23 September 2010

Business daily "Ekonomicheskie Izvestia" together with the ACCA held a conference "Tax Code. The first step of tax reform”.

Quickly – does not mean good: dangerous consequences of adoption of the Tax Code

One of the highlights of this autumn, that will be if not to determine, then at least, substantially influence the pattern of development of Ukrainian economy, is a discussion on the adoption of the Tax Code.

It is no secret that the code will affect virtually everyone – big and small businesses, accountants, government officials and tax authorities, employers and workers, the majority of Ukrainian citizens. At the same time, obviously, the Tax Code is not the end of the tax reform, but rather its beginning, its basic element, and it is understood that construction on poor foundations – is doomed.

The general tone of the conference was set by the Head of the Council of Entrepreneurs at the Cabinet of Ministers, Leonid Kozachenko, who, though acknowledged imperfection of the existing draft, considered it necessary to note that failure to adopt the Tax Code now will create more problems than if it is not adopted at all. He also pointed out that it is still possible for business community to provide comments and input into the draft Tax Code.

Opponents, by contrast, predict massive discontent in the case of the Government's draft, which contains a lot of technical mistakes. Particular concern was expressed to the design based on the raw code of the State Budget-2011.

In particular, the draft Code does not provide for assignment of a number of expenditure on gross expenditures of enterprises. "Draft Code prohibits referring the costs of royalties, marketing, consulting, advertising, engineering services, which are paid by Ukrainian companies to foreign companies. This ban will negatively affect transparent transnational corporations and will not contribute to the investment attractiveness of Ukraine” – said Vyacheslav Vlasov, Partner at PricewaterhouseCoopers Ukraine. He also noted the need to include the possibility of further discussion and amendment to the Code within 1-2 years after its adoption in the transitional provisions of the Code.

The greatest dissatisfaction of the conference participants was caused by the rush of government in drafting a code and its intentions to put in force starting from January 1, 2011.

According to Grigoriy Pavlotsky, Partner at Deloitte, such goal of the Government is very risky. It is very difficult to rebuild the entire legal tax base, and for business it is very difficult to prepare for such changes. After all, companies are already budgeting the next year, and in December, people still do not know which indicators to use to plan their business in 2011.

"It is unclear how accountants will have time to adapt so quickly, and will not make mistakes, for which liability is provisioned" - supportedOlena Volska, FCCA, Managing partner of Emergex Business Solutions.

Remark about the hasty introduction of the code, was made by overall tolerant Chas Roy-Chowdhury, Head of taxation at ACCA, pointing out that in United Kingdom, even some smaller changes to norms are being discussed for six to nine months.

"It is easy to compile the tax legislation together and call it the Tax Code. The essence remains the same. And it is simple - head of the State Tax Administration is responsible for the income part of the budget, and monthly he is informed of income plans. The Code does not destroy this system, does not impose a new ideology of taxation "- summed up the General director of the analytical center "BEST"Valery Gladkiy.

Vladimir Kotenko, Partner at Ernst & Young tried to somewhat lower the overall degree of discontent with the draft Code, describing it as being mainly the compilation of already existing tax rules. "The measures proposed in the draft in order to soften the blow from the operational implementation of this document are likely to be palliative. It is about the initiative not apply fines to taxpayers within six months after the entry into force of the Code. While limiting the sanctions with Code, the risk of criminal liability remains"- he said.

"Yes, we do not have the tax code, but you can not adopt it just for ticking a box" - summed up Iryna Ped, Tax advisor of the bar association "ST Partners”.

Remarks of Yuri Delikatny, Head the tax department of law firm «Noerr», that it is important to demand that adoption of the Tax Code will be postponed, otherwise it would entail a number of negative consequences, outlined the next steps of business in the dialogue with key developers of the draft.

It should be noted that adoption of the Customs Code is approaching, promotion of which is likely to be carrier out by scheme tested while developing the Tax Code. But this is a topic for entirely different discussion.

"The conference outlined the issues and questions professional market participants have to work with" – summed up Dmitry Goryunov, Chief editor of "Ekonomicheskie Izvestia". It is impossible that document that does not meet the basic interests of at least one of the parties, is adopted as a basis for the entire tax system. From this point of view «Ekonomicheskie Izvestia» can provide a unique platform for discussion, where different parties can share their views and be heard, and this will only benefit the tax code in particular, and our society as a whole.

Partners of the discussions, organized by the ACCA and the newspaper "Ekonomicheskie Izvestia" were: the company Arzinger, EBS (Emergex Business Solutions), bar association" ST Partners, audit and advisory firm Baker Tilly Ukraine, a law firm «Noerr», Gestalt Consulting Group. General Media Partner: Expert magazine, general TV partner: - First Business Channel. Media partners: Industrial Television Committee, All-Ukrainian Advertising Coalition, Ukrainian Association of Publishers of Periodical Press, American Chamber of Commerce.

27 January 2010

To the roundtable, were invited representatives of audit profession, regulators, professional bodies and NGOs, government authorities, business, banks, mass media. Among the representatives of stakeholders of the profession in Ukraine were Chamber of Auditors of Ukraine, Union of Auditors of Ukraine, State Commission on Regulation of Financial Services Markets of Ukraine, Big 4 audit companies, the World Bank, State commission on securities and stock exchange, representatives of profession and business.

During the round table discussion were discussed such questions as:

1. Are auditors to blame for the banking crisis?
2. What are the biggest challenges facing the audit profession in Ukraine?
3. How can auditors, businesses, and regulators best work together to promote the public interest?
4. Is there a conflict of interest between audit work and non audit work which is carried out within a company?
5. Does the auditor have a duty of care to stakeholders like lenders, suppliers, customers and the general public as well as to the shareholder?
6. The ‘expectation gap’ between public perception of the audit profession and the profession’s role in economy and society.

