Ukrainian companies looking to attract funds on international financial markets are increasingly turning to professional services firms
The accounting industry in Ukraine can be currently characterized by its steady growth and development. Ukrainian
companies who are looking to attract funds on international financial markets are increasingly turning to professional services firms.
In addition, as more foreign companies become interested in acquiring Ukrainian assets, local firms are seeking professional accounting services to help make their accountancy practices adhere to Western standards in order to become even more attractive to foreign strategic investors.
According to Olena Volska, Managing Partner and Director of the EBS business consulting company, the domestic accounting market is growing by about 50 percent annually. Her company specializes in financial management, accounting outsourcing, IT management and consulting. She believes that the general tendency on the market is that an increasingly greater number of companies are outsourcing their accounting needs to professional services providers.
“The market is growing and related services are also developing,” she said.
Because more local companies are adopting Western business practices and more foreign firms are opening offices in Ukraine, the market has grown in recent years not only in terms of turnover and number of players, but also in terms of more mature business approaches, Volska believes.
“If several years ago we had to virtually knock on every potential client’s door and explain to them what it is that we actually do and about the advantages of our services, then today we have clients coming to us themselves,” she said.
Volska said the last three years have been especially dynamic in the accounting services sector: the Orange Revolution placed Ukraine on the radar screens of foreign investors and a growing number of Ukrainian companies are looking to raise funds on Western financial markets.
In order to correspond with investors’ high demands and increase investment attractiveness, companies must bring their financial accounts into accord with international financial reporting standards, Volska said.
“Crediting, Eurobonds, different listings require a company to have its financial reporting in line with international standards. This is currently very important for local market development. Many companies strive for cheaper resources on world financial markets. This is what provides a stimulus to the professional accounting services market today,” she said.
According to Volska, in addition to Ukrainian companies eyeing international financial markets, the primary clientele of accounting firms are foreign companies’ representative offices in Ukraine and Ukrainian companies with foreign investments. These companies rely mostly on accounting outsourcing services, she said.
The higher cost of outsourcing to accounting firms compared to seeking similar services from recruiting and staffing companies is justified by the higher reliability, professional staff, and financial liability that accounting firms provide their clients, she said.
Volska said that one of the main negative factors accountants face in Ukraine today is the lack of transparency in the Ukrainian Tax Code. According to Volska, the code that regulates the professional activities of Ukrainian accountants can be read and interpreted in different ways. Penalties that companies are required to pay are unjustifiably high and companies have to deal with corruption in regulating institutions like the State Tax Administration.
Volska forecasts that the Ukrainian accounting sector will continue to develop steadily for the next couple of years. The market will consolidate and become more stable, she said.
Jock Nunan, Assurance Partner at PricewaterhouseCoopers Ukraine, one of the global accounting and auditing firms that are collectively referred to as the Big Four, said that the main trends within the industry are “enormous growth and development” and “huge demand for services.” Rapid growth is the result of the influence that foreign companies have been exerting on the market, and Ukrainian business developing rapidly in the last several years.
International players on the Ukrainian market have increased competition and local enterprises now have to turn to professionals to ensure their business practices correspond to Western standards.
“Ukrainian companies are forced to respond to the competition which foreign companies bring and raise their own practices up to the international level. And we assist companies in that transition,” Nunan said.
He said the trends will continue for the foreseeable future. He estimates that the professional services industry will grow by at least 50 percent annually in the nearest several years.
“We’re in the process of opening up an office in Donetsk. And we will expand our presence in Ukraine… Ukraine is a big country, and while today we’ve managed to be able to service our clients from Kyiv, I think with the future development of the whole country, which implies the development of the regional centers – Dnipropetrovsk, Odessa, Lviv – we’ll probably increase regional presence,” he said.
According to Nunan, PWC’s business is split evenly between Kyiv and the country’s regions. The company’s Ukrainian clients are primarily big industrial holdings and banking groups, he said.
Ukrainian companies planning to enter foreign equity markets are more inclined to use international accountants’ services rather than local ones, he said. This drives the development of international accountancy in Ukraine. According to Nunan, when companies enter international equity markets, they must use the services of international firms simply because that kind of activity needs cross-border relations.
When “a Ukrainian company enters the London equity market, a lot of work is done by the London office of the international firm. The Ukrainian auditing or accountancy firm doesn’t have the London office… It’s inevitable that the Ukrainian company would use services of an international firm,” he said.
Despite there being a lot of experienced Ukrainian accountants, there is still a lack of practice in terms of more sophisticated international standards, Nunan said.
Alyona Skichko, the head of the accountancy outsourcing department at Baker Tilly Ukraine, said that competition for qualified staff among accountancy firms is very tough due to the lack of specialists with experience in providing services that correspond to Western practices. She said that Ukraine’s educational system is to blame for the deficit of professionals because it does not provide international accountancy knowledge.
Previously known as IGK Ukraine Audit, Baker Tilly Ukraine has been providing audit, consulting and accountancy services since 1999. According to Skichko, the company’s accounting outsourcing department began to grow busier approximately one year ago in response to more demand from an increasing number of foreign companies.
Skichko said that branches and offices of foreign firms are Baker Tilly Ukraine’s main clients. Ukrainian companies that have grown accustomed to relying on in-house accountants form a minor part of Baker Tilly’s clientele, turning to the company for accounting outsourcing services only in critical situations.
“While foreign companies turn to us to increase the efficiency of their business, for Ukrainian companies, accounting outsourcing remains a kind of ‘lifebuoy’ when their accountants are not able to process required financial information or produce accounting that adheres to international standards,” she said.
Similar to EBS’s Volska, Skichko is displeased with Ukraine’s Tax Code, criticizing its vague wording and lack of transparency.
“The approach that Ukrainian legislative institutions have toward the country’s businesses does not encourage development, but is aimed at forcing companies to pay more. It provides no stimulation, only a ‘squeeze-out’ effect,” she said.
According to Rob Shantz, partner at KPMG Ukraine, another of the Big Four companies, more Ukrainian companies are turning to international accounting firms because foreign interest is growing in Ukraine and Ukrainian clients are increasingly looking at potential IPO opportunities.
“A significant portion of our client portfolio consists of Ukrainian clients,” he said.
Shantz said that demand for professional accountancy services will remain high for the next several years as clients become more sophisticated in their quest for services to help manage their companies’ growth.
