Focus on finance and accounting research


Nova Science Publishers, Inc New York 2007 Volume 23 Issue 3-4 (Current Politics and Economics of Russi)

Irena Solodchenko 

The paper is a study of development of auditing in Ukraine since 1980th. The statutory audit for most of Ukrainian companies in the middle of 90s was a powerful spur to audit development. After the statutory audit had been restricted a majority of audit firms were forced to reorganise their work in preference to consulting and other auxiliary services. The Ukrainian auditors are very independent of government but depend on their clients. In 2003 there were accepted International Standards on Auditing as that of national. Now Ukrainian auditors having many internal problems are trying to find their position in Ukrainian society.


Ukraine as a whole belongs to the twelve countries that became part of the Soviet Union in the early twentieth century. Now Ukraine is the largest state in Eastern Europe. In terms of population, Ukraine ranks 5th in Europe (after Germany, Italy, Great Britain and France) and 21st in the world. In a referendum held on December 1, 1991, the people of Ukraine endorsed independence. Nowadays, Ukraine is a Presidential and Parliamentary Republic. Parliament - the Verkhovna Rada of Ukraine - is the sole legislative body. Verkhovna Rada is a unicameral assembly of 450 deputies, whose  main function is making laws. The President of Ukraine is vested with the power of the head of state. He has the authority to speak for the state and he is the guarantor of the state sovereignty, of territorial integrity, and of the observance of the Constitution, civic rights and freedoms. He is elected directly by the voters for a term of five years, with no more then two full terms. In 2005 anorangerevolution took place in Ukraine and the reform transforming Ukraine in parliamentary-presidential republic has come into force.
During Soviet times the control of the enterprises was carried out with the state by means of Control and revision departments. The system had the basic aspiration of the ministries and departments and as a whole parties and the states to solve all from above, to supervise any step of the enterprises and the organizations. Various checks and inceptions were spent as much as possible without enough caring about productivity of checks.  
            In this paper, we seek to provide an insight into how audit has developed recently in Ukraine and the influences at work.  We also present ideas about problems of audit in Ukraine. The paper is structured as follows. In the next section we look at the history of audit development in Ukraine. After we study more carefully three main aspects of the auditors’ activity: the position of auditors in Ukrainian society, the degree of their independence and responsibility. In Section 6 we consider what are modern problems of Ukrainian auditors, how they get over them and what tasks the auditors have to decide in the nearest future.  The seventh section is the conclusion.

