The US and EU-imposed sanctions on Russia are having a dramatic effect on the country’s professional services industry, according to the International Accounting Bulletin‘s Russia Survey.
One year on from the first protests in Kiev that sparked the Ukraine crisis, trade and import restrictions remain in place. While the banking, oil and insurance industries were among the hardest-hit industries, the country’s accounting industry is also struggling.
Firstly, the number of foreign businesses closing shop and moving back West has increased competition for business among firms.
Sergey Kharitonov, managing partner of Marillion, a Krestion International member firm, says such developments have changed the rules of the game. As companies depart the market, he explains, newly incoming Russian managers are keen to appoint domestic auditors, rather than renew existing contracts with foreign-based firm.
Skittishness among clients is confirmed by others in the mid-tier. Victoria Salamatina, head of audit and international liaison partner at HLB International firm Energy Consulting says: "Many clients are moving among audit firms, and mid-tier audit companies have been starting to provide audit services to former Big Four clients."
A threat to non-domestic players in the market, the trend is compounded by a spate of regulation aimed at limiting foreign influence in the Russian accountancy industry.
A recommendation was issued on 6 June by the Duma Financial Markets Committee, advising the lower Chamber of Parliament to introduce a limit the participation of firms "controlled or significantly influenced" by foreign entities or people.
Such regulation could have a deep impact on the standing of the Big Four in the Russian market, as they stand to not see large government contracts renewed.
"It’s certainly something we’ve been keeping an eye on," said PwC Russia managing partner David Gray. "Until we see the legislation in detail and it is actually passed," adds Gray, it will be difficult to predict the impact."