The Future of the Audit Market in Russia Viewed by FBK Economic Club Experts

In Moscow the FBK Economic Club meeting was held on the topic of “The future of the audit market in Russia” within the framework of which the experts examined the amendments under preparation to the law “On audit activities” and assessed the consequences of its adoption.

The experts shared their opinions on the impact of such changes on the market of audit services in general, on the pricing policy of participants, the quality of audit services, the functioning of self-regulating audit organizations and a range of other features of this segment.

They also noted that though it was important to make legal amendments to improve the sector performance, a number of problems such as low audit quality, low qualification of some auditors, price dumping, dependence of the auditors and their affiliation with the customers were not covered by the bill, which significantly decreases its value for the market regulation.




Alexander Turbanov, President of SRO NP Audit Chamber of Russia Central Council, noted that the turnover of the market of audit services in Russia amounted to about 52 mn roubles last year, of which the share of the four largest international companies – the Big Four – accounts for over 40% of the market and the share has a tendency to growth. Therefore, according to the expert, some of the law amendments can be situationally understandable, but without taking into account the views of the market participants they will do more harm than good. Alexander Turbanov believes the required number of SRO participants should not be increased so significantly, i.e. by 14 times. The law provides for the strength of auditors in one self-regulating organization to be not less than 10 thousand or at least 2 thousand audit firms. The current version of the law provides, however, for more gentle requirements: the minimal number of auditors – 700, and companies - 500.
“After the adoption of amendments the maximum number of SRO will be two. And that is in case the distribution is even. And what if Russian auditors prefer one SRO? There will be only one left. There might be such a situation that none of the SRO meets the revised legal requirements. We may simply be short of auditors. And SRO instead of struggling for the quality of audit will be engaged in struggling to attract the members,” cautioned Alexander Turbanov.
He also pointed out that some other amendments, specifically, restriction on the activities of audit organizations with foreign participation and a poor norm on the participation of small and medium-size audit companies in competitions for the provision of audit services may have a negative impact on the audit market in general encouraging unfair competition, violation of procurement rules, price dumping.

Sergey Shapiguzov, FBK Audit and Consulting Company President, drew the attention of the audience to the fact that the proposed amendments were of a demonstrative, imitative nature and did not solve the market problems but on the contrary, aggravated them. “The audit is essentially an independent judgement about the reliability and completeness of financial statements, an important part of general information about business-subjects. The auditors perform a responsible role in the economy – they act as independent arbitrators, mediators between society and business ensuring compliance with the statutory rules and procedures,” noted FBK President. – “I have recently come back from the World Congress of Accountants in Rome and can compare the world and Russia trends. There are problems everywhere, globally and in our country, too. The overall key requirements to the auditors are the quality of audit, independence, impartiality. Do they make a priority in amending the Russian legislation?” According to the expert, an attempt to reform the market without taking into account its specific features, without the involvement of professionals and prioritization is the imitation of activity only, and not the reform.

Kirill Altukhov, Partner, KPMG in Russia and CIS Department of Audit Services, dwelt in his turn on the fact that neither the auditors nor the audit service consumers were involved in the preparation of the bill. “Specifics of the Russian economy and, therefore, of the Russian market are such that the basic objects of audit are major corporations and the basic participants are big audit companies. They form a demand to the range of the market, pricing and quality. The proposed amendments may aggravate the systemic crisis in the audit market,” noted the expert.

Irina Sukhova, FBK Vice-President for corporate development, drew the attention of the audience to the legal aspects of the amendments to be adopted.
The proposed bill on the amendments to the law “On the audit activities”, according to the expert, is of “symptomatic” nature, i.e. it responds to the observed phenomena but not to their causes. That is due to the “intermediate” approach to the bill. “The bill defines the supervisory authority but does not specify the elements of violations, nor the remedial measures or procedures for their application, nor the regulations, nor the lists of violations or gradation of punishments for those who do not meet the quality of audit requirements. The procedures of remission or cancellation of penalties inflicted by Rosfinnadzor are not defined either,” pointed out Irina Sukhova.



Sergey Nikiforov, FBK-Povolzhye General Director, added a “regional aspect” to his colleagues’ opinions. He believes the rules of independence in the code of professional ethics for auditors in their current form cannot be applied in practice for external quality control on the part of Rosfinnadzor and SRO. The expert also thinks that in the market “a bubble” was formed in which the “zone of non-observed activity” is very high. “Of all 4.5 thousand audit companies in Russia only about 800 can be said to carry out their professional activities on a professional basis. The services rendered by the rest of the market participants are not exactly the audit. They consider the purpose of their activity to be, for example, assistance to the company accountant, preparation of reporting, etc. Actually, the objective for the auditor should be to check the accuracy of the statements and to reduce the users’ risks, including the state government bodies,” said Sergey Nikiforov.

In closing the meeting the experts expressed general opinion that bills should be developed with the involvement of professionals, those who are well familiar with the market, able to make informed judgements about the measures taken not only in terms of “the moment”, tactical paln, but in the long term, too.

FBK Economic Club is a unique discussion platform which gives journalists an opportunity to communicate directly with well-known economists, politicians and officials for professional discussion of a wide range of economic issues. FBK analytical reports are presented within the framework of the Club.

Recommend