The history of accounting development in Ukraine can be divided into four stages.
Infancy stage (the mid 80s-1994). The beginning of audit in Ukraine was motivated by both internal and external reasons. In the middle of the 80s of the twentieth century international capital flowed in Ukraine, a part of the Soviet Union at that time. Foreign investors wished for having a real idea of the state of assets and liabilities in a Ukrainian enterprise. In this connection in May 04, 1987 the Ministry of Finance of USSR issued the Instruction No. 124 ‘On taxation of joint ventures[1]’ according to which joint ventures were obliged to file their annual balance sheet only after theses balance had been audited by a Soviet audit organisation. But foreign investors distrusted in the State Soviet control. Then such principal investors as the World Bank,  USAID forced the Ukraine government to implement international standards of auditing.
That time there were growing number of private sector (co-operatives, small-scale enterprises, small companies) which were out the scope of the Control and Revision Administration (CRA)[2] subordinated to the Ministry of Finance. Many officials from the State control and revision departments lost their jobs, so they became first independent auditors which started to control private sector (Redko, 2002a:22).
So by 1992 there was a considerable increase in audit firms which were independent from government. These audit firms had been over their infancy, created their infrastructure and intellectual potential. After having sized up the situation they initiated a creation of the Union  of Auditors in Ukraine  (the SAU[3]). The first congress of the Union of Auditors was held in June 04, 1992 where the Ukrainian auditors adopted their Statute and determined to cooperate for protecting their interests and promoting the audit development in Ukraine based on International rules and standards (Stock market, 2001:24).
Soon the audit activity became legitimatized.  On April 22, 1993 the Verkhovna Rada of Ukraine adopted the Law of Ukraine on Auditing Activity № 3125-ХІІ(the Audit Law) accordingly to which the auditors should be certificated and an audit activity was subject to licensing. Every Ukrainian citizen who has a qualification certificate on auditor activity in the Ukrainian territory could be an auditor.  An auditor had the right to pursue an audit activity particularly, to create an audit firm and combine with other auditors forming a union (the Audit Law, art. 5).
On July 1993 the Union of Auditors created the Chamber of Auditors and nominated ten members (50% of members) there. Another 10 members of the Chamber of Auditors are represented by the Ministry of Finance, the State Tax Administration, the National Bank, the State Statistics Committee, the Ministry of Justice of Ukraine and some representatives from educational, scientific and other organisations[4].
The Chamber of Auditors certificates auditors; approve auditing standards and education curricula; makes the Register of audit firms and sole practitioners (the Audit Law, art. 14).
The statutory audit and its reversing (1995-1997). The Audit Law prescribed that an auditor (an audit firm) should confirm the authenticity and completeness of the annual financial statements of commercial banks, companies, enterprises, co-operatives, partnerships and other entities which financial reporting was subject to the official promulgation. An exemption was only for state, non-profit companies and that of which annual revenues was less than 200 monthly minimum wages[5] (the Audit Law, art. 10).
On December 1994 the new Tax Profit Law was adopted. This law interpreted the term “the official promulgation” as, besides, an official filing of financial reporting to the State Tax Inspectorate of Ukraine, the National Bank of Ukraine, the State Property Fund of Ukraine, the Antimonopoly Committee of Ukraine and other establishments authorised to receive financial reporting (Tax Profit Law, 1994, § 1.23). Thus, most of Ukrainian companies, including small business, were obliged to file auditor’s conclusions confirming the financial reporting of 1995 year.
There were palmy days for audit firms. Audit costs were high and audit firms were getting surplus profits. The Chairman of the National Bank of Ukraine (the NBU) of that days V. Getman noted[6] that there was simply a robbery in the audit market: one hour of audit cost 10 mln. karbovantsev[7]. 
At that time calculation of tax was based very closely on accounting data and local tax inspectors were allowed to direct 30% of tax fines for the maintenance of their local which was an incentive for local tax inspections to fine enterprises (Solodchenko and Sucher, 2005: 608-609). Thereupon an ailing competition aroused between audit firms and tax inspectorates. The Ukrainian companies, on the one part, were obliged to be shortly audited for a fee, and on the other part, they were not exempt from the tax control (Ponomarenko, 1998). They translate into 30,000 to 50,000 enterprises being obligated to undergo an annual statutory audit in addition to tax audits by the tax administration. This posed an unnecessary financial and administrative burden on small enterprises (ROSC, 2002).
