| A scandal broke out between auditors and the Central Bank. One of these days, the extraordinary council on auditing under the Ministry of Finance will discuss new recommendations of the Central Bank on the selection of an audit company for auditing statements according to international financial reporting standards (IFRS). The Presidium of the Coordination Council (PCS) of seven audit trade unions accredited by the Ministry of Finance demanded that these recommendations be canceled by writing letters to the Bank of Russia, the Ministry of Finance, and then to the first deputy head of the presidential administration, Dmitry Kozak. The letters note that “inadequate criteria for selecting an auditor will entail the actual exclusion of Russian audit companies from the banking audit market,” and “the application of the recommendations of the Central Bank of the Russian Federation will damage the interests of national economic policy.” However, the unity of auditors was violated by FBK. Its vice-president Alexey TEREKHOV in an interview with the Vremya Novostey newspaper says that this is not about the threat of competition in the banking audit market, but about the first action of the emerging audit lobby.
-- Auditors who counted on an influx of clientele when banks switched to IFRS are now saying that they are losing a new market. What is the reason for such concerns?
- In my opinion, for some of the auditors the very emergence of the audit market according to international standards was unexpected. But in fact, the program for the transition to IFRS was announced by the Central Bank several months ago, and auditors long ago needed to worry about the upcoming changes and improving the qualifications of their employees. Not everyone did this. As a result, letters from the audit community appeared to various authorities, which, in my opinion, are not an entirely adequate response (to the appearance of the recommendations of the Central Bank. - Ed. ). Public audit organizations have committed themselves to monitoring the quality of services and have declared their commitment to international auditing standards, and therefore should help improve the qualifications of auditors.
-- In PKS letters to the Central Bank and the Ministry of Finance, auditors ask to cancel the requirement that the company have four specialists with “diplomas from internationally recognized accounting associations and organizations.”
-- The auditing community apparently decided that the Central Bank's recommendations begin to apply on January 1 of this year. In fact, the first banks' IFRS statements to be audited will be presented in October next year. Therefore, to train the necessary specialists, there is enough time - more than one and a half years. In general, there is an international auditing standard No. 220, according to which auditors are required to improve their qualifications.
-- How expensive can it be to train such specialists for an audit company?
-- From 2 to 20 thousand dollars per person. The minimum investment can be estimated at $6 thousand. But we must take into account that banking audit according to IFRS is a new line of business, and auditors can count on an increase in orders. Therefore, the funds that we will invest in staff training will obviously pay off in the foreseeable future - an audit of even one bank according to international standards will clearly cost more than 6 thousand dollars.
-- Why does the Central Bank require the presence of four people with international diplomas in the company?
- In fact, for a small company the minimum set is three such specialists: the head of the company or his deputy, who directly signs the audit report, a specialist who supervises the audit, and a specialist who assesses risks. This is international practice.
— The Central Bank said all last year that auditors capable of conducting a high-quality audit of financial statements under IFRS can be counted on the fingers of one hand. How many such companies are there now?
- I hope there are more. From the point of view of a quality audit under IFRS, it is difficult to assess the level of readiness of domestic firms. I would not doubt the members of the top ten auditors (in terms of annual revenue - Ed. ), perhaps there are a number of other companies.
— Do fewer than ten companies meet the criteria set out in the Central Bank’s recommendations?
- Not necessarily. Maybe less, maybe more. As time goes on, auditors are preparing, and new companies will appear that may not be among the largest in terms of revenue, but at the same time have the necessary level of training.
- Still, “ten” is very little...
- It should be taken into account that the Central Bank gave enough time for preparation and allocated almost nine months for checking the first international reporting of banks. This is a significant relaxation - according to the first auditing standard, an audit of financial statements must be carried out within the first six months after they are filed. At the same time, the transition to IFRS is also a test of the strength of the banks themselves. Perhaps, after some of them prepare their “reports,” there will simply be nothing to audit.
-- Among the 50 largest banks, only two use the services of a Russian company to check international reports. Do you think the banking audit market will always be dominated by the Big Four?
-- The dominance of the Big Four reflects the state of our economy. If the Russian economy were similar to the American or European ones, perhaps our auditors would be among the leaders. The mechanism is simple: if a company enters the international loan market, then it must have an auditor who is trusted throughout the world. And it’s not a problem, but a blessing that our banks, with the help of international auditors, can enter the world capital markets. The leadership of the Big Four in banking audit has always existed, at least in terms of the volume of audited assets. In terms of the number of client banks, apparently not. It is possible that a significant part of banks are, in fact, not banks, but financial companies.
— PKS writes that the Central Bank exceeded its powers by putting forward requirements for auditors, while the Ministry of Finance is responsible for regulating their activities by law...
-- Firstly, the recommendations issued by the Central Bank are not a regulatory document, and no supervisory sanctions are provided for failure to comply with them. Moreover, the Central Bank clarified that banks that already prepare international reporting should not change it in accordance with the recommendations. The Central Bank simply said: reporting must be certified by auditors who understand international standards. Accordingly, woe to the auditor who does not know this.
-- One of these days a special council on auditing activities is to be held, dedicated to this conflict. How, in your opinion, can the confrontation between auditors and the Central Bank end?
- I hope that the special council will strive to determine what methodological recommendations are and how to treat them. It must be taken into account that no court recognizes these recommendations as a mandatory regulatory document that must be canceled. However, public organizations have the right to go to court. So far, it seems to me, they have taken the path of denying reasonable criteria and PR rather than protecting the audit community. I hope the exchange of views will allow them to take the right position.
-- Will the banking sector as a whole have time to prepare its first IFRS reports by October of this year?
- It is premature to fully say that all banks will meet the deadlines announced. Problems remain. For example, we still do not have an official translation of international standards into Russian. As a result, the terms used in IFRS and in our legislation have different legal consequences. But this is not the fault of the Central Bank, but its misfortune.
-- Do you have any concerns that your position will be linked to the results of the tender for the selection of the auditor of the Central Bank, which was won by the consortium of PricewaterhouseCoopers and FBK?
— I can say that the Central Bank’s audit does not even account for ten percent of our company’s revenue, and we have no reason to be dependent on the Central Bank just because we are its auditor. On the contrary, it is the Central Bank that is in a situation where it must take our opinion into account. In addition, as the audit community correctly noted in its appeal to government authorities, the Bank of Russia is not a body that licenses the activities of auditors. Interviewed by Yuri VERETENNIKOV
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