Some small firms lack skills, expertise of the larger companies.
The European Union is targeting the Big Four auditing companies as a source of conflict of interests and soft audits that missed problems in the balance sheets of companies that swiftly collapsed in the wake of the 2008 global financial crisis.
But small auditing firms at the other end of the spectrum also carry significant risks, says Valeriy Bondar, managing partner at the Ukrainian chapter of HLB, a leading mid-tier network of auditing companies.
The problem with small auditing companies, particularly in Ukraine’s murky business environment is not only that they too can turn a blind eye to financial funny business to appease clients, Bondar said. They are also incapable, often, to provide competitive services.
“Small companies do not have the necessary experience, resources, and qualified personnel to perform an audit at high level,” Bondar said.
This is a particular problem when it comes to training.
While bigger companies are able to attract or train highly qualified personnel, smaller outfits lack the network and means to learn about best practices and international accounting and auditing standards. They rarely employ workers with reputed international certification, Bondar added.
An even greater problem is when minor outfits audit very big companies. Bondar said the risk of an “asymmetry of power” is very big, and has wide implications, including problems for insuring the companies involved.
Yet these cases are no rarity.
Motor Sich, the aviation turbine producing giant that boasts billion-dollar contracts and whose shares are popular on the Ukrainian stock exchange, is audited by Zaporozh Audit Konsult. The small company is based in Zaporizhia, where the factory is also located.
The case of major steel producer Dniprovsky Metallurgical Plant, commonly known as DMKD, is even more absurd. The Dniprodzerzhinsk-based company is audited by Insider, a small company from Dnipropetrovsk.
Asked if the company had a website with information about it, the Kyiv Post was told that it would not be disclosed, could not be accessed, and was currently under construction. When pressed Insider agreed to provide the Internet address, but in fact gave the address for a web hosting site.
DMKD, whose assets are valued in excess of $850 million, appears to have picked a curious auditor.
Kyiv Post staff writer Jakub Parusinski can be reached at [email protected].