By the end of September, 1995 most of Ukrainian companies had not been audited yet for two main reasons: high audit costs and lack of certified auditors. The Verkhovna Rada of Ukraine issued the Regulation N 344/95-VR in which the term for statutory audit and auditor’s conclusion was prolonged until 31 March, 1996.
But the problem could not still be resolved. Ukraine had only one certified auditor for 70 companies  and this was argued by Pr. Sopko at the First All-Ukrainian Congress of Auditors. The monopolism of audit firms caused cursory checks, unjustified high price on audit services that had been at the rate of the early 90s when the monopolism of audit firms was absolute and it was available only for bonanza commercial companies. Following this, audit not only got many adherents (many auditors were more skilled than state officials of the control authorities), but also it spotted themselves with low audit quality, sham conclusions (Zhuravski, 1997). 
Both numerous appeals of Ukrainian companies to Verkhovna Rada concerning an abolition of the statutory audit and the efforts of influential industrial lobby led to the scope of a statutory audit was restricted (the Regulation of Verkhovna Rada № 110/96-VR of 26 March, 1996). Sine then it has covered only banks, trusts, currency and stock exchanges, investment funds and investment companies, credit unions, non-governmental retirement funds, insurance companies and other nonbank financial institutions.
Audit development  in free conditions (1998-2005). After the statutory audit had been restricted audit firms found themselves under unfavorable conditions because of a diminishing demand on audit services. As a result of it, some audit firms collapsed, others, the most gumptious ones, started looking for a cooperation with the Big Six. But the overwhelming majority of them reorganized their activity and laid special emphasis on consulting and accounting services.  
The Big Six just made its activity more vigorous. This fact stirred up discontent of many Ukrainian auditors as the Big Six audited large-scale enterprises taking the bread out of their mouth. The foreign audit firms were working up a Ukrainian market through the Ukrainian government. Redko argues that the NBU virtually promoted foreign auditors making commercial banks to ask the Big Six for auditing (the NBU was even sending out by e-mail the lists of “permissive” firms for auditing). The State Tax Administration also allowed expenditures for audit carried out by foreign firms not to be taxable (contrary to current legislation) while it was not allowed for a national audit. The State Property Fund of Ukraine got foreign audit firms to take part in privatization projects disregarding the national audit (Redko, 1998).
During the statutory audit times the main problem became visible– clients considered an audit of their financial reporting as mere formality and demanded from the auditors only a positive conclusion. There were various possible reasons of this.
First, financial reporting little reflected the actual state of affairs of Ukrainian entities because of high level of shadow economy has been calculated to amount to about 45% of the total economy (Kuchma, 2000).
Second, it was difficult to imagine a manager of a company who had paid for a negative appraisal of his activity. Redko admits that it is actually unknown to the Chamber of Auditors when a manager paid for a negative conclusion or for a refusal to give out a conclusion. Many problems of accounting in Ukraine, tangled tax legislation, criminal responsibility for tax evasion, hundred-per-cent entrepreneurial risk and other reasons make the clients not to be agreed even to the true (especially promulgated) conclusion. Moreover, they do not wish to pay for the conclusion (Redko, 2002b:50).
In 1997 the Union of Auditors and the Ukraine Federation of Professional Accountants and Auditors (UFPAA) set up a journal “The Ukrainian Bulletin of Accountants and Auditors” with the purpose, especially, of permanent connection with their members and for giving continuous information on an activity and plans of the Union of Auditors. But at the turn of 2002 the journal “The Ukrainian Bulletin of Accountants and Auditors” stopped issuing under the aegis of the Union of Auditors. Soon the Chamber of Auditor started a new edition – a journal the Auditor of Ukraine.
Back in the end of 1996 the State Commission on Securities and Stock Market (the SCSSM) demanded from public companies and issuers of bonds their annual financial reporting to be confirmed by an auditor[8]. This step was considered then as a growing understanding of the independence audit role (Dorosh, 1997:40). Yet despite the attractive and invigorative conditions that the SCSSM was provided for auditors the audit of financial reporting kept on reducing. If in 1995 it accounted for 98% of all audit works, in 1998 it reduced to 60-75% (Redko, 2000).
On january 1, 1999 the Code of Ethics for Professional Accountants and in 2000 the Auditor Register into effect (by the Protocol # 95 of the Chamber of Auditors of 31 October, 2000). This step was due to the abolition of licensing  of audit activity[9].
As of 1 October, 2002 the Chamber of Aiditors certified 5,097 auditors. They included in the   Auditor Register 1,478 audit firms and 498 auditors (sole practitioners)[10].
            According to an information bulletin of the Chamber of Auditors “The audit in Ukraine – 2000) the orders on audit had the following structure (Table 1). 

