The next large-scale reform is being prepared in the Russian audit market. Nina Kozlova’s comment in the newspaper "RBC"

The control over auditors dealing with socially significant companies will be taken by the Central Bank, and the number of companies for which audit is obligatory will be decreased. The audit quality will be improved at the expense of customers receiving audit services and small audit companies that will have to leave this market.

The draft law "On amendments to certain legislative acts of the Russian Federation (as to empowerment of the Central Bank in the field of auditing)" has been developed on the basis of recommendations agreed by the Central Bank and the Ministry of Finance and is currently under consideration in the State Duma. These changes are expected to come into force in 2019.

Nina Kozlova

General Director of FinExpertiza

“The transition to International Standards on Auditing since January 1, 2017 in Russia was not a surprise to auditors. It is a long-awaited change, and the auditors had enough time to become ready for this event. The transition to ISAs made the audit process more labor-intensive. However, an auditor's report became more informative, and its value increased for users of audit results.

The auditors will be divided into two groups, namely auditors admitted by the Central Bank for audit of socially significant companies and other auditors. Other auditors will not be able to compete with the group admitted for audit of socially significant companies unlike the current situation. The number of auditors in the sector of socially significant companies is likely to be a few hundred companies, which is ten times less than the number of those admitted for audit of socially significant companies now.

The number of audit companies without access to socially significant companies will also decrease substantially in the market. Firstly, the number of audit companies can nearly halve due to the requirement for the presence of three auditors with the main employment in the audit company. Secondly, players will start leaving the market, because the volume of orders for obligatory audit will decrease by about 15-20% as a result of increase in the quantitative criteria for this type of audit.

The average price for audit will increase by about 30-40%. The recent changes in aggregate in the audit market, namely transition to ISAs since 2017 and the CBR reform can lead to the reduction in the number of small audit firms, the decrease in dumping in the audit market, the increase in the cost of audits.”