Mike Kubena, general director of PricewaterhouseCoopers Russia
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PricewaterhouseCoopers: We Don't Investigate
// The head of PricewaterhouseCoopers Audit responds to tax accusations
Yesterday, Kommersant reported on the suit filed by an inspectorate of the Russian Federal Tax Service in arbitration court demanding that the 2002 contract between PricewaterhouseCoopers Audit and YUKOS be declared invalid. Mike Kubena, general director of PricewaterhouseCoopers in Russia, the CIS and Eastern Europe, told Kommersant why, in spite of its confidence that the charges against PWC are ungrounded, the company will cooperate with law enforcement and is waiting for Federal Tax Service head Anatoly Serdyukov to enter into a constructive dialog with it.
A suit was filed against you to have the contract to audit YUKOS in 2002 declared invalid. From your point of view, what is it connected with, what is its goal?
We suggest that the suit is part of the continuing investigation of YUKOS. We are respectful of the efforts being made by the appropriate bodies to make that investigation full and thorough. We understand that the investigation is seeking arguments in all possible fields. And, as the former auditors of YUKOS, we consider it our obligation to cooperate fully with the investigation and the bodies that are conducting it.
We are, however, concerned by the incorrectness of the suit that was filed against us. As we see it, it is connected with a misunderstanding of the nature of our relationship with YUKOS and a misunderstanding of our role as the auditor of that company in the past. We are not the management of YUKOS and we should not be held responsible for the decisions made by the management of YUKOS.
Did PWC employees have contact with YUKOS investigators in 2006?
Yes, in the last year a number of our employees were asked to give explanations and to answer several questions, and they cooperated in full with the investigation.
In 2003, the opinion was expressed that PWC may be included in the YUKOS case, but it was not at that time. What has changed?
We are not aware of any claims against the 2003 audit of YUKOS.
It not a matter of official claims.
I would like to note again that we are respectful of the investigation that the prosecutor has conducted and is conducting and to the facts and conclusions that have come out of the investigation. But we are auditors, who check the financial accounting of a company in the aspect of the accuracy of its reflection, financial condition of a company and the results of its activity.
We are not investigators and do not conduct an investigation of our clients. But we have respect for the conclusions made by the prosecutor in respect to YUKOS. As the auditors of YUKOS, we of course informed the management of the company in our “Information for the Management” of the risks that we saw in the course of our audit from the point of view of their influence on the financial account and we expected that they would take appropriate actions. I repeat that we are auditors, not investigators.
Have you ever encountered a situation where that didn't happen?
YUKOS is a big company with a complex structure. Most likely there were situations where company employees implemented our recommendations, and probably there were situations where our recommendations were not implemented.
How exactly does PWC disagree with the tax service formulation of the suit?
We think that the problem is mainly that tax inspectors and inspectorates do not fully understand the role of the auditor and auditing standards. The claims against us are based on the fact that we presented two reports on the results of our audit – one for the stockholders and one for the management. Russian Auditing Standard No. 6 establishes the specific form and content of an audit report. The audit report prepared by us was in complete conformity with the requirements of that standard.
There is also Audit Standard No. 22 that establishes requirements for written information for the management of the company. In accordance with Standard 22, the auditor includes in that report that which he considers necessary inform the management of the company of; he makes recommendations. That information did not concern substantive questions from the point of view of financial account of YUKOS.
It is not a matter of double standards. Under Russian legislation, the preparation of that type of report is standard practice. It corresponds to the auditing standards of other countries. There is often a “Report on the Internal Control System” that corresponds to the “Written Information for the Management.” The accusations made against us in the suit show a fundamental misunderstanding of the whole series of questions. The first is the role of the auditor, the second is standards of accounting and the third is the nature of the auditor's work.
What has been happening in the company in the last few weeks since the claims by the tax service became known?
It has to be said that we found out about the tax service suit on Friday evening. We were amazed by the very fact of the suit and the nature of the claims in it. We are ready for an intensive dialog with the Federal Tax Service on all the questions that have arisen. We very much hope for a dialog with Mr. Serdyukov, who is known to us as an excellent specialist. We deeply regret that the situations has come to what it has today and we emphasize our readiness for constructive dialog with the tax bodies, ministries and agencies.
Do you consider the cancellation of PricewaterhouseCoopers' license and criminal charges against it employees possible? How comparable is the case to that of Arthur Andersen in the United States?
We are absolutely confident that there are no grounds to suggest such a development of events today. We are very much counting on a dialog that will allow us to avoid what you are asking about. In addition, actions in that direction would have negative consequences for the Russian economy and for the capital market. We are the leading auditing and consulting company in the world and in Russia. More than 2000 people work in the company and among our clients are the largest Russian companies: Gazprom, RAO UES of Russia, Transneft, Sberbank, the Central Bank of Russia – and that says something. Our reputation is our fundamental and most significant asset.
Tax and law enforcement bodies are not 100-percent effective anywhere, and in Russia the situation often arises when a company, whether it is guilty or not, is required to make acts of “penitence.” What compromises is PWC ready to make in this unfavorable situation to preserve its business in Russia?
I would like t say one more time in response to your question that everywhere that PWC operates, we observe the laws of the country and cooperate with law enforcement bodies. We are ready to discuss with them all the questions that interest them. We have returned to what we discussed at the very beginning, and it is very important: we did not violate Russian law.
Interview by Dmitry Butrin
All the Article in Russian as of Dec. 26, 2006
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