Russia's war in the Donbas has created a severe crisis for Ukraine's economy, including the audit industry.
A shakeout took place in 2014, with 11 percent of audit firms disappearing, bringing the number down to 1,326. Small ones – those with revenue of less than $120,000 – in particular could not face the storm.
“The market of audit services is very sensitive to economic situation in the country. Currently it is in stagnation,” said Andriy Klimov, president of Ukrainian Association of Certified Accountants and Auditors.
Other companies are laying off employees.
Larger firms fare better. The top 10, those with yearly revenue of at least $1.2 million each, occupy 55 percent of the market.
But the Big Four, a super league of audit companies that includes Deloitte, EY, PricewaterhouseCoopers and KPMG, are also facing downturn. Klimov says they had to cut their prices, while the threshold for deals dropped from $100,000 to $20,000.
Sergiy Kulyk, head of Deloitte’s audit department in Ukraine, confirms this unhappy story. While the amount of work has remained the same, revenue went down by some 20 percent indollar terms, given the hryvnia’s 50 percent devaluation.
Still, Kulyk says Deloitte expects to meet forecasts, noting that the Big Four grew even during the 2008-2009 crisis.
The number of clients for tax consulting grew because of new tax legislation, says Andriy Tsymbal, managing partner at KPMG’s Kyiv office. Stress tests for banks, required by the National Bank of Ukraine and the International Monetary Fund, also supplying business.
Meanwhile, the consulting business shrank.
Service providers with foreign-owned firms in their clientele were relatively better off in 2014, like RSM APiK, who have 90 percent of clients from abroad. Tetyana Bernatovych, head of the company’s Ukrainian branch with some 70 employees, says that receiving part of the revenue for 2013 contracts in hard currency with cash transfers conducted in 2014 helped to cope with the hryvnia devaluation.
“The revenue didn’t decrease and no staff or salaries were cut in 2014,” Bernatovych said.
Still, many 2014 deals weren’t pegged to the dollar and risks were shared between both sides, auditors and their clients.
Decline in 2015 is likely.
Inefficient and corrupt government regulation also affects the industry, experts say.
Many do consulting that doesn’t require registration, explains Olena Makeieva, deputy head of Council of Independent Accountants and Auditors.
According to Klimov of the Ukrainian Association of Certified Accountants and Auditors, one has to pay $4,375 officially to register an audit company and a $1,250 annual fee is a burden too. Moreover, sometimes industry players have to pay up to $10,000 in bribes to be registered. A personal certificate of professionalism costs $5,000 in bribes.
The rules are also being constantly changed.
In 2012, the Audit Chamber introduced compulsory examination for the audit companies. “They kicked everyone out of work and managed to check only 625 companies,” Klimov said, or about half of the market. Only 291 passed the examination.
In addition, the chamber fails to provide proper quality control, experts say. Currently, there are many firms trading auditors’ reports at bottom prices without even doing any independent work. “Such practice should be heavily punished, but the chamber … doesn’t have time to teach personnel or monitor the quality,” Klimov emphasizes.
Kulyk of Deloitte adds that the criteria for evaluating audit firms’ performance is not rigorous enough and the chamber doesn’t have the necessary expertise.
Editor’s Note: The Audit Chamber didn’t reply to the Kyiv Post’s request to comment before the story went to print.The Audit Chamber denies Klimov’s accusations in corruption and claims they are groundless.
Kyiv Post staff writer Olena Gordiienko can be reached at [email protected].
