Accounting Reform in Transition Economies: A Case Study of Ukraine

Abstract

This paper summarizes the results of interviews conducted at accounting firms and educational institutions in Kiev and Odessa during the summer of 2004, supplemented by later correspondence via the internet. Topics discussed include the adoption and implementation of International Financial Reporting Standards (IFRS), education for accounting practitioners, recent changes in accounting education in Ukrainian universities, accounting certification and taxation. Expertise in IFRS is in short supply in Ukraine. However, demand for knowledge of IFRS is also lacking, which provides little incentive for local Ukrainian accounting firms to develop expertise in this area. As a result, the top international accounting firms, mostly the Big-4, have captured most of the market for this expertise. Nearly all of the largest companies in Ukraine retain the services of one of the Big-4 and it is primarily the large companies that can see any use for IFRS, since it is mostly the largest enterprises that are going to the international capital market in search of capital. International investors demand to see financial statements that are prepared using either IFRS or U.S. GAAP as a condition of providing investment capital and the Big-4 accounting firms are best prepared to provide guidance and expertise in this area. Much of the IFRS training of practicing accountants is done by the Big-4 accounting firms. They have developed extensive course materials over the years and have a competitive advantage in this area. However, the training they provide is mostly limited to their employees and their clients, which means that accountants who do not work for either a Big-4 firm or one of their clients do not have ready access to IFRS training. Ukrainian universities have started to incorporate IFRS into their accounting curriculums. The problem is that they cannot always find good learning materials. Some of the most prestigious universities in Ukraine still do not have a course devoted just to IFRS. IFRS is inserted into their course on foreign accounting. Ukrainian financial statements that are certified by accountants who possess only a Ukrainian certification do not have much credibility in international capital markets. One reason for this lack of credibility is the perception that the average Ukrainian accountant does not meet international standards when it comes to knowledge of IFRS and International Standards on Auditing (ISA). Another reason is because the accounting certification system is viewed as corrupt. There are rumors that Ukrainian accounting certification can be bought. This problem is being overcome in two different ways. Several internationally recognized accounting certification exams are now being offered in Ukraine. Any Ukrainian accountant who can pass these exams earns instant credibility. The problem is that these exams are given only in English, which greatly limits the number of Ukrainian accountants who can take and pass the exams. This language barrier is being overcome by a group of accounting associations in several former Soviet republics, which began offering a high quality certification program in the Russian language. This certification started with a pilot program in Central Asia and has recently spread to Ukraine, Russia and Moldova. As this program spreads, the credibility of Ukrainian accountants who can pass these certification exams will be greatly enhanced.