Ukraine’s central bank has tightened requirements on firms that are allowed to audit the country’s banks. In particular, firms will have to provide a copy of certificates verifying that their workers comply with international standards of financial reporting.
This decision is long overdue. Sixty-three Ukrainian banks went bust in 2014-2015. But only five of them had negative marks from auditors.
As result, those mistakes have cost the state’s Individual Deposits Guarantee Fund Hr 71.4 billion (nearly $3 billion).
Auditors can be thought of as doctors who check the financial health of companies. Their reports show the value of a company’s assets, liabilities, income, expenses, profits and raise red flags if there are problems.
Usually, firms hire external auditors to provide an independent assessment of their financial statements and their compliance with laws and regulations. The stakeholders, of course, are the entity’s shareholders, the board of directors, regulators, creditors, analysts, the public, etc.
But who audits the auditors? In Ukraine, no one really.
Auditors regulate their own work because there is no independent body to oversee the profession. But that could change soon, because the Ukrainian Ministry of Finance, supported by the European Union, wants to create an auditing regulator.
New draft legislation from the ministry, apart from introducing international and EU accounting standards, proposes to set up an independent Public Audit Oversight Body. That body will oversee and give recommendations to the Audit Chamber of Ukraine and auditors of the biggest Ukrainian enterprises.
The body will include specialists who have not worked in the industry for the last three years and are not affiliated with any audit firms. The staff of the oversight body will be elected on a competitive basis and financed with fees paid by the auditing firms that it regulates. The mechanism for ensuring the body’s independence from the government and political forces is still under discussion in a parliamentary working group, however.
However, critics argue that Ukraine does not need another new bureaucratic intermediary.
The Audit Chamber of Ukraine, the country’s key auditing regulator, is currently accountable to the Ministry of Finance. But those who support the new body argue that the ministry’s officials are not always skilled enough to supervise the highly specialized industry.
“This audit oversight board can spend time and has the expertise to inspect the Audit Chamber and help it to do the very best job it can,” said Jon Hooper, senior accounting expert at the EU-FINSTAR financial sector technical assistance project.
The creation of the new entity is expected also to boost demand for auditing services in Ukraine. “As a result of an increase in standards, the public perception of audits will rise, and the demand for more quality audits will rise,” Hooper said.
But Elena Levshun, partner and practice leader at audit firm EBS, said in e-mailed comments to the Kyiv Post that she was skeptical about the need for another public oversight body in Ukraine.
“In fact, we comply with international audit standards now. In my personal opinion, we do not need to enhance them by putting them into law,” Levshun said.
“A more widespread format of control is when audit firms audit each other in so-called peer monitoring. In this case, the government does not interfere and the possible level of corruption is much lower,” Levshun said. “The market and reputation regulate everything.”
The law may be considered in parliament in January.
Staff writer Olena Savchuk can be reached at [email protected]