Table one. The orders on audit in Ukraine

The type of audit  

The number of orders

The cost, 
Thousand  of hryvnia[11]
The audit of financial reporting
The audit of financial condition
Non-audit work

Auxiliary services take first place both quantitatively and at order costs. This evidence a little demand for independent audit in Ukraine as a verification of public financial reporting, source documents and other information concerning financial and economic activity of entities. The auxiliary services, chiefly tax consulting, are the main source of revenue for Ukrainian audit firms.
            Thus, we can sum up that audit in Ukraine was developing rather with the help of administrative methods than by owners’ request. At the time of the statutory audit, there had been keen demand on audit that favored with audit development in Ukraine. At the beginning of 90s, many companies learned of a new profession that helped them reduce tax fines. After the statutory audit had been restricted, many companies kept on being the clients of the auditor firms (or sole practitioners) that had audited them. The Ukrainian auditors are up against serious competition from the Big Six that audit mostly big and solvent companies.


Right up 1995, the Ukrainian audit had developed without national standards. As nature adhors a vacuum, other organizations, such as National Bank of Ukraine, the State Property Fund of Ukraine, the Ministry of Finance of Ukraine were trying during 1994-1995 to issue some documents regulating the audit’s conclusion requirements, audit control, etc. They did it without coming to an agreement with the Chamber of Auditors. Zubilevitch argues that the very fact of issuing of the documents was evidence of lack of understanding that audit is an independent control (Zubilevich, 1996). 
At last, on October 5, 1995 the Chamber of Auditors by the Protocol # 5 approved the Temporary standards of audit in Ukraine. The first four standards were:
# 1 “Objectives of audit”
# 2 “Audit agreement”
# 3 “The main audit principles”
# 13 “The audit conclusion”
However, the separate standards prevented from appreciating the system selected by the Chamber of Auditors as a whole. Moreover, there was neither the unity of requirements to standards nor interdependence of basic concepts (Zubilevich, 1996).
Then by 1997, there issued others three audit standards:
# 4 “The audit planning”
# 8 “The auditor’s evidences”
# 9 “The drawing up of audit”
Nevertheless, this was not still enough to help the Ukrainian auditors when they had to make a complex decision.  Ponomarenko stated that the Temporary standards of audit did not secure surely the audit firms in case they would be accused of the lack of conscientiousness from both the audited companies and judicial bodies. Besides, the system of standards proposed by the Chamber of auditors contains 28 projects in addition to the active standards.  Nearly all of them are based on international audit standards but they are not published in the press, so they cannot be the subjects of wide speculation  (Ponomarenko, 1998:18).
The Temporary standards of audit existed not long. From 01 January 1999, they were repealed and the Chamber of Auditors with the Protocol # 73 approved the National standards of audit composed of 32 standards. The new standards, named “national”, still used the terminology of international ones. Because of this, some terms were not in agreement with Ukrainian legislation.
The National standards of audit issued by the Chamber of Auditors changed actually nothing. They passed a little ahead of adopting of new accounting standards. For example, in the Standard # 1 “The requirements of the national audit standards” the matter concerns financial reporting while this term appeared only in 2000 when the Accounting Law was signed by the President of Ukraine  (Zubilevich, 1999). Pr. Borodkin noted that the National standards of audit were a methodical base for audit activity in Ukraine. Although there were some shortcomings that reduced the practical value of these documents, which auditors need so much. These shortcomings consist of too scientific language, general phrases and lack of practical advises to an auditor (Borodkin, 1999).
 But the National standards of audit existed only 5 years. In March 4, 2003 the National Bank of Ukraine issued the letter 712/1161-1595 “On application of the International standards of audit”. In this letter, the NBU warned that if the Chamber of Auditors did not adapt the National standards of audit to the International standards until June 1, 2003, the banks would conclude agreements for 2003 year on auditing with foreign firms which employees had international certificates. In case of defaulting, the NBU would oblige Ukrainian banks to be re-audited following international standards.
In order to press the foreign audit firms and give Ukrainian auditors a chance to extend the field of their action, the Chamber of Auditors decreed (Protocol # 122 of April 18. 2003) that the International Standards of Audit and Code of Ethics are accepted as national standards.
The supporters of this decision were firmly convinced that international standards of audit would greatly improve the quality of the Ukrainian audit and enhance its prestige. Many opponents of the step were characterized as “standpatters”. A member of the Chamber of Auditors named such main groups of opponents who were against international standards of audit:
         big audit firms which have been using the international standards for a long time. So the implementation of the International standards would create additional unwanted rivalry for them;
         some auditors and sole practitioners who never carried out an audit but only checked tax reporting and gave consulting (Buhgalteria, 2003).
However, there is need for developing national audit regulations to take accounts of national specific character of Ukrainian auditors’ work. In the connection, the Chamber of Auditors is going to issue the Science and Practical Comments on using the International standards of audit. The Comments are aimed to help in understanding The International standards, comments being developed to every standard[13].
Thus, after having existed nearly 14 years of Ukrainian auditing, the national standards of audit did not start developing yet. All standards of audit until 2003 were based on international ones without considering national peculiarities. An average Ukrainian auditor has been waiting for the national standards very much, as he needs some rules, some support how to conduct himself in Ukrainian environment rather than in that of Western, which are strange for him. Actually, an orientation of basic principles to Western priorities leads to a certain conflict with Ukrainian society. This is a subject of the next chapter.


