Ukraine's leading English-language newspaper since 1995

Valeriy Bondar, founder and managing partner of HLB Ukraine Internal audits and human resources audits top the demand at the moment; outsourcing accounting services does not save cash anymore.

Sailing through Ukraine’s rough economic storm has been difficult for the majority of foreign and domestic enterprises. The stormy blast hit auditors perhaps a little later than other types of companies, due to some peculiarities of their business.

“The audit market is reacting towards changes in the business environment with a different speed,” said Urmas Kaarlep, partner at PriceWaterhouseCoopers. “Last year we fulfilled the contracts that were made in the middle of 2008. We’re mostly hit now as the negotiations for this year took place in summer 2009.”

Valeriy Bondar, founder and managing partner of HLB Ukraine, claims that auditors are still sinking and won’t hit the bottom until next summer. “With most domestic enterprises frozen, we are working mostly with foreign companies. Last year, our company had to cut 30 percent of our personnel as gross revenue fell 20 percent,” Bondar said.

Kaarlep said that his company had also cut staff initially, but hired back some of them, seeing the sun behind the clouds.

Floris Schuring, managing partner for KPMG complains that there continues to be “significant pressure on fees.” But in order “to make money in hard times you have to be cheaper,” assures Bondar. He said that his company lowered its fees by up to 40-50 percent, but there are firms that offer even bigger discounts.

While there might not be much demand for high-quality external audits at the moment, there are sprouts of demand for internal audits. They can help companies identify problem areas, which is needed to adopt a coherent streamlining strategy.

“Companies want to clean up their operations. An audit conducted independent of management can help,” said Dmytro Oleksienko, general director of Expert audit and consulting group.

Accounting services that are often offered side by side with audit services have also become cheaper. Outsourcing accounting, which was popular in 2009, is not so popular anymore. “Significant cuts in the financial sector have released a lot of inexpensive but qualified personnel onto the market. So, it is now 2-3 times cheaper to hire a chief accountant than to outsource,” Bondar said.

On the other hand, looking to cut costs, some companies are seeking to audit how their human resources are managed. With the starting cost for such services in the Hr 100,000 range, it’s not cheap, but could payout in the long run by boosting productivity and lowering expenses.

But however much you reduce your personnel, cut your costs and control your finances, the real growth won’t come until banks start lending again, auditors say. “It’s difficult to get loans from Ukrainian banks due to relative instability in the country,” Kaarlep said. “One of the few creditors of Ukrainian businesses is the European Bank for Reconstruction and Development, but they require reports in accordance with International Financial Reporting Standards and high-quality audits that very few Ukrainian companies can submit.”

“We used to have creditors available from the Czech Republic, Hungary and United States. Now they don’t want to deal with Ukraine mostly because there is no guarantee the loans will be returned,” Bondar said.

Volodymyr Lavrenchuk, chairman of the board at Raiffeisen Bank Aval, said at a recent American Chamber of Commerce meeting that his bank “has money for loans, around Hr 2 billion. But it will only be available when manufacturing starts rebounding, when the judicial and court system, in particular, get fixed, and after inflation is tamed.”

To meet those conditions, the country’s government institutions have to start working again, and become more efficient – this is what business expects.

HLB’s Bondar said crises repeat throughout history and Ukraine can learn a great deal from the Great Depression of 1930s in the United States. “The U.S. recovered from the crisis by reducing its apparatus and easing the tax pressure,” he said.

“Ukraine urgently needs to trim red tape in order to allow Ukrainian businesses to grow and lead the economic recovery,” Schuring said.

“The government is late in refunding businesses Hr 30 billion in VAT [value added tax] returns,” said Bondar. “So why not cancel it for a period of time and let the businesses rebound or at least reduce VAT to the European level of 18 percent.”

Businessmen also favor a 5 percent tax on revenue instead of VAT, and expect that it would bring a third of the companies operating in the shadows back to the official economy. They also prefer to have a single tax code which would “eliminate inconsistencies and clarify ambiguities that exist among the current tax laws,” Schuring said.


Kyiv Post staff writer Kateryna Grushenko can be reached at grushchenko@kyivpost.com.