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The postcoup Soviet Union: greater role for CPAs.

The rapid transfiguration of what was formerly the Union of Soviet Socialist Republics presents American CPAs with great opportunities, according to William T. Potvin, managing partner of DRT Inaudit (Moscow), a joint venture between DRT International and Inaudit, the recently privatized Soviet state accounting body.

Doors appear to be opening for U.S. CPAs and consultants to do much more work in the Soviet Union and its constituent republics. Most of the major international accounting firms are now represented in one form or another in the Russian republic, with anywhere from 2 to 40 people. "Things have been growing very dramatically and will continue to grow very dramatically," said Potvin, who before his mission to Moscow was a senior management consulting partner with Deloitte & Touche, the U.S. member firm of DRT International.

In the past, Potvin said, attempts to operate in the Soviet Union provoked "abject frustration" due to the peculiarities of the Soviet accounting system (which is not based on accounting for profit and loss), but a United Nation's task force has drafted a model for a new chart of accounts that allows for a P&L-oriented accounting style much closer to international accounting standards.

The new system is expected to be implemented over the next two years, first for joint ventures and then for Soviet enterprises. "I think if anything, recent events are going to accelerate that implementation," Potvin predicted.

Inaudit itself was privatized over the last year, although it remains the largest Soviet auditing organization, with offices from St. Petersburg to Tashkent. Moreover, many smaller, independent Soviet auditing organizations have sprung up in the past year, part of the burgeoning private marketplace. "The Soviet groups generally are not serving the international market," observed Potvin. "They have a little way to go before they're quite ready for that."

He noted, however, that Europeans are increasingly positioning themselves to take advantage of these opportunities. "The European Community this year is committing 400 million ecu--about $500 million--to pay European companies, accountants and consultants to provide technical assistance to the Soviets, and next year the number is probably going to double."

Challenges ahead. Of course, great difficulties will remain for some time for both Europeans and Americans planning to enter the Soviet market. For one thing, Potvin said he wouldn't describe the state of business computerization in the Soviet Union as low: "I would more or less characterize it as non-existent." He added, "We conducted a financial review of a company that is the equivalent of a $7-billion-a-year heavy manufacturer employing 150,000 people. Its books were maintained manually, and that's typical."

Another problem is the Soviet economy's woeful condition, still heavily state dominated. "The economic system makes financial reporting a very different animal there than it is here," he said. "The Western auditor's role in the Soviet Union today is to make intelligible to Western readers what the Soviet accounting systems are saying, as opposed to necessarily providing an audit role in the traditional sense, although obviously that's part of it."

The Soviet economy in practice was always a barter economy. "The ruble really isn't money, in the sense we think of it in the West," Potvin explained. A large amount of economic activity in the Soviet Union always has been more or less nonmonetized, based on central command and barter rather than the exchange of cash. "The fact that you had rubles, by itself, didn't mean you could buy things," he remarked. Rubles were "a necessary but not sufficient condition to enter into a transaction."

However Soviet organizations are now free to conduct their own import-export businesses, set up their own foreign trade subsidiaries free of ministry control, engage in joint ventures with foreign partners and establish foreign-currency accounts. Over 2,000 joint ventures have been set up already.

While growing privatization and monetizing the economy (including making the ruble convertible with the dollar and other foreign currencies) will continue to produce shockwaves affecting the economy, Potvin is optimistic about the future--particularly because of the changing attitudes he has observed. "I think all the political events in the Soviet Union are 'trailing' events, not 'leading' events," he said. Even before the failed coup, "the business managers in the Soviet Union had actually taken on themselves the mentality of conducting their activities consistent with concepts of a Western market economy. The attempt at a putsch really was one of the last grabs by the traditional leaders to stop that transition."

His conclusion: "The grass roots are turning toward the market economy very quickly and the politicians are just trying to keep up." All in all, a situation that could provide enterprising American CPAs with opportunities--and challenges--on a grand scale.
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Article Details
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Author:Miller, Stephen H.
Publication:Journal of Accountancy
Date:Nov 1, 1991
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