The matter of the place that Ukrainian auditors occupy regarding society is a sore and open issue in Ukraine. Borrowing western slogans, the Ukrainian auditors were trying from the very beginning to present themselves as an independent part of society, a certain accounting elite, which advocates public interests. Nevertheless, in the early 90s such a positioning could be misapprehended by the very society and particularly by clients: it had a likeness with the fresh yet, at that moment, communist ideas.  
As just the clients considered the main source of finance for the developing audit stratum, there were noted in the preamble of the Audit Law that the system of a financial control is aimed to protect an owner’s interests. Such an orientation pointed out the main clients – owners. Since then the Ukrainian auditors have kept on arguing that only they can represent to an owner the actual state of affairs in his company. 
Moreover, there was conflict of interests. In the middle of the 90s, the main consumers of the statutory audit and annual financial reporting were tax inspectorates. Such a situation gave rise to unfavorable criticism from state enterprises, as tax inspectorates were one of the state control authorities. An owner of a state enterprise is a Ukrainian State, so in this case it is impossible to understand whose interests auditors protect (Zubilevich, 1995:16). 
However, catering for merely owners greatly constricted client circles. As the communist past lost in thought, there were written in the Code of ethics for professional accountants, accepted in 1998 that an defining feature of an independent auditor is his responsibility to Ukrainian society which included clients, credit grantors, governments, employers, employees, investors, the business and financial community, and others who rely on the objectivity and integrity of professional auditors.
Nevertheless, in Ukraine neither society nor owners order an audit. These are managers of companies that want to check their activity for correct tax charge[14].  Some Ukrainian auditors are alarmed at this and are still trying to make believing owners in the necessity to be audited in spite of the fact that in Ukraine owners and management are often “in the same cord” and they do not need any outsiders between them. The rest understand that it is difficult to change the situation. Redko wonders why the thesis on an owner’s interests protection became a priori in an auditor’s activity.  It is incomprehensible what an owner has to be protected if the term “an owner” images a director or a chief accountant of an audited company. Some auditors are trying to be “fastened” to a solvent client if only for several years. Moreover, this is not an owner who chooses an auditor. Just executive management chooses audit firms depending on their capabilities to decide mainly tax problems (Redko, 2002b:50).
A blind imitation of the Western principles prevent Ukrainian auditors from their right positioning in a Ukrainian society. Western principles are not always acceptable for Ukraine because of different levels of development, mentality, history, etc. For example, the collapse of the bank “Ukraine” was a great crash in Ukrainian history. The irony of it was that the auditor of the bank had been Arthur Andersen. However, there was an essential distinction between Enron crash and that of “Ukraine”. In USA, nobody attributed blame to the American government or other state structures. On the contrary, the name of Arthur Andersen was heard as the main (after the very bankrupt) causer of what had happened.  In Ukraine there were no heard of any claims against auditors (The mirror of the weak, 2002).
Thus, this is a task for Ukrainian auditors to find their place among society. The attempts to imagine as a protector of all Ukrainian society do not meet with support among the society, as it is incomprehensible how an auditor can represent a real state at an enterprises taking into account a high level of shadow economy in Ukraine. Nor the owners of companies can be the main clients of audit firms as in Ukraine this is mainly executive management who are initiators of an audit.


