Valeriy Bondar, head HLB Ukraine network of accounting firms and business consultants talks about how the crisis affected his and other industries.
HLB Ukraine, founded in 1994, is a member of HLB International, a world-wide network of accounting firms and business advisers. The group’s Ukraine office was founded and is headed by Valeriy Bondar. In this Kyiv Post interview, Bondar shares his views on Ukraine’s auditing and accounting business, and the country’s economy overall.
KP: How would you characterize the development of Ukraine’s auditing services market?
VB: It is 16 years old, still a teenager. In 1993, Ukraine adopted legislation recognizing and regulating the auditing business. In the early years, however, the level of the service was rather raw. Auditors were simply putting stamps on documents in return for $50 fees. In 1995, I visited Poland. Back then, their auditors had 10-12 years of training and were making $2,000-3,000 per month. Ukrainian auditors reached this level only in 2005.
Things changed when Ukraine’s business rapidly started to pick up in 2000-2008. Eager to enter international capital markets, Ukrainian companies all of a sudden started requiring proper audits.
KP: How much of a setback came with this year’s deep economic recession?
VB: A large share of small auditing firms that account for about 50 percent of the market suffered most. Their business was largely based on servicing small and middle-size businesses, which immediately cut expenses on things such as consulting and audit services. The Big Four cut fees by about 40 percent. Their hourly rates went from $120-$160 to about $80. Our hourly rates went down to $50 from $60-$70.
KP: As a company that deals in depth with the financials of various businesses and sectors in Ukraine’s economy, can you give us an inside view on what you are seeing? How are companies surviving the crisis?
VB: Around 80 percent of the construction business in Ukraine and 13 insurance companies didn’t survive the crisis. Those that weathered the storm drastically cut their personnel. A friend of mine in construction-related sector saw his business freeze. He had to let go of 800 out of 880 employees.
Companies that were quick to adapt, offering products or services that were in demand, became the winners. Often, adjusting to the new conditions by diversificating services – not freezing business – was the key to survival.
KP: Have you seen companies blatantly trying to cut their tax burden by hiding profit, slipping back into black market schemes?
VB: With the arrival of the crisis, one of our most popular services became corporate restructuring aimed at minimizing expenses, and tax optimization. However, tricking the state tax authorities in Ukraine, who often work according to unwritten laws, is tricky in itself. Companies often sink into deeper problems when they show reports that show nothing but losses.
KP: Along with credit-rating agencies, accounting and auditing companies across the globe have been blamed for failing to predict the global financial crisis and recession, for turning a blind eye to toxic debt problems building up within companies, asset bubbles, etc. What did you miss in previous years?
VB: Audit companies deal mostly with retrospective information. Their main task is to confirm the trustworthiness of financial statements provided by companies. But we also have a moral code that requires us to give explanations and give recommendations to businesses.
Many experts, including auditors, forecasted the financial crisis, which was caused by an overheating economy and lack of state regulation. But these warnings were not taken seriously.
