An increased foreign business presence and expanding Ukrainian business operations have led to an upsurge in demand for professional services
An increased foreign business presence, expanding Ukrainian business operations, and increasingly complex service requests have led to an upsurge in demand for professional services, including advisory, auditing, and business risk assessment services in Ukraine.
“For the past two years there has been an enormous growth in demand for both auditing and accounting services. This tendency is mainly due to specific developments in Ukrainian companies when it comes to searching for international financial resources, application of best [business] practices and implementation of corporate governance”, said Helen Volska, Managing Partner and Director of EBS financial consultancy company. She added that at the same time the demand for accounting services continues to grow rapidly thanks to the growing number of European and international businesses entering the Ukrainian market.
Founded in 1998, EBS is a Ukrainian financial and management consulting firm that delivers accounting and financial management outsourcing services.
Audit and accounting firms in Ukraine are seeing a significant increase in capital market transactions, including preparations for major IPOs and projects in the areas of public debt and financial instruments on international capital markets.
“Despite the unstable political situation in the country, we are not observing a decrease in interest from international investors, either strategic or portfolio,” said Oleksiy Kredisov, the country managing partner with Ernst & Young Ukraine. “We are seeing an increased interest toward acquiring stakes in Ukrainian companies or providing them with debt financing.”
London-based Ernst & Young Global Ltd. was among the first international professional services firms to launch operations in Ukraine back in 1991. Today the country boasts 500 employees in Ukraine.
Ernst&Young provided auditor and reporting accountants to the Ferrexpo company which listed its stock on the London Stock Exchange (LSE) earlier this year. Ferrexpo is a UK holding company that owns Ukraine’s largest iron-ore pellet exporter controlled by billionaire Kostyantyn Zhevago.
According to Kyiv-based investment bank Dragon Capital, five Ukrainian companies have conducted IPOs on the LSE’s main and secondary markets, attracting over $400 million since the Orange Revolution in 2004. In 2006 alone, IPOs and private placements attracted around $521 million into Ukraine’s economy. Several large Ukrainian companies, including Interpipe Group, a leading steel producer which is controlled by billionaire Viktor Pinchuk, have announced that they are considering IPOs next year.
In an effort to become more professional, clients are not only employing the services of auditing and accounting firms, but are also gaining an education in the process.
“Frequently our clients comment on the usefulness of our work not only in terms of our final product, for example the audit opinion, but also for the educational process we go through with a client during the audit,” said Kredisov. “In this sense, we are helping our clients pinpoint certain weaknesses in their organization, as well as helping them look at their business from a professional advisory perspective.”
Despite the leading role of the Big Four companies, namely PricewaterhouseCoopers, Deloitte & Touche, KPMG, and Ernst & Young, many “second-tier” companies are increasing their activity, resulting in a higher level of competition.
The boom in the professional services market and the increased competition has brought about what industry insiders refer to as a major problem in the sector: the lack of high-quality professionals.
“The main issue for us from a business point of view is the insufficient number of people, both experienced and entry level,” said Kredisov. “People are the biggest limiting factor for the development of our business and I expect it will become even more important over the next three to five years.” He added that the Ukrainian labor market will become even more competitive with the increased internationalization of the country’s economy.
At the same time, representatives of accounting companies point to serious drawbacks in the Ukrainian tax code, as well as corruption among tax authorities as the most serious factors hindering the operations and growth of the accounting services sector.
“The complex tax system makes it difficult for foreign companies to operate in Ukraine. Therefore foreign businesses are looking to outsource tax reporting,” said Volska of EBS. “Another issue is that the tax system is corrupt and that the dominant practices in this market are totally unacceptable. For instance, no tax review of a company is possible in Ukraine without at least some nominal fines and penalties; companies are forced to manipulate their accounts so as not to file tax losses,” added Volska.
Nevertheless, industry insiders expect further growth of the auditing and accounting services sector taking into account the anticipated increase in foreign direct investments in Ukraine, the restructuring and expansion of Ukrainian companies, and the increasing activities of businesses in international capital markets.
According to Kredisov the period of high-paced growth will continue for at least the next three to five years but could even extend further. “I expect that we will enter the stage of development similar to our neighbors to the west, with continued high growth of 15–20 percent per annum and further sophistication of services.”