Here we consider the matter of auditor independence in two lights: independence from the government and dependence on clients.
Independence from the government. In another economy in transition, the Czech Republic, there is one Chamber of Auditors, which provides a single focus for regulation and enforcement outside the government (Sucher and Zelenka, 1998). On the contrary, in Russia, an organ of executive power appointed by the Russia government regulates an audit activity[15].
The Ukrainian auditors are enough independent. The audit organizations train auditors, give them a qualification and keep their eye on auditors concerning discharging their professional obligations.
Unlike developed countries, where auditors have a great deal of freedom in their actions and self-control, Ukrainian auditors have been given an absolute freedom accompanying a full unconcern of the government for audit existence and development (The mirror of the week, 2002).  The government actually provided self-control for Ukrainian auditors: there has been no governmental control body over them. The Chamber of Auditors is an unprofitable and, in all but name, social organization which are not competent for legal approval of its decisions. The Union of Auditors is in a similar situation (Redko, 2002b:49)
                Nevertheless, it does not mean that Ukrainian auditors are in “hothouse” conditions. The Ukrainian government restricts auditor independence by distributing auditors among branches. 
            For example, on December 7, 2000 there issued the Banking Law No. 2121-III which enacted that the audit of a bank is to be performed by an auditor that has a certificate of the National Bank of Ukraine empowering him to audit banking institutions. Opponents of this step argue that a certification of bank auditors by the NBU turns audit firms into revision departments of the National Bank, and they will lose their independence completely (Business, 2003). 
            Since January 01, 2001, the Chamber of Auditors has stopped giving out specific certificates to audit banks (type-B). From that time until April 2004 the NBU had not certified any citizen of Ukraine but merely prolonged the certificates that had been given out earlier by the Chamber of Auditors. After having received many complaints concerning an infringement of their rights on free choice of business and on certification vested by the Audit Law, the Chamber of Auditors applied to the NBU for reconciling their interests on certification of bank auditors[16].
            What's more, the Law of Ukraine “On Financial Services and State Regulation of Financial Services Markets” # 2664-III of July 12, 2001 enacted that a financial institution is to be audited by an auditor who is entered in a special list on the regulation of financial institutions and services keeping by the government bodies. This demand had not been long worked for a lack of the very list. However, The State Commission for Regulation of Financial Services Markets of Ukraine finally approved the List of auditors who are allowed to audit financial institutions[17]. Since then an auditor have to be put on the List only by authority of the Department of the State Regulation of Financial Services Markets of Ukraine
The number of bodies wishing to manage an audit activity is on the increase. Among them there are law-enforcement agencies that tend to get independent auditors to take part in hack (spoken) revisions accordingly art. 128 the Administrative Code of Practice (Redko, 2002a).
The dependence on clients is a very painful problem for Ukrainian auditors.  Here we consider its two main aspects:
1.        The foundation of dependent audit firms. As a matter of fact, the Audit Law interdicts to audit:
         by an auditor who has close sibling connection with the management of an audited company;
         by an auditor who has private property interests at the audited company;
         by an auditor who is either management or a founder, or an owner of the audited company;
         by an auditor who is an employer of the audited company;
         by an auditor who is an employer, joint owner of a  doughtier enterprise, a branch or an agency of the audited company (art. 24, the Audit Law).
Nevertheless, some auditors are in management of companies (especially at holding companies). They found their own firms auditing subordinated companies that are a part of the holding. This is explained by the wish of management to prevent from leaking information about essential faults and more credit to the “own auditors” (Redko,  2002b:49).
2. Rendering of consulting services. This is a sore point for many countries. It was a shock for American society to learn that in 2001 Disney paid to PriceWaterhouse Coopers for auditing and $US 32 mln for other services[18]. For example, in Czech Republic auditors are prohibited from offering bookkeeping consultancy or completing tax return for those clients whom they audit (Sucher and Zelenka, 1998:) 731).
In Ukraine, there had been no problems with consulting and only the Western events made Ukrainian auditors see why it is bad. The Audit Law allows along with an audit to make examinations, accounting and tax consultations, an analysis of financial and economic activity and other economical and legal support of business (the Audit Law, art. 3).
As we had seen in Table 1, auxiliary services ratio was 47% in 2000. Therefore, clients tend to obtain from Ukrainian auditors a whole complex of services. In fact, it is profitable to have such clients. So, no wonder that there have appeared new services such as accounting for the third party, software developing, tax automation, etc. Nevertheless, Ukrainian auditors believe that it is not services but an audit has to extend covering political, social, charitable organization, etc. (Galitsian contracts, 2002a).
Thus, the Ukrainian auditors have actually full independence from the government while there is a tendency to restrict the independence by fastening auditors to government organizations such as the National Bank of Ukraine, The State Commission for Regulation of Financial Services Markets of Ukraine, etc. At the same time, Ukrainian auditors are dependent on their clients as the circumstances are pressurizing the Ukrainian auditors to give out mainly positive auditor’s conclusions.
Ukrainian independence has (or rather must have) its native distinctive features different from universally accepted ones. These distinctive features are caused not only by the fact that the profession of an auditor is too “young” for Ukraine but also by institutional environment of the national business, ownership and the place of an audit in national economy (Redko,  2002b:51).


