In a move which is likely to alarm international investors, Ukraine’s governmental financial watchdog body the State Control and Revision Office (SCRO) last week asked the State Property Fund of Ukraine (SPF) to cancel the Ernst & Young consulting and auditing company’s license for valuation activities in Ukraine. “We have been in touch with the SPF and requested that they cancel Ernst & Young’s right to perform any further valuations,” stated the head of the SCRO, Mykola Syvulskiy.
Underestimated railway assets
Mr. Syvulskiy pointed to a number of valuations carried out by Ernst & Young in recent years as the reason for the move to revoke the global giant’s licence to carry out official valuations inside Ukraine. He claimed that his office has uncovered numerous discrepancies in the firm’s work on a number railway buildings and stretches of line which raised doubts about Ernst & Young’s professionalism. In particular Mr. Syvulskiy cited an investigation into a valuation carried out by Ernst & Young in 2007 of a five-floor administrative building at one of the regional branches of Ukraine’s state owned railroad monopoly, Ukrzaliznytsya. The building, which boasted an office space of 19,600 square metres, was estimated by Ernst & Young at UAH 400,000 (USD 80,000), while Mr. Syvulskiy claims that the depreciated cost at the time was actually UAH 5.1 million (over USD 1 million).
“Similarly, the value of a 204-kilometre stretch of the national railway network between Pyatykhatki and Sinelnokovo was estimated by Ernst & Young at UAH 29.3 million (USD 5.8 million), while in 2006, a similar 43-kilometre stretch of railway was modernised to the tune of UAH 45.7 million (USD 9.14 million),” Mr. Syvulskiy claimed. The SPF backed up his allegations, claiming that Ernst & Young’s valuation reports failed to meet the requirements of the Ukrainian legislation applicable, were unprofessional and unusable, says Mr. Syvulskiy.
Mountains out of molehills
In response to these allegations Ernst & Young immediately issued a statement denying any wrong doing in which they claimed that their valuations were both fair and objective. “It is important to stress that the two items mentioned in the press were part of a valuation of the fixed assets of the enterprises of the railway industry forming the State Administration of Railway Transport of Ukraine (Ukrzaliznytsya) which includes over 400,000 inventory items and represent a very small part of the overall project. The valuation of the fixed assets of enterprises which make up Ukrzaliznytsya was performed for the purpose of inclusion into their financial statements and not for any other purposes. The valuation was performed on the basis of the information available to us at the time of the performance of our services and we are now reviewing the input data we had concerning the two items mentioned by the State Control and Revision Office,” Ernst & Young officials said in a statement.
Ready to co-operate
“We believe that we conducted our valuation in a fair and objective manner and in accordance with applicable Ukrainian and international valuation standards,” the statement continued. The company pledged that it is ready to “co-operate with the State Control and Revision Office and answer any question it may have regarding our valuation of Ukrzaliznytsya.”
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. It has 130,000 employees worldwide. In Ukraine, Ernst & Young has been present since 1991. Its 500-strong staff in Ukraine provides services to a range of foreign and domestic companies.
