Fresh off a record year in 2008, accounting and auditing firms are having to cut fees and staff.
Businesses in Ukraine, small and large, are feeling the pinch of economic recession and struggling to adjust to tougher economic days ahead. Accounting and auditing firms are no exception.
They are fresh off a record year in 2008, having billed an estimated $100-300 million. Eager to attract foreign investment, an increasing amount of Ukrainian companies paid top dollar for such services as Western-standard financial audits and advice on how to best structure their operations.
But the reality of economic recession is settling in. Desperate to survive the tough times ahead, accounting and auditing firms are cutting fees and staff, but they expect to be kept busy, nonetheless.
Clients are now facing bankruptcies, or struggling to stay solvent by cutting costs or restructuring debt. Others are falling into the category of distressed assets, making them hot acquisition targets for cash-rich buyers. To get such deals done, the services of lawyers, accountants and auditors are still in demand. But like most everyone, they are earning less.
“During the last five years, the volume of our business has been growing by 40-90 percent each year,” said Vladimir Vakht, managing partner in Ukraine for Deloitte. “This year, we anticipate more modest growth of about 5-10 percent.”
Sources said the offices of Deloitte in Ukraine and three other members of the so-called “Big Four” international auditing and accounting group – Ernst & Young, PricewaterhouseCoopers and KPMG – have in recent months cut staff by about 40 percent.
Speaking on condition of anonymity because of the variance in fees, a top executive in Ukraine at one of the “Big Four” said accounting and auditing firms are cutting fees, but declined to say by how much. This year will not be as big or pleasant for hundreds of former professionals that “Big Four” offices in Ukraine are said to have laid off.
“These are difficult times for everyone – our clients, the auditing business and our employees,” Alexei Kredisov managing partner at the Kyiv offices of Ernst & Young.
“We [are trying to put less] pressure onto our professionals, however, they will be affected.” Some will be asked to take unpaid vacations. Salaries and bonuses will be cut; promotions put off.
In recent years, the drive by Ukrainian business to raise investment from abroad forced them to adopt international accounting and auditing practices. That meant more business for auditors and accountants, particularly internationally chartered ones. With the workload rising each year, fees increased sharply.
Now, with the recession, the focus has changed. Investment-related work, such as preparations for initial public offerings, has given way to debt restructuring, bankruptcies, mergers and acquisitions of cash-crunched companies.
“We are experiencing a growing demand for cost reduction and business restructuring services,” added Kredisov.
Another popular ‘anti-crisis’ service for audit firms is liability restructuring.
“We are observing 100 percent growth of demand for this service,” said Deloitte’s Vakht.
“Many enterprises built their strategy on [high] growth prospect and took many loans. Today liability restructuring, postponing credit payments to a later date, is now a matter of life and death for them,” he added.
Accountants and auditors say fees are lowered during the economic slowdown, but they are tight-lipped when asked exactly how much less clients will have to pay.
Industry insiders said that cost cutting efforts could eat away at the market share for business in Ukraine held by the ‘Big Four.’ Companies could switch to smaller firms that charge less.
“It’s the reality of today’s market,” Vakht said.
“To some of our clients, we granted discounts of 40 percent on fees charged before the crisis. For someone it was more, for others less. Under crisis conditions everybody bargains desperately,” he added.
