Compensating for Auditor Work, and Preventing Dumping on the Audit Market in Ukraine

Abstract

The Ukrainian Ministry of Finance has recently intensified efforts in attempting to amend, once again, the legal regulation of auditing in Ukraine. Many amendments to the Law of Ukraine on Audit of Financial Reporting and Auditing Activities, enforced in 2016, have been proposed. Not commenting on the expediency of such amendments, not to mention their validity, one cannot ignore several proposals put forward by the head of the Auditing Public Oversight Body with respect to formalizing the system for compensation of auditor work and fighting the price dumping on the audit market in Ukraine. The article elaborates on the feasibility of a restructuring and formalizations in the system for compensation of auditor work. It’s proposed to introduce a standard staff structure of an auditing firm and a transparent scheme for forming the auditor’s incomes, which, to the authors’ view, should consist of the basic salary and a system of supplements and bonuses. It is recommended to reduce the number of bonuses, and to expand the supplements to the basic salary, associated with professional or another professional (or related) higher education, foreign language proficiency or length of service in audit. The basic salary is proposed to be differentiated by coefficients in view of the position in the staffing table. The openness of data on compensations is proposed to be ensured by annual publishing of the salary matrix of an auditing firm, with the cost of man-hour in a given category of auditors being one of its components. The authors recognize the existence of a phenomenon like price dumping on the audit market in Ukraine, with investigating its causes. It stems from both the customers’ attitude and the economic situation on the audit market. The authors argues that this problem cannot be solved without a regulatory intervention of the government. Two simple options to prevent the dumping are recommended, the necessary prerequisite of either being the collection of data on the average cost of a given category of auditor’s services at country level and by region and economic activity. This method was practiced by the Audit Chamber of Ukraine at early 2000s.