            Now we can assert that the Ukrainian audit exists. It has many problems but the problems are revealed, they are not covered up, and there are many discussions in mass media about them.
            The actual problem is a dumping. Usually auditors do not have stable prices. In order not to lose a client, they are always ready to give a considerable price reduction (Galitsian contracts, 2002b). The Union of Auditors along with the Chamber of Auditors intend examining all audit firms how they keep national standards of audit, including a ratio between prices and quality of their services[19].       
Another problem is a quality control of audit services. Illusions of independence made some auditors feel being out of any control. There are only 5 persons that work in Control and Registration Commission at the Chamber of Auditors. Working on a voluntary basis (gratis) they have to control 1700 audit firms (sole practitioners) throughout Ukraine (Galitsian contracts, 2002c).
In addition, the certification of auditors gave rise to unfavorable criticism. Both the representatives of international organizations– donors of Ukraine and certified auditors – managers of audit firms who faced into difficulties while recruiting qualified personnel (Redko, 2003a:47).  In this connection on November 19, 2002 the Chamber issued the Regulations on Certification of auditors (the Protocol No. 116). The Regulation extended the term “certification” and the list of disciplines which a candidate for a certificate has to learn; entrusted the Chamber of auditors with examining; implemented an continuous raising the level of auditors’ skills, etc.
All the time, since 1997, the Ukrainian auditors have been trying to extend clients through the statutory audit. The part of auditors has been in a wait condition. Instead of working up an audit market together with other auditors they either wait for a statutory audit or for one-shot job provoking some appeals of auditors to the government (Pilipenko and Shevchuk, 2002:19)
For example, Redko proposes an audit to be statutory:
1)       for public organizations, political parties, mass media,
2)       when companies are privatized, amalgamated;
3)       when land is parceled out among  farmers;
4)       for annual financial reporting of public and close corporations;
5)       all budget enterprises (mainly health protection and education)(Redko, 2003b:53).
The Union of Auditors, the Chamber of Auditors and even some initiative groups have prepared about ten bills but all of them duplicate each other and mostly they are not passed in the Verkhovna Rada. These failures are the result of the abasement of auditors on the parliament and government. The happy years for the Ukrainian auditors, when Alexandra Kuzhel[20] was their representative in the Verkhovna Rada fell into the past. The other members of the Union of Auditors who came in her stead have not had the same authority over the parliament[21].
Now we mark the main task that the Ukrainian auditors have to decide in the nearest future.
First, the Ukrainian auditors have to determine their position in society, i.e. define whose interests they protect. There is some conflict. On the one part, an audit firm is a business client-oriented structure. These clients are first of all management, directors and even chief accountants of companies[22]. On the other part, auditors want to represent public interests. Actually, it is a very difficult problem for anybody to represent interests of all society or even an owner in such conditions:
a)        an audit is called for if a company must be audited according to a law,
b)        in 90% cases clients are interested in tax auditing (Redko, 2002b:50).
So many Ukrainian auditors should call things by their right names and name themselves as tax and accounting consultants. It may be reduce their status but it is an honest step that would meet approval and support among clients.
Second, it is a barest necessity for Ukrainian auditors to develop national standards of audit adapted to the Ukrainian reality.
Third, quality control on audit services has to be open and all-or-nothing.  The Union of Auditors and the Chamber of Auditors of Ukraine should widely cover the work of the commissions on professional ethics in mass media. An open and outright fight for “clean” ranks would give renewed impetus to an audit movement in Ukraine.]


