Baker Tilly expects to stay busy in Ukraine this year despite the recession.
After years of skyrocketing demand for accounting and auditing services, Baker Tilly expects to stay busy in Ukraine this year despite the recession. In this Kyiv Post interview, the group’s managing partner in Ukraine, Oleksandr Pochkun, said the company is adjusting its fees and dropping its peg to the dollar to keep existing clients and remain attractive for new ones.
Pochkun also explained the services that accounting and auditing firms can provide during these tough economic times. Ranked globally as one of the top 10 accounting and auditing groups, Baker Tilly first entered Ukraine in 1999 and has no plans to leave, viewing the nation as having strong long-term growth prospects.
KP: How is the recession affecting the accounting and auditing business, and your clients?
OP: The crisis has influenced our clients significantly and, therefore, it has also impacted us. We had and still have a pretty big portfolio of real estate projects. The real estate market really dropped. There are no deals happening. Naturally this affects our business.
But there are other segments that are in better shape, like agriculture, specifically grain traders. Strong demand from these clients, which are fresh off a record harvest in Ukraine, has compensated for the loss of business to some extent.
We expect the hardest hit for auditors and accountants to come in the second half of 2009. Right now, we are still working on a regular basis with clients. The second half of the year, the so-called low season in summer, is still ahead. This year we expect fewer new clients, particularly less business from companies seeking to adopt international audit and reporting standards. Accordingly, there will be tougher competition for clients.
Looking ahead into the longer term, we hope that financing of business activity will pick up again by the end of the year. Also by that time, [the sector] should reach the bottom, after which business acquisition deals will start to pick up.
KP: How much was the accounting and auditing business worth in Ukraine last year? How much has it risen in recent years? And what kind of slump, if any, do you expect this year?
OP: In the last two years, the market didn’t just grow, it skyrocketed.
According to estimates, the market was worth about Hr 800 million in 2007.
In previous years, there was plenty of business, enough to open up opportunities for cooperation with so-called competitors. There was a substantial inflow of new clients. Many companies that were in a race for raising investments from abroad started reporting their financials in accordance with international standards. So the demand for our services was way ahead of supply.
To give you an idea, our business tripled in recent years in terms of our income and client base. This year we don’t expect a significant drop. We are actually counting on some growth, but not even close to that in the last two years.
From the tendencies seen in the first quarter of this year, we actually expect to pick up some clients from competitors. In the past two years, our company was mostly servicing large and mid-sized Ukrainian business. We are trying to diversify our client base by picking up more small and mid-sized work. As part of this effort, we have just recently opened two new regional offices in Donetsk and Odesa.
KP: Will your fees be adjusted in connection with the economic recession? Do you have any special offers to keep clients on board?
OP: The costs of our services changed due to the sharp fall of the hryvnia. In order to save our clients from additional pressures, we no longer peg our fees to the dollar. For most of our clients, we have fixed our fees in hryvnia.
Moreover, for our long-term clients, we have fixed our fees at last October’s exchange rate. In addition, we are offering payment restructuring plans to clients. For example, for agricultural clients, we offer to postpone payment for services rendered to a more comfortable time, possibly after they collect and cash in on their harvest. Our aim is to ensure a stable cash flow at a decent level, rather than maximizing short term profitability.
KP: How much does a firm of your caliber charge per hour? What is your average bill for a client? Is it less that the Big Four auditing and accounting firms charge?
OP: Our prices are, of course, lower than those charged by the so-called ‘Big Four’ auditing and accounting firms. Second tier companies charge 20-25 percent less than the ‘Big Four.’
Depending on the seniority of our specialists, fees vary from Hr 350 to Hr 1,000 per hour. An average rate would be Hr 550 per hour. The bill depends on the volume of work performed. For small companies, a typical bill for accounting and auditing services would be around Hr 40,000, excluding taxes. For large companies, it would be in the Hr 600,000 range. For a large metallurgy company, the bill could be as high as Hr 1,250,000 per year. For a medium-sized agriculture company, the bill could be Hr 225,000 for a year of auditing work.
KP: In general, what percent of businesses operating in Ukraine actually use the services of auditors and accountants?
OP: Businesses accounting for about 40 percent of total market capitalization in Ukraine use accounting and auditing services. But in terms of all registered businesses, it’s probably no more than 20 percent. The market is still underdeveloped.
KP: Do you expect more Ukrainian businesses to turn to professional accounting and auditing firms in the future?
OP: Those companies that have previously used audit services will continue to use them. It’s become the norm for them.
When businesses feel the benefits, not only in terms of [relations] with the third party to whom they report, but for their own business, they change their approach.
But for companies that are not accustomed to such services, there is no driving force now with the market stuck as it is. As soon as business financing, credit, capital and securities resume, demand will grow.
In Holland, for example, where Baker Tilly is among 10 largest firms, there are regional offices in each village. In contrast, auditors in Ukraine get most of their business from the select companies that receive foreign financing.