ACCA initiated this discussion because of the increasing public interest in the work of auditors in current economic conditions around the world.

Steve Priddy, Director of Technical Policy and Research, ACCA, said: “A strong audit function promotes trust and contributes to the working of efficient markets. Economic crisis and  the resulting current economic conditions raise numerous challenges  for the audit profession and its stakeholders. When economies throughout the world are shaken by corporate corruption scandals, it is important to reassess what the future of audit should be, and  very importantly, how its role in  the economy will and should be understood by wider society.”

“Ukraine has to adopt International Financial Reporting Standards (IFRS) as accounting standards, and there should be no special needs for having separate standards. The role of audit is critical for recovering Ukraine from the crisis, by ensuring accurate disclosures for business”, says Vladimir Vakht, FCCA, Managing partner of Deloitte&Touche in Ukraine,- “Ukrainian business for its development needs working capital. It is more difficult and expensive to get it in Ukraine, than on international markets. In order to get  access to these markets, transparency and accuracy of financial statements are key.”

The main risk facing  the audit profession in Ukraine, according to Mr. Vakht, is downward pressure on effective demand for audit services. Decreasing  professional fees do not allow  firms  to invest in procedures of quality assurance, to invest in employee  development . The good news is that the cadre potential of highly qualified professionals was preserved in times of downturn.

Gerry Parfitt, Audit Partner, KPMG, conceded the profession had not done enough in reducing corruption and ensuring transparency. “One of the things that I would like to see in Ukraine is transparency, where people  and businesses appoint auditors to give transparency to the business. In the UK every single company has to file their accounts annually with the registrar of companies - it is a public document easily available over the Internet”.

Also Mr. Parfitt suggested that, as we are in the Internet age, businesses should be reporting on the Internet monthly, and the audit profession globally has to come  up  with some concept of certifying the monthly results.

Viktor Suslov, Head of State Commission on Regulation of Financial Services Markets of Ukraine, brought up the issue of conflict of interest in audit-business relations: “The one who pays is the one who  calls the tune.  When shareholders  rather than their agents (the board of directors) commission the audit,  then it will be more reliable. It is not always the case when management is  commissioning the audit – as  management wants to look better before the shareholders, and selects an auditor accordingly. Out of 40 insurance companies that were  recently  excluded from the register due to insolvency – all of them had positive audit reports”.

“There were 1300 certified auditors as of 1 January 2009. Now there are 958, and  a  quarter of auditors have left the market. The reason is simple – we started controlling  the  assurance of obviously false reports by auditors, and coordinated closely with Auditors’ Chamber of Ukraine,” – Mr. Suslov pointed out.

Mikhail Krapivko, Vice president of the Union of Auditors of Ukraine,  talked about extending the auditor's role  beyond purely reporting on financial statements: “ The owner s  of the company need a report prepared not according to regulator’s requirements, but according to requirements of auditing  standards. Auditor should not be  uncritically  copy-pasting numbers, but rather say: - this is disclosed correctly, here I have some concerns, and I would especially draw attention to this and that.”

Referring to the EU integration efforts, Volodymyr Bogatyr, Deputy Minister of Justice of Ukraine, said: “Implementation of IFRS is a priority for the Ministry of Justice. The  Ministry produces annual recommendations on bringing legislation of Ukraine in accordance with EU legislation on accounting. We also carry out monitoring of implementation of Ukraine legislation developed in accordance with EU law. Financial reporting issues were reflected in Ukraine-EU Association agreement, which puts obligations on Ukraine to bring its legislation in accordance with international standards. Together with Ministry of Finance we explore possibility of translating IFRS for SMEs into Ukrainian, which would increase transparency of reporting of Ukrainian SMEs.”

According to Angela Prigozhina, Senior specialist of financial sector, World Bank in Ukraine, it is impossible for Ukraine to climb out of the crisis, without strengthening its transparency and its competitiveness.

“Quality of accounting and audit are the key elements of transparency and competitiveness. There are countries which do not have resources – neither oil, nor land, nor grain. But these countries are competitive, because they play by the rules of the game.  The first step on the way to improving competitiveness – is to become  open and transparent. It is naive to  assume that  the  market in Ukraine will  increase the quality  of  audit and  financial reporting – as market itself conceals information, in order to participate in unfair redistribution of private resources in times of crisis”, said Angela Prigozhina.

Also, Ms. Prigozhina called for all regulators to work closely together on monitoring auditors, establishing a joint registry, and punishing very strictly for any non-ethical, non-professional behaviour.

Ivan Nesterenko, Head of Auditors’ Chamber of Ukraine, also thinks that publicity and transparency are the key to overcoming corruption within audit. “Not only company reports should be publicized, but also audit reports”, - said Mr. Nesterenko.

Dmytro Oleksienko, member of the board of Ukrainian Federation of Professional Accountants and Auditors, stressed the importance of actions against low-quality audit services, which are due to low entry barriers to the market, but also suggested that  the audit market in the time of crisis should be broadened rather than  narrowed.

Wrapping up the debate, Nataliya Vovchuk, Head of ACCA Ukraine, Baltic and Caucasus States, said: “ACCA is proud to organize this initial high-profile discussion. Following this roundtable, and based on the issues raised today, ACCA will develop a set of recommendations outlining perspectives for the development of the audit profession in Ukraine.”

The TV news reports:

Channel 24 click here

UBR click here

First Business Channel click here