage
both individual enterprises and the national economy, and to assist in implement-
ing the policies of the leadership to achieve victory.
How the Soviet Union achieved victory in World War II is an important
research topic. The role of accounting in the Soviet victory seems to be in need of
further research. For example, the most spectacular Soviet economic achievements
of the war, such as out-producing Germany in tanks and artillery have not been
linked to any accounting adaptations. Also, a study of changes to the accounting
profession itself because of the war would be valuable. It is known that prior to the
war, most Soviet accountants were men. During the war the accounting profession
changed significantly in that most accountants were women. The accounting
profession in Russia remains largely female to the present day.

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Address for correspondence: Arsen Djatej, PhD, Assistant Professor of

Accounting, Eastern Washington University, College of Business and Public
Administration, 316 Kingston Hall, Room 302, Cheney, WA 99004. E-mail:
adjatej@ewu.edu; Robert Sarikas, PhD, CPA, Associate Professor of Accounting,
Ohio University, College of Business, 628 Copeland, Athens, Ohio 45701. E-mail:
sarikas@ohio.edu

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