But companies are still far away from implementing the gold standard of accounting.
Starting this year, Ukrainian banks, their shareholders, insurance companies, open joint stock companies, businesses with foreign investment and some state-owned enterprises will have to file their financial reports according to International Financial Reporting Standards.
This requirement, set in stone by an amendment to auditing legislation adopted by parliament last year, represents a step in the right direction.
But, experts say, the inexplicably long road is far from over, not least because most companies in the country are not yet complying with IFRS standards, and aren’t rushing to adopt them.
Around the world, countries have been harmonizing their local accounting regulations with IFRS.
Most companies in the country are not yet complying with IFRS standards, and aren’t rushing to adop.
Used primarily by top companies seeking to assert their international profile, they present a business’s financial results according to a transparent and internationally accepted methodology.
Since 2007, U.S. financial authorities allow foreign companies to file reports according to these international principles without adjustments to the local rules, long considered the golden standard.
This global trend has also been felt in Ukraine.
“The question of adopting IFRS has been on the radar for more than 10 years,” said Vladimir Dabizha, a partner at international auditing giant Ernst & Young.
Indeed, Ukrainian Accounting Standards were meant to emulate IFRS, but failed to provide the same level of clarity.
The main problem is that people didn’t apply them correctly, Dabizha explained.
Everybody focuses on tax reporting, where mistakes can lead to jail, while financial reporting took a backseat.
But investors, creditors, analysts and other financial experts all look at financial reports when making decisions, meaning that poorly prepared IFRS filings can cost companies plenty.
“Local accountants have to change their mentality first,” Dabizha said.
The accounting profession is certainly not without its faults.
For one thing there is a lack of professionalism, said Sergey Balchenko, managing partner at BDO Ukraine, a member of the leading international accounting and auditing network BDO.
Only 30 to 40 percent of accountants in Ukraine are truly committed to their jobs, he explained.
A further 30 percent is waiting to retire, while the rest are a motley gathering from various crisis-hit sectors, slumming it in accounting until things pick up.
The drab state of the profession has certainly been a drag on the reform process, often used by authorities to explain delays.
Yet the experience of other countries shows that people can adapt quickly, particularly when monetary incentives are in place.
Compared to the basic starting salary of Hr 3,000 to 4,000, an accountant with knowledge of IFRS can command a 50 percent premium, said Olena Slepchenko, a partner at Grant Thornton, a leading international auditing, accounting and business advisory group.
Add reputed international certification, and the salary is multiplied at least two or three times.
Thus, this does not explain why the reform process – namely adoption of IFRS accounting standards – has taken so long, nor why Ukraine’s tax system remains one of the most complicated in the world.
The 2011 Doing Business study by the World Bank ranked Ukraine 181st out of 183 countries in terms of ease of paying taxes.
Given that the newly amended accounting legislation only requires IFRS standards for financial reporting, but does not affect tax accounting, the situation is unlikely to get much better.
Some claim that the delays are motivated by the dire state of the economy.
“A majority of Ukrainian companies would not be profitable,” said Oleksandr Chalyi, who heads Grant Thornton’s Ukraine office.
The IFRS standards are more conservative, he explained, so incomes would appear smaller and expenses greater.
At the same time, the international principles require greater clarity as to corporate structure, meaning that minority interests receive greater protection.
It also means, however, that the true owners of a company should be revealed.
“Many businesses are not ready for this level of transparency,” Chalyi said.
Kyiv Post staff writer Jakub Parusinski can be reached at [email protected].
