Big Four see business growth as more local companies seek to build reputation abroad
The demand for auditing services is on the rise as domestic businesses are increasingly willing to adopt more transparent business practices.
Auditors say the market has been growing steadily over the last several years, with Big Four firms shifting the focus from multinational companies to Ukrainian enterprises.
Ernst & Young Partner Oleksy Kredysov said that his firm’s clientele is now reaching out to more local companies than in the past. Ernst & Young’s pool of clients has recently grown to include state-owned Ukrtelecom, Ukrnafta and Kyivenergo, among others. Ukrzaliznytsya railway monopoly and Interpipe holding company have also signed with Ernst & Young for auditing and consulting services.
Many Ukrainian businesses are now seeking cash infusions or loans from foreign banks and are organizing their financial data to make it more meaningful for potential Western partners.
“Over the last several years, major Ukrainian enterprises have arrived at the conclusion that they want to be more organized and transparent,” said Gerry Parfitt, senior partner at Pricewaterhouse Coopers. “It has given us a lot of interesting audit work.”
“Ukrainian companies have started to understand that it is more profitable to be transparent, to be fair. This tendency is becoming more visible,” said Vladimir Vakht, managing partner at Deloitte & Touche.
The decision by many company owners to transfer control of the day-to-day maintenance of their companies to managers has also been a source of steady work for auditors. An owner now asks an auditor to prepare financial data on the company in order to keep track of its development.
Svitlana Stolyarova, head of the supervisory council at Ukraine’s Auditors Chamber, said that leaders in the business community no longer request only auditing services, but also advice from consultants on how to improve their management. Auditors say more businesses now need consulting on tax and legal issues than in the past, as well as corporate finances. Due diligence is also becoming more popular.
KPMG Managing Partner Rick van den Toorn said that despite diversifying its services, the company still sources half of its work from auditing.
Stolyarova said her chamber decided last year to raise Ukrainian auditing rules up to international standards. She said the chamber has founded eight training centers where auditors can be taught international standards. Transition is expected to persist through 2005.
Rising demand for auditing services has spurred the market’s growth. Now there are 574 private auditors and 1,578 firms, some of which work in accordance with international standards.
The market’s expansion has improved the quality of service quality among domestic firms. Service is not the only thing on the rise, however, as prices are also increasing, sometimes to the level of Western auditors.
Ernst & Young’s Kredysov said that Big Four firms and local auditors are in different “weight categories” and can’t compete for the same clients.
He said the Big Four serve primarily foreign firms and large Ukrainian companies that seek recognition in international capital markets, while Ukrainian auditors help businesses with accounting and tax-related issues.
Stolyarova, however, argues that Ukrainian auditors can easily compete with their Western rivals.
“Ukrainian businessmen address the Big Four firms to get approval for their financial indicators. [The approval is] recognized worldwide due to the high reputation of these firms,” said Stolyarova.
While Ukrainian auditors don’t often possess the same skills and knowledge as their Western rivals, they do have a better understanding of the Ukrainian environment, she said.
Parfitt said that differences between foreign and local auditors are gradually disappearing as the Big Four firms employ more Ukrainian personnel. He said the share of audits conducted by the Big Four in accordance with Ukrainian standards is increasing, which is a sign that Western companies are also learning local reporting practices.
“It was true ten years ago that foreign and Ukrainian companies were different, but now the situation has changed,” he said.
Deloitte & Touche’s Vakht said a series of recent accounting scandals have undermined investors’ trust in auditing firms. Rebuilding investors’ confidence is a top priority for auditors now, he said.
“Only a good reputation, integrity and high quality of work can help return trust to capital markets,” he said. “We do our best to make sure our integrity and objectivity can’t even be doubted.”
Stolyarova said the chamber also tightened up certification rules for auditors following a row of international scandals.
To avoid conflicts of interest, many auditing firms have separated auditing services from accounting.
Lenna Koszarny, partner at Emergex Business Solutions, an accounting firm, said a potential conflict of interest has forced many auditing firms to spin-off their accounting divisions. Currently, there are eight firms specializing in accounting in Ukraine, with Western firms constituting the bulk of their clientele. Ukrainian firms mostly use their in-house accounting departments, she said.
Koszarny said that although the market for auditing and accounting services has developed significantly over the last several years, there is yet room for further expansion.
“We are somewhere in the middle in terms of market development,” she said. “There is still huge potential for Ukrainian companies.”
