Lawyers did not find in the decision of the authorities a ban on auditors of the "Big Four"

The government decree on restrictions for foreign auditors does not apply to the Big Four auditors working in RUSSIA, according to lawyers interviewed by RBC.Market participants are waiting for clarification from the authorities on the document

The decree of the Russian government published last week, imposing restrictions on the work of foreign auditors with Russian clients, should not affect Russian auditors working under the brand of international companies from the Big Four - Deloitte, EY, KPMG and PwC, lawyers interviewed by RBC believe. The same opinion is shared by VTB Bank (which is under US sectoral sanctions ), which uses the services of the Russian EY (Ernst & Young).

The new document restricts the access of audit firms, which are directly or indirectly controlled by foreign citizens or companies, to the information of Russian clients for a number of reasons, including cases when a Russian company has taken advantage of the regime with the withdrawal of information from the public field due to the risk of imposing or applying Western sanctions. In particular, since 2018, Russian banks have often resorted to this regime, permitted by the government and the Bank of Russia: for example, Promsvyazbank closed some of the information from public reporting related to the bank's management, affiliates, major transactions; banks and insurers associated with persons under sanctions (Viktor Vekselberg, Oleg Deripaska) withdrew information about shareholders and beneficiaries from the register of the Central Bank.

The wording of the decree raised questions about the interpretation of the government decree among market participants. In particular, VTB CFO Dmitry Pyanov, during the presentation of the bank’s financial statements for the first quarter of 2021, published on April 30, said: “We expect regulators to clarify this matter in the near future, either from the Ministry of Finance or from the Central Bank.” “We believe that our auditor [EY] does not fall under the restrictions of this resolution,” Pyanov emphasized, explaining that EY and the Center for Audit Technologies and Solutions (two auditors of the Russian EY) do not meet the criteria of the resolution, since they belong to Russian citizens, they do not have an overseas parent company.

“If we look in open sources at the ownership structure of the Big Four companies [in Russia], we see that there is not a single foreigner there. From a formal point of view, these are Russian legal entities,” explains Elena Avakyan, lawyer, adviser to Egorov Puginsky Afanasiev & Partners, assessing the auditors of the international “quartet” working in Russia as “a franchise located in Russian companies”. Stanislav Borodaev, Forward Legal's lawyer, also points to the absence of foreigners in the ownership structure of audit companies from the Big Four.

Companies under the brands KPMG, EY, Deloitte and PwC are the leaders of the Russian market in terms of revenue from the provision of audit services, follows from the latest rating of RAEX-Analytics for 2019. Their volume of business in this area is several times higher than the revenue of their closest competitors.