Accountants unfazed by financial meltdown

Over the past several years, Ukraine’s dynamic economic development and growing business transparency, as well as the desire for foreign investment, has fueled a blistering growth rate in the accounting services market.

But the ongoing international financial meltdown and credit crunch are expected to bring growth rates back down to earth, according to market insiders.

“We see the market for audit and related services in Ukraine continuing to expand over the next five years at an average rate of around 30 percent per year,” said Justin W. Bancroft, a partner at the Ukraine offices of Deloitte, one of the world’s so-called Big Four accounting and audit firms, along with PricewaterhouseCoopers, Ernst & Young, and KPMG.

 “This reflects the law of large numbers, where things will slow down compared to the previous five years, when firms grew 50 to 80 percent or more a year. But it is still phenomenal when you compare it with mature markets like the United Kingdom, Continental Europe and Central Europe,” Bancroft added.

While exact figures are hard to come by, insiders say the accounting market has boomed, providing some $100 million in services. A slowdown is, however, expected in the near term due to the onslaught of the world financial crisis. Lending to the country’s largest industrial groups has dropped, and production levels are expected to also sink with falling prices on steel, Ukraine’s top export. The economic downturn will delay expansion through acquisitions and integration into world capital markets via initial public offerings on foreign exchanges.

“Due to the global credit crunch and decline in capital markets, domestic firms are delaying their IPO [initial public offerings] and capital raising plans until the second half of 2009,” Bancroft said.

As the financial crisis rocks international capital markets and Ukrainian companies prepare to ride out the storm, the wise and cash-rich ones will use this time to prepare themselves for the future. So accountants should still remain busy preparing top industrial groups for the scrutiny that comes from investors ahead of IPOs and other financial instruments.

Companies looking – in the long-term – to go public should thoroughly review and revise their corporate, financial, management and reporting systems. In the future, domestic companies hoping to attract international investors and capital are going to need squeaky clean records.

“This time is not wasted. Many of our clients are using this period to spend time improving their reporting systems and areas of business control. Because after the crisis is over, the demands on borrowers and issuers on the international capital markets will be much tougher than in the past,” Bancroft added.

Despite the global financial troubles brewing, accountants are eager for work, and hope to land as much business as in the previous years of hot growth. Not all of the business has gone to the Big Four. Business has also been booming for smaller Ukrainian accounting firms.

“Our company, for example, doubled its turnover in 2007,” said Tetyana Bernatovych, director of RSM APiK Audit Firm.

“[Our clients] are generally joint stock companies which are, [by law], obligated to conduct transparent audits. And they hope audits will also attract foreign investment,” she added.

Alexei Kredisov, managing partner at another Big Four accountancy and auditing firm, Ernst & Young, said Ukraine will remain one of the most promising markets in Europe. So, business will remain strong in the long-term, he added.

“In these times, it is paramount to keep a longer-term vision for the Ukrainian market. In Ernst & Young’s view, the Ukrainian market presents great opportunities. It has never really enjoyed high levels of FDI [foreign direct investment], its industry and infrastructure require substantial modernization, and Ukrainian companies have just started tapping into international capital markets,” Kredisov said.

“But the Ukrainian consumer market itself is one of the largest in Europe. Thus, the long-term prospects for business in Ukraine are great,” Kredisov added.