Leaders of international organizations admonished Ukraine for the slow pace of its audit reform, and called into question whether the draft laws are ambitious enough. Auditors described the state of their profession as fragile and encouraged politicians to adopt legislation without delay.
These were some of the conclusions drawn at a Sept. 29 event, organized by the Audit Chamber of Ukraine, and held at the Ukrainian Chamber of Commerce & Industry in Kyiv.
Hugues Mingarelli, European Union ambassador to Ukraine, was sharply critical of those sabotaging reforms that he considers pivotal to improving financial transparency and fighting corruption.
“It’s a disaster that, for two years, audit reform has been blocked in this country… People are working against the interests of their country. In the absence of reform of audit services, corruption will remain a problem… We (the EU) will fight on the side of those who want this law to be adopted as soon as possible,” Mingarelli said.
Jon Hooper, senior accounting and audit expert from the EU-FINSTAR Project and EU Delegation to Ukraine, sounded similarly exasperated with Ukraine’s politicians.
On audit reform, he said: “Ukraine is a long way behind its close neighbors… Even Albania has a public oversight body (of the audit industry) that is a member of the International Forum of Independent Audit Regulators… Ukraine should have done this 5-10 years ago.”
Nina Yuzhanina, chair of the Verkohovna Rada’s tax and customs committee, which drew up the draft law on audit and another law on accounting and financial reporting, spoke with conviction but struggled to explain why both pieces of legislation are so long in the making. She concluded that “we are on the right track and the future is bright.”
Lyudmila Gaponenko, chief of the accounting methodology unit at the Finance Ministry, had a view on why progress is slow. She suggested that members of parliament were using amendments to stall reform.
“People try to add more details, maybe their own agenda and interests,” she said. No laws pass without amendments, she added, but emphasised that any issues with the law can be ironed out in the implementation phase.
That said, she reminded politicians that the IFIAR, the United Kingdom’s Financial Reporting Council, and the German Audit Commission, have endorsed the draft laws.
Georgia was held as an example of how to do audit reform.
Yuri Dolidze, head of the state service for accounting, reporting and audit in Georgia, explained how his country managed to pass a law on audit, accounting and financial reporting in eight months. In Ukraine, the clock is still ticking after two years. Georgia joined the IFIAR in April.
Delegates at the conference agreed that Ukraine has much to gain from modernizing audit and accounting.
Mingarelli stressed that reforms were not just meant to meet terms of the political and trade association agreement between the EU and Ukrainian government, although harmonization could one day “integrate Ukraine into the single market.”
The measures, he argued, will increase financial transparency, which is “one of the main elements of the investment climate. It’s crucial to do everything possible to improve the business environment and therefore financial transparency.” Improved auditing of state enterprises will cut corruption, he continued.
Olexandr Zaletov, a member of the National Commission for the State Regulation of the Financial Services Market, said that Ukraine’s archaic audit industry was holding the country back. “Audit in Ukraine is like 2G. You can get on the Internet but you can’t use all its services. We need 4G to access all the benefits of financial services.”
Andrei Busuioc, a World Bank senior financial management specialist, struck the same tone as Mingarelli in his opening remarks. “If Ukraine wants to be accepted in the global community, things have to change.”
Busuioc also argued that reforms to create “public oversight can bolster the functioning of the audit market.” A regulator removes the worst performers, which increases revenues for audit firms because they don’t have to compete with dodgy companies offering low prices. Audit reforms also benefit auditors, he said, because “they have to do more work but they raise fees.”
Toothless and ineffective audit regulation can have huge costs.
He cited the example of Moldova where funds equivalent to 12 percent of gross domestic product were stolen from a state bank. Despite this, after the event, the audit regulator couldn’t speak to the bank’s auditors. Due to the bank’s lack of financial transparency, it is still hard to detect signs that money was disappearing, he added.
For Ukraine’s auditors at the event, reform cannot come soon enough.
Tetyana Kureza, head of the secretariat of the Audit Chamber of Ukraine, said the profession is in steady decline. The number of audit firms has decreased from 15,000 in 2009 to just under 1,000 today. The market is approaching a monopoly. A fifth of companies earns less than Hr 100,000 a year, while 15 bring in more than Hr 10 million.
She blamed the existing legal framework, in which auditors contend with “contradictory” and “inadequate” legislation. She wants the draft laws passed as soon as possible because “the fact that the law has not been passed is destroying the industry … even if the laws are tough, they will be clear,” she said.
Ukraine’s international partners approve of the draft laws on audit, and accounting and financial reporting.
Parliament favors an independent audit regulator. Most EU countries — 19 of 24 — with an audit regulator have a fully independent one. Such a body collects money from the audit industry, so doesn’t have to rely on state funding. Ukraine’s model is suitable for a “low capacity country where the audit industry is small,” added Hooper. However, this doesn’t apply to Ukraine, where the industry, in his opinion, is “vibrant.”
Ukraine is reforming audit laws to become compliant with the political-trade association agreement with the EU. Since 2015, the EU has been funding these efforts.
The Verkhovna Rada is yet to adopt the law on audit and a separate law on accounting and financial reporting. International observers have feted the harmonization measures. However, some small and medium firms fear that one draft law (6016-D) on audit will rob the profession of autonomy by handing oversight to the Finance Ministry and give a stranglehold to large companies. Member of parliament Victor Galasiuk received letters signed by 300 auditors expressing their concerns with this piece of proposed legislation.
