The Kyiv Post spoke with partners of two firms to get their take on the market, the financial crisis and how they compete with accounting’s biggest fish.
Grant Thorton Ukraine and Baker Tilly Ukraine are two of the main competitors of the Big Four (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers) on the Ukrainian and international accounting and auditing services market.
According to a report published in June 2010 by the Association of Chartered Certified Accountants, Grant Thornton International is eighth on the global list of accounting firms with $3.5 million combined total income in 2009. Baker Tilly placed 10th with $3.1 million.
The Kyiv Post spoke with partners at the two firms to get their take on the market, the crisis and how they compete with accounting’s biggest fish.
Vitaliy Kazakov, managing partner at Grant Thornton Ukraine.
KP: How has the market situation changed since the beginning of 2010? Do you feel that the crisis is over?
VK: The situation in the consulting business, including audit, valuation and financial consulting, is dependent on the general economic situation in Ukraine. Since the beginning of the crisis we felt the impact of the economic downturn very significantly. This relates to many factors, starting from revenue growth rate, which is based on clients’ portfolio growth and the level of fees. The last was significantly depressed at the clients’ request or due to a reduction in prices by some consulting companies, which in turn led to selection by price rather than quality.
At the start of 2010, we didn’t feel the crisis was over. Most companies were still struggling, especially medium- and small-sized businesses. Unfortunately, the most obvious but wrong decision they took in order to save funds was to cut international audit expenses. This reflects local Ukrainian culture and attitude to audits. Most foreign companies or companies with foreign capital did not cut audit expenses as this represents a corporate culture and continuity of the business.
In the second half of the year, we have seen an increase in consultancy requests. We hope that this reflects some revival of business and not just a migration of clients from one auditing firm to another searching for cheaper services.
KP: How did the economic downturn affect your business? New kinds of services? Lower prices? A bigger battle for the clients?
VK: There were a few trends on the market: shrinkage of the clients’ service portfolio; decrease in services’ prices and dumping on the market; low clients’ tolerance to negative audit opinions and increase in potential migration from one audit company to another searching for clean opinions for cheaper prices; increase in price competition regardless of any quality control on the market and low clients’ differentiation of audit companies’ brands, weak understanding of meaning “good audit work” .
We tried to bring new services to the market, such as operational restructuring, which helps to tune up a business and make it healthier.
Unfortunately, companies are often not ready to consider external help to help them improve. The business culture in Ukraine is quite closed.
KP: What are the main lessons of the crisis?
VK: I believe that the main lesson is that the audit profession in Ukraine is very weak.
There are only a few companies on the market that can consistently conduct high-quality audits and remain independent when fee pressure is high, as is pressure from clients to issue a “clean opinion.” The market is damaged by the fact that it is very badly controlled by regulators and clients.
KP: As a global accounting and audit firm, how do you compete for market share with bigger international players, namely the Big Four? Do you feel that competition has increased during the crisis?
VK: Competition has certainly become more intense. We observe this on state tenders for audits. It is obvious that some tenders are agreed in advance and tender conditions are set in a way to limit the potential audit companies only to the Big Four.
I have to say that as a global firm we have sufficient resources to compete with the Big Four companies on the Ukrainian market, as Grant Thornton does in other countries. As an international network, Grant Thornton is a highly structured and advanced organization. I believe that Grant Thornton should develop and improve its quality control processes and procedures, which are its strong competitive advantages. We see many local companies or companies allied with different international networks that don’t pay enough attention to their quality control procedures and don’t always meet high quality standards, placing a big question mark over independence.
In such a situation, it is our aim to bring understanding and recognition to our company by keeping our services high in quality and independence.
KP: What are your main advantages on the market?
VK: We intensively use computer based audit programs for client acceptance, risk assessment and audit workflow documenting, among other things. This brings real transparency to quality control from the side of clients, who want to know what they are paying for, as well as for external use and our firm’s own control bodies.
Grant Thornton is a well known and recognized leader among financial consultants on the large financial markets like the London Stock Exchange. It is also a leading consulting firm in restructuring consulting, public sector consulting, project finance consulting and valuation. Our reputation on the local market is well backed by significant experience of cooperation with international financial institutions.
KP: What major trends do you expect to see in the near future in accounting services?
VK: We expect a decrease in the number of small audit companies and private auditors especially considering changes in the tax system that will come with the adoption of the new tax code.
I would predict further price competition instead of quality competition. Still, the existence of external influence on the market from international financial institutions and investors, who have a certain perception and understanding of what a quality audit means, will keep our clients’ market at least stable.
We also expect some clients to migrate from the Big Four companies, as this has to be a natural process after their long dominance.
Oleksandr Pochkun, managing partner at Baker Tilly Ukraine.
KP: How has the market situation changed since the beginning of 2010? Do you feel that the crisis is over?
OP: The market situation has improved. Capital markets have begun to revive and companies have started searching for financing. We cannot say that the crisis has passed completely, as there’s still instability in the Ukrainian market.
KP: How did the economic downturn affect your business? New kinds of services? Lower prices? A bigger battle for the clients?
OP: Naturally, the global crisis influenced our business as well, because we work on projects related to attract funding. Due to the fact that there was less money flowing into Ukraine, there were no investments into business and this reflected on our business.
I can’t say that this led to the creation of new kinds of services, because we focused more on cementing our relationship with existing clients. By monitoring their communications with our main competitors, price proposals and so on, we made our clients feel comfortable working with us. However, I have to admit that during this period prices actually fell heavily.
KP: What are the main lessons of the crisis?
OP: Surviving the crisis cannot be achieved by saving money, but earning it. We should not forget that crisis also means new opportunities; we just have to find ways to seize them.
KP: As a global accounting and audit firm, how do you compete for the market share with bigger international players, namely the Big Four? Do you feel that competition has increased during crisis?
OP: Our belief is that the Ukrainian market of medium and large companies is our market. We are well acquainted with it; we know the specifics and complexities faced by companies, in particular, during the transition to international standards. Perhaps this understanding and the business environment is our main competitive advantage. Nowadays business competition has become more acute. Unfortunately, there are cases, when unfair practices are used in competition, for example providing incorrect information about our firm.
KP: What are your main advantages on the market?
OP: One of the main advantages in our work, especially compared with our colleagues from the Big Four, is that we have fewer levels of decision making in management, which allows us to respond more quickly to customer requests, in particular to the complex issues that require detailed study. Another advantage is that we have three offices [in Kyiv, Odesa and Donetsk] which allows us to be closer to our major clients and helps customers to save money on staff travel.
KP: What major trends do you expect to see in the near future in accounting services?
OP: Auditors are still very important and in demand. Users of financial information feel more confident when they have audited financial statements. However, client demands to auditors may increase. Auditors will most likely have to change their approaches, shifting the focus from dealing with retrospective data to working with forward-looking information, in order to be able to analyze more precisely trends or changes and provide information of the highest standards.
This is important because, as a rule, the auditor works with information on events that have taken place, as well as with events that took place after the balance sheet date.
Kyiv Post staff writer Olga Gnativ can be reached at [email protected].
