The work of auditors with large organizations may be limited

Under the new independence rules, auditors will be required to reject clients from socially important organizations (PEOs) if the share of payments from such PEOs exceeds 15% of the auditor’s revenue for five consecutive years. According to experts, the norm creates risks primarily for small and medium-sized audit companies, which could result in losing clients to large competitors. As an alternative, experts suggest that auditors consolidate efforts and increase the number of clients, which is difficult in a highly competitive environment.

The new version of the rules for the independence of auditors and audit organizations, adopted by the Commonwealth Association (audit SRO), significantly tightens the requirements for market participants. In particular, if for two consecutive years the volume of revenue from work with a socially significant organization together with all subsidiaries exceeds 15% of the audit company’s income, the latter must engage an auditor from a third-party organization to check the quality of the assignment before submitting an opinion. After five years of continuous auditing, the company must abandon such a client. Previously, there were no requirements for audit companies in relation to financial statements.

According to the Ministry of Finance for 2022, out of 69 thousand clients of audit organizations, just over 3 thousand had the status of OOO. Such organizations include issuers whose securities are admitted to organized trading, banks, insurance companies, professional market participants, credit history bureaus, clearing organizations, trade organizers, non-state pension funds, management companies, state corporations and others. But the share of income from the audit of such organizations in the total core revenue of market participants is much larger, it is about 20%.

To the least extent, the new requirement affects the largest audit organizations with a large volume of total revenue, and to the greatest extent – medium-sized market participants who have large OOO clients, explains Sergei Kharitonov, managing partner of the Marillion group of companies.

According to Vladimir Kozyrev, partner of the audit services department of DRT, currently the register of companies providing audit services to OZO (maintained by the Federal Treasury) includes 134 audit organizations. According to experts, the cost of an audit of an organization can amount to millions of rubles (see “Kommersant” dated January 18, 2024). According to the general director of Univers-Audit, Dmitry Limarenko, the requirement to comply with the rules of the SRO is enshrined in the audit law, for failure to comply with which disciplinary measures are provided, up to and including expulsion from the self-regulatory organization.

Meanwhile, innovations can lead to serious consequences for the balance of power in the market, experts say. According to B1 partner Igor Buyan, as part of the competition, released clients can move to larger audit companies. It will be easier for large auditors to retain orders, since the volume of their revenue is much larger, which means that the share of a particular client in revenue is lower, explains Mr. Buyan. The expert believes that in order to retain clients, audit companies can merge into one legal entity in order to increase revenue. In addition, he said, auditors can begin to “actively attract new clients, which, of course, is not easy in a highly competitive environment.”

However, the new rules offer an alternative to refusing a client. The Code provides for the conditions under which, after five years of continuous auditing, it is possible to continue cooperation with the dominant client: we are talking about the consent of the SRO of auditors and additional verification of the quality of reports for the sixth and subsequent years, Mr. Kharitonov clarifies.

However, Kommersant’s interlocutor in the audit market clarifies that a detailed mechanism for implementing such an alternative scenario has not yet been developed.

Yulia Poslavskaya