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You're reading: Problems in audit market create obstacles for investors

Current legislation requires a huge number of companies to perform a statutory
audit. This requirement applies to public and private joint-stock companies,
foreign-invested enterprises, holding companies, banks, securities firms and
other financial institutions. At the same time, there are no strict
requirements in place with regard to the quality of audit procedures. No one is
interested in them – neither regulatory authorities nor enterprises themselves.
As a result, we bear witness to a paradoxical situation when an audit company,
consisting of a few people, can verify financial statements of large
enterprises with multi-billion dollar revenues. Although our experience
suggests that performing a sound audit of large-scale enterprises requires a
huge amount of hours spent by auditors in comparison with the hours spent by
small firms on similar audits. It is obvious that small audit firms employ only
a formal approach to audit procedures. Subsequently, there is a critically low
number of quality financial reporting services available in the market.

Thus, the entire market loses out. Audit is no longer perceived by business
as a quality and reliability guarantee, but only as an additional bureaucratic
procedure. There are virtually no institutions interested in receiving quality reports
from Ukrainian companies, with the exception of banks that have to review
financial statements in order to make credit decisions. In their turn,
investors do not trust information contained in financial statements of
Ukrainian companies.

Some Ukrainian enterprises seeking to enter international markets this year
have already faced problems related to lack of investor confidence. Investors
have demonstrated a complete lack of interest by ignoring the road shows of
these companies. Investors explain their unwillingness to work with Ukrainian
business by high country risk and poor corporate governance in Ukrainian
companies, low standards of business operations and financial statements. 

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