Ukrainian auditors are not sought by companies operating on capital markets abroad, since oversight of the profession in the nation is not up to European Union standards.
With the profession’s reputation low internationally, homegrown firms are effectively shut out from potentially lucrative markets.
European authorities have been trying, without success, to get Ukraine to create an independent public system of oversight and quality assurance within the auditing profession.
“Ukraine has missed its train to Europe,” said Olena Makejeva, general director of Aksonova & Associates, a local audit company, referring to a European Commission decision that applies to Ukraine and other nations with sub-standard procedures.
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“These countries did not provide information regarding their audit regulatory and oversight systems,” the European Commission said on Jan.19. “Under these circumstances, it appears that those countries are not willing to continue towards having their audit regulation recognized as equivalent to the public oversight, quality assurance, investigation and penalty systems” in the European Union.
Ukraine has missed its train to Europe.
– Olena Makejeva, general director of a local audit company, referring to a European Commission decision.
For many of the nation’s 1,500 audit firms, it closes the door to providing audit services to Ukrainian companies who, for instance, plan to launch initial public offerings abroad or work on European capital markets. However, Ukraine’s offices of the “Big Four” audit firms – Deloitte Touche, PwC, Ernst & Young and KPMG – and other big firms have broad recognition and expertise internationally, allowing them to overcome any local deficiencies.
Since the EU decided not to extend a transitional period for Ukraine to comply, the reputation of Ukraine’s auditors continues to suffer.
“The EU decision will influence the image of Ukrainian auditors even more than their profits,” said Tatyana Bernatovych, president of RSM APiK, a Ukrainian audit firm. Even though the number of Ukrainian companies listed on European stock exchanges is growing, the proportion of audit work connected with initial public offerings is still insignificant in Ukraine.
In Ukraine, there are still audit firms which simply sell out audit reports and never visit an enterprise. Such auditors work for many years.
– Tatyana Bernatovych, president of a Ukrainian audit firm
In Ukraine, the Audit Chamber certifies and controls the operation of auditors, but it does not meet all the European requirements of a public oversight body.
Corruption – Ukraine’s old companion – appears to dog the industry.
“In Ukraine, there are still audit firms which simply sell out audit reports and never visit an enterprise. Such auditors work for many years,” said Bernatovych from RSM APiK. “The Ukrainian Audit Chamber does regulate the audit profession, but its control is not effective enough.”
According to European legislation, the system of public oversight shall be governed by non-practitioners who are knowledgeable in the areas relevant to statutory audits. Practitioners can participate on a minority basis.
At the moment, the Ukrainian Audit Chamber consists of six auditors who also work in audit firms and 13 other members. The problem remains, however, that 10 of 13 other members are representatives of different state bodies and very often lack experience in the field of audit.
“The most significant problem is to bring to the Audit Chamber non-practitioners who have deep knowledge of statutory auditing and, in my opinion, international standards of auditing,” said Bernatovych. “Regrettably, representatives of different state regulative bodies, who according to the law, are chamber members at the moment, do not have and cannot have relevant knowledge as soon as most of them gained their experience in the field only after they started working in the Audit Chamber.”
Another problem issue within Audit Chamber is financing. According to the EU directive, the funding for the public oversight system shall be secure and free from any undue influence by statutory auditors or audit firms. At the moment, the main financing sources of the chamber are fees for certification, registration and education paid by audit firms.
When oversight body is financed by audit firms, it threatens the independence of this body.
– Alla Savchenko, a former member of the Audit Chamber.
“When oversight body is financed by audit firms, it threatens the independence of this body,” said Alla Savchenko, president of BDO firm and a former member of the Audit Chamber. “The Audit Chamber would be more independent and effective if it was partially funded from the state budget and other sources independent from the profession.”
To create a public oversight body that corresponds to all European requirements, the law on auditing activities should be changed first, said Ivan Nesterenko, current head of the Audit Chamber. There were several attempts to do so, but all were unsuccessful.
Meanwhile, the Audit Chamber has created a special committee to control the quality of audit services. Since 2007, the committee has checked 280 audit firms in Ukraine and plans to test up to 100 more firms till the end of 2011.
Until an effective system of public oversight for statutory auditors is created, the work of audit firms registered in Ukraine could be questioned and challenged. Moreover, Ukrainian clients will bypass local firms if they are looking for audits that pass muster on European capital markets.
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Kyiv Post staff writer Oksana Faryna can be reached at [email protected]
