Western Accounting Arrives in Eastern Europe; Even in the Soviet Union, Managers Are Being Taught to Measure Profit and Loss
Eastern Europe is hot. The iron curtain is down, markets are opening up and Western companies are rushing in to set up shop. The six largest international accounting firms and a handful of smaller ones are moving in, too, sometimes on the heels of clients, sometimes forging the way and encouraging clients to follow. Though the Soviet Union and its former satellites are by no means prepared for a capitalist invasion, Western investors can't resist the tempting market of over 300 million new consumers, a continent of raw materials and European know-how offered at Latin American wages. The location isn't bad, either. The European Community is right next door and Europe 1992--the single market initiative--is around the corner. "This is probably as big as Commodore Perry opening Japan," says Paul Hoffman, a partner and Eastern European liaison in the New York office of Arthur Andersen & Co. "A whole new section of the world is entering the global economy, and the movement is coming on fast." Arthur Andersen itself came on pretty fast in Moscow, opening an office there in the days of detente, and then closing it in the darker days of the cold war. Today the firm is back again, holding a 70% interest in a joint venture with Promsroy Bank, the Soviet Union's largest industrial bank. In late June the firm announced it would be the first Western accounting firm permitted to perform audits acceptable to the Soviet government. The following day, Ernst & Young announced it, too, would perform official audits. Previously, all certified auditing of transnational joint ventures was carried out by Inaudit, a Soviet agency established for that express purpose. But business is booming too much for Inaudit. With 1,800 joint ventures taking shape, the Soviet agency simply cannot keep up with the workload. In fact, the agency's situation worsened when Ernst & Young hired Inaudit's second-ranking official and Arthur Andersen took on three others from the agency's staff. A CPA IN THE MOSCOW MAY DAY PARADE All of the six largest accounting firms have or will soon have offices in Moscow, and Ernst & Young already has a second office operating in Kiev. All the firms, however, are experiencing a predictable problem: the conversion of financial information into forms useful to Western companies and investors. The Soviet Union's centrally controlled economy does not deal with such concepts as profitability and stockholder equity. Financial information there is aimed at measuring performance against production goals, not measuring profit and loss. C. Richard Eigenbrode, senior tax manager at Price Waterhouse, says that when he spoke to a group of upper-level managers at a seminar in Moscow, one of their questions was "What is an operating loss?" "Even at that upper level," says Eigenbrode, "they're struggling with basic concepts." To alleviate the accounting education problem and set things in motion for a compatible system of international accounting, theUnited Nations Center for Transnational Corporations (UNCTC) organized several brainstorming sessions and helped found an ongoing educational program in the Soviet Union. CPAs "donated" by the largest CPA firms are teaching in Soviet universities and institutions, using a special curriculum developed by Dr. Adolf J. H. Enthoven, director of the Center for International Accounting Development at the University of Texas--Dallas. The programs in Moscow, Leningrad and Kiev graduated their first 170 students this June. Raymon de Reyna, a Deloitte & Touche partner who taught an intensive two-week course at Moscow State University, was invited to march in the famous May Day parade in Red Square, perhaps the first Western CPA to receive such an invitation. A NEW ACCOUNTING SYSTEM FOR THE SOVIET UNION Being part of the educational program may be part of what de Reyna means when he says his firm is "moving ahead on several fronts" in Eastern Europe. …