“As a result of recent information that has come to the attention of ZAO PricewaterhouseCoopers Audit (PwC) in relation to OAO NK Yukos (Yukos), PwC has written to the management board of Yukos informing them that the PwC audit reports on Yukos for the periods ended 31 December, 1995–2004 inclusive should no longer be relied upon or associated with Yukos’s financial statements.” - announced PwC in press-release issued Sunday.
Yukos traditionally referred to PwC accounting but the firm was not perturbed by that. But the “second edition” of the “Yukos case” that had place in late 2006 - 2007 concerned either PwC. In December 2006 the Moscow tax inspection brought a suit against ZAO PricewaterhouseCoopers Audit accusing the firm of assisting Yukos in tax-dodging. The company was really under the menace of loosing its license. In the end several principle clients (eg., AvtoVaz, the country’s biggest automaker) switched to other audit companies. Only when Gazprom announced that it did not intend to refused from services of PwC the air around the company got clear.
The PxC announcement is not of major significance, as in fact Yukos is declared bankrupt and after assets purchase (that is supposed to be over in Summer) the company will stop existing. The issue is another. Earlier audit was a sacred cow. After the case of Enron the situation in the West has changed. After PwC and Yukos it can change in our country. But it will be hardly so, because both nature of the action and its goals are quite different.
According to the definition, audit is a business activity of auditors on providing an independent examination of records, financial accounts, tax returns and other financial liabilities and demands of economic subjects to check their accuracy, correspondence of financial and economic operations providing by the subject to standard acts. That is PwC acknowledged that it was not able to perform its auditing functions. According to the press-release PwC could not establish reliability of YUKOS’ accounts. It is quite obvious that AVTOVAZ has refused from the PwC service for some non-economic reasons. But from another hand there clients of the company have their own logic that can be easily comprehended: why pay money to an audit company that can recall accounts at any moment if you have some problems not concerning directly your activity.
Accounts of the company and their reliability is a part of a game with great amounts of money. For example accounts are used by professional investors on judgment if there are reasons to work with securities of a company. Lack of reliability raises risks greatly. Say, you have bought Gazprom stocks, believing that profit of the company is $15 billion and current capitalization is $300 billion, but it turned out that these figures are three times overrated. Auditor says to investor (if you have put up money in a abnk or even more so in a unit investment fund): “Company can be trusted”. What to do if the auditor is mistaken - it is quite clear, to loose money.
Quite similar was the situation with the company Enron: managers gave too high rates to increase own bonuses. The result is well known. In period 1998-2001 one of the top-managers in Enron earned $89 mln on increase of stock quotes, another one earned $217 mln. They got into prison, stockholders lost their money. The authority of audit company Enron Arthur Andersen was totally undermined, so the Great Five of audit companies became the Great Four.
The case with PwC can display that Russia live according to its own rules and world experience means nothing for it. That is auditor’s report in Russia is quite another thing than one in, say, Germany. In Russia it is a kind of publicity or publication in press made to order, it is quite a form designed to manipulate investors’ perception.
For an exterior observer the financial transparency of YUKOS (and it was the leading argument of the PR service of the oil company) was based on accounts of PwC. If a company from the Great Four can take its word back so easily it becomes incomprehensible if one can believe in audit in Russia at all or it just serves for solving quite other problems, like many Russian institutes (Parliament, for example) do.
