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September 14, 2007

Contradictory data from Russian audit industry

Contradictory data from Russian audit industry

A comprehensive set of data on the Russian audit industry was released on the Russian Ministry of Finance website earlier this year. The documents list information such as age and gender split among auditors, and revenue and staff averages from audit firms.

The accuracy of some of the information was, however, called into question by the recent survey of the Russian industry in TA’s sister publication International Accounting Bulletin (see issue 416).

According to the ministry information, the combined income flow from all audit firms for 2006 was RUB32.78 billion ($1.3 billion). It also claimed the Big Four made up 31 percent of the total. However, PricewaterhouseCoopers Russia disclosed to IAB that its fee income for the year ended December 2006 was RUB5.56 billion. If the ministry’s figures are correct, that leaves an average of RUB1.53 billion for the remainder of the Big Four, positioning them well behind BDO Unicom, which recorded fee income of RUB2.2 billion. The sources IAB consulted suggested this was unlikely.

The contradiction in information was mirrored by a general lack of transparency in the upper echelons of the Russian accounting profession. The Russian PwC firm was alone among the Big Four in disclosing fee income and an estimate of staff numbers. Senior industry figures who spoke to IAB said this was not unusual. They agreed PwC was the largest of the Big Four, but could hazard only rough guesses on the ranking of the remaining three. The ministry data stated that as of 1 January 2007, 36,700 people had been issued with auditor’s qualification certificates. A vast majority – 77.4 percent – were women. Of the audit qualifications awarded, 34,300 were in general audit, 1,000 were in bank audit, 800 were in the audit of stock exchanges, off-budget funds and investment institutions, and 600 were in audit of insurance companies.

The ministry provided a break-down in age categories among auditors. The 25- to 34-years age bracket was the most highly represented with 36.7 percent, 35- to 44-years was 30.6 percent, 45- to 54-years was 23.9 percent, 55- to 60-years was 5.1 percent, over-60s were 2.7 percent and under-25s were 1 percent.

Geographic spread The ministry also provided data on the geographic distribution of auditors and audit firms, divided into eight districts. The data showed that Moscow had the highest concentration of both auditors and firms, with 29.2 and 36.6 percent, respectively.

The Central district, excluding Moscow, had the second-highest concentration of auditors, with 18.5 percent, yet only the equal fourth-highest concentration of firms at 9.9 percent. The district with the second-highest concentration of audit firms was Volga, with 14.1 percent. The Volga district also had a high concentration – 14.8 percent – of firms. The district with the lowest concentration of both auditors and firms was the Far East, with 3.1 and 2.8 percent, respectively.

According to the ministry, 72,283 statutory audits were conducted in 2006. The audit opinions issued included 57.6 percent that were unconditionally positive, 40.9 percent had certain limitations, 1.1 percent were negative and 0.4 percent refused to express an opinion.

In terms of the reasons for conducting the audits, 47.5 percent were conducted for organisations whose financial performance measures exceed the minimum value, 26 percent were on the grounds that the organisations were public corporations, 9.9 percent were unitary enterprises, 2.1 percent were lending agencies, 1.6 percent were stock exchanges and investment funds, 1.4 percent were insurance companies and fund associations and 11.5 percent were other cases proscribed by law.

According to the data, the average number of employees at each of the Big Four firms was 1009. This figure was also contradicted by the IAB survey. Of the 1009, 92 were said to be auditors. The average number of audit clients for the Big Four firms was 196.

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