P. Mason Tokarz, managing partner for KPMG, told the Post in this interview that the auditing business in Ukraine really took off after the Orange Revolution.
Netherlands-based KPMG initially arrived in Ukraine in 1992, following the collapse of the Soviet Union, to perform some of the first audits in the country’s nascent banking sector. In 1995, it opened its member firm, KPMG in Ukraine, which has been providing the country’s growing businesses with audit, tax and advisory services, along with the other Big Four international audit firms. P. Mason Tokarz, managing partner for KPMG in Ukraine, told the Post in this interview that the auditing business in Ukraine really took off after the Orange Revolution in 2004, and he sees no sign of a slowdown, either for his firm, or for the business in general, for at least the next several years. Tokarz began his career at KPMG 28 years ago and started work with the firm’s Ukraine operations in 2003.
KP: What has changed in Ukraine’s audit and accounting services market in the last year?
MT: What we’ve noticed in our business is actually an acceleration of what was happening during the last two years. More and more Ukrainian companies are understanding that to have an audit done by an international auditing firm and to have their financial statements presented according to international standards is very beneficial to them.
As companies grow, they build more factories, need more machinery and hire more people, and they need more financing to do all of this. It is, in many cases, better or cheaper for a company to borrow or obtain investments from outside of Ukraine, and in order to do this, companies need to be able to present financial statements in a financial language that the international business community understands.
We advise companies on how to present their results in a way that an international investor or an international lender can understand, and that hopefully, in the end, helps that company raise financing…
The accounting and audit business really started building, quite frankly, after the Orange Revolution, but accelerated dramatically in the past year. Just to give you an idea, the audit revenues of KPMG in Ukraine grew by more than 60 percent last year.
In fact, our practice in Ukraine was the fastest growing practice of all of KPMG member firms in 2006. We are even growing faster than any of the KPMG practices in the so-called BRIC countries, including China, India, Russia or Brazil. I think this says quite a lot about the market this year for our services and for the economic environment in general.
KP: Can you describe some other trends driving the market?
MT: Some of the regulators are becoming stricter about what is acceptable from an accounting and auditing standpoint. For example, we work with a number of banks in Ukraine, and the National Bank of Ukraine is requiring more information from the auditor every year, requiring more information to be audited. And the variety of information that they’re asking for is much broader than it was before. So, that’s driving an increase in the demand for our services.
Also, many times international investors, when they are making an acquisition, ask to restate the target’s financial statements in IFRS (International Financial Reporting Standards). Again, it is important that the financial information be presented in a language they can understand. So, that’s also a driver.
Underneath all of that, there’s a trend everywhere, not just in Ukraine, to move toward IFRS and that is also driving the business.
KP: Will you be assisting any companies with Initial Public Offerings (IPO) in the next several years?
MT: We are working with at least half a dozen companies that I think have serious chances of doing an IPO in the next one to three years.
All of them are in various stages. Some are very close, and these have been announced in the press. Others are looking a little bit further out, maybe in 2008 or 2009, because it does require quite a bit of preparation for a company to become ready to list on a European market. And it’s not just the financial side that needs preparation. There’s a whole set of corporate governance rules that a company needs to adopt in order to list on a European exchange. There is investor relations to think about, etc.
KP: Does your company face a problem with a lack of human resources?
MT: In the environment we’re in there is quite an intense battle for talented people. All the firms and all of our competitors are also growing and we know that. They are looking for people too. We are doing everything we can to attract the best people.
KP: Which companies do you consider to be your competitors?
MT: We have very good competitors from a small group of Ukrainian auditing companies. Our main competitors are the Big Four [international accounting and auditing firms, which in addition to KPMG include PricewaterhouseCoopers, Ernst & Young, and Deloitte & Touche].
KP: Can you say how big the auditing services market in Ukraine is?
MT: It’s really hard to estimate, because it’s not so well defined. You have to divide auditing into statutory audit, which is not an area we really focus on, and audits of financial statements prepared according to international standards. That’s the area where the other companies from the Big Four focus on as well. So, I really don’t have a sense of the market’s total size. I do know that it is growing rapidly.
KP: What portion of your clients are Ukrainian companies?
MT: Three quarters of our auditing clients are Ukrainian companies, whereas our tax and legal work, and transaction-services work are oriented more toward international companies. Clearly, the fastest growing part of our business is with Ukrainian companies. We see this as the main area where we can continue to grow and develop.
Also, we are a Ukrainian company. We have more than 200 people here, and five of them are ex-pats, so the vast majority of our employees are Ukrainian.
KP: How well are auditing companies developed and how high is demand for their services in other regions of Ukraine outside the capital?
MT: We have clients all over the country. There is more activity taking place in Kyiv, just because so many companies have their headquarters here.
KP: Does your company have subsidiaries in other cities in Ukraine?
MT: We hope to announce soon some additional plans in that regard. My vision is to have, at a minimum, five offices in Ukraine in the longer term.
KP: Can you comment on recent governmental regulations that have brought considerable changes to the overall environment in the audit and accounting services market?
MT: I think what we have seen that has affected our business more than anything is not necessarily laws that were passed by the government, but changes in the way the regulators interact with companies they regulate…
KP: What is your forecast for the market for the next several years?
MT: In our business we do not see any signs yet that what we’ve seen over the past two years will change. All indications are that in the sector that we do business in, it will continue growing very rapidly over the next two to five years. I’ve also, though, been around long enough to know it won’t go on like this forever. At some point things will slow down. It’s important during this time period to take advantage of the growth, as best you can, but also, to be preparing for the time when it will slow down and make sure you have in place the right people, the right processes, the right infrastructure to support continued development even when the market isn’t booming quite so much. Having said that, though, I don’t see any reason for the next two to five years for our business growth to slow down in any way.