In a initial state an Ukrainian audit was developing rather with the help of administrative methods. A competent aggressive politic in the form of a statutory audit in the middle of 90s gave a powerful incentive to an audit development. At that time, Ukrainian auditors had built their original capital and made their main clientele.
After a statutory audit had been reversed for most of Ukrainian companies, many audit firms were failed. Those who kept in the market became to render widely auxiliary services. Ukrainian companies have to resort to the help of auditors because of tax pressure.  A competition with the Big Five forced Ukrainian auditors to accept international standards of audit as national ones.
In Ukraine, auditors are actually independent from the government unlike, for example, Russia where there is a state control on audit activity. At the same time, there is dependence on clients. During the last 15 years many audit firms have practically knit with their clients and a rotation of auditors would be useful. However, there are some doubts. First, it can hardly believe that a rotation in Ukraine would be carried painlessly enough. Second, most of audit firms survive owing to regular clients (patrons) which they “snatched away” back at the time of a statutory audit.  
The Ukrainian auditors have to find their place in society. An audit just as it is (an examination of financial reporting by request of an owner) is not much called for in Ukraine. Still, Ukrainian auditors have no wish to name themselves as tax and accounting consultants. However, there is an allied profession as lawyers who do not represent themselves as representatives of society. They direct their attention toward clients who pay them for consultation, representing their interests, etc.
Ukrainian auditors know their problems and discuss them openly. The Commission on public relation works actively with mass media, takes part in round-table discussions and popularize profession. This holds out hope that Ukrainian auditors finally occupy a fitting place not only in Ukraine but also in the world arena.


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[1] Joint ventures in Ukraine are commonly known as enterprises that are based on joint capital of Ukrainian and foreign founders which together control the enterprise and share their income and risks.
[2] CRA is equivalent to a public sector auditor.
[3] Spilka Auditoriv Ukrayini
[5] equivalent to about 115 US$ as of 1 January 1995
[6] Session no. 11 , The Room of Session of Verkhovna Rada of Ukraine, September 19, 1995 at 16 o’clock in the  afternoon
[7] equivalent to about 60 US$
[8] the State Commission on Securities and Stock Market the Order N 330 of December 23, 1996 ‘On approval the Temporary regulations on giving  regular and particular information by public corporations and bond issuers
[9] on June 01, 2000 г. the Law on licensing of some activities № 1775 was adopted. The Law did not provided for licensing of audit activity
[11] Hryvnia is
[12] so in the original
[13] REQUIREMENTS to the Science and practical comments on an application in Ukraine of the International Standards of Audit, assurance and ethics protection and Regulations on national audit practice. The  REQUIREMENTS are approved at a joint sitting of the Commission on audit standards and practice of the Chamber of auditors and the  Commission on national standards of audit of the Union of auditors (the protocol of July 3, 2003)
[14] although it is a common practice in Ukraine when companies believe that it is less expensive to call for tax audit and pay some fine which can be equal to an audit price
[15] the Russian Federation, the Federal Law on audit activity N 119-FZ of August 7, 2001
[16] the Chamber of Auditors, Letter  ‘Concerning a certification of external 
auditors of banks’, N 2-131 of April 13, 2004 
[17] the Order of The State Commission for Regulation of Financial Services Markets of Ukraine ‘On approval of Rules of the Register of Auditors who can audit financial institutions’ N 86 of February 19, 2004  
[20] O. Kuzhel was a deputy from 1994 to 1998. Being a very energetic person of influence she was consolidating the Ukrainian auditors and lobbying favourable laws for them
[21] There had been even a fact when the President of the Union of Auditors and the Chairman of the Supervisory Board of the Chamber of Auditors addressed the Ukrainian deputies not to approve a bill which would make the work of the audit firms worse and promote the Big Five. The member of the Chamber of Auditors I. Belousova appears to submit the bill off, by her own initiative without coming to an agreement with the Chamber of Auditors (the Letter of the Chamber of Auditors  of N 2-121 of July 04, 2001)
[22] chief accountants are often an audit initiators in order to eliminate errors before an examination of tax officers

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