Interview of “Grant Thornton Amyot” shareholder Armen Hovhannisyan to Mediamax Agency and Banks.am portal

- A number of important laws on financial reporting and audit will come into effect at the beginning of 2010. What are your expectations?

- According to legislative changes on accounting, since 2010, companies, the assets and the turnover of which make 500mln AMD and more following the results of 2009, must undergo necessary audit. The draft law aims at reducing shadow economy and securing transparency of large companies’ activity.

Certain businessmen spoke against this law. They believe that adoption of the law is not timely and will require new expenditures.

We also have concerts related to the draft law. Since quality audit is necessary, our concern is that audit organizations will simply not manage to provide services to 700-800 new companies, subject to necessary audit, and thus legislative changes will not serve their goal. So, we suggested the Prime Minister discussing the issue of prolonging audit terms. We proposed to publish reporting upon conclusion of the first half year for banks, and in October-November for other large companies.

However, the government put forward a new initiative, according to which they suggest increasing the low end of assets and turnover of companies, subject to necessary audit, from 500 to 1mln AMD.

There have been no discussions as to this issue in the parliament yet, but statements have been voiced, according to which it is meaningless to carry out audit of companies with assets making 1bln AMD. I believe that all, who speak against this law, struggle for not coming out of the shadow.

These issues have not found their final solution, and at the moment it is supposed that the law will come into effect from the beginning of 2010 in its primary version, according to which the low end of assets and turnover of companies, subject to necessary audit, makes 500mln AMD.

- How does toughening of requirements as to financial reporting and audit influence the market of audit and consulting services?

- The legislative initiatives on necessary audit and accounting are promoted by the government, aiming at reducing shadow economy. Simultaneously the Ministry of Finance starts “cleaning” the auditor field, trying to take unfair organizations and private entrepreneurs, rendering auditor services, out of the market.

The Ministry has already revoked licenses of a number of organizations and private entrepreneurs. At that, licenses have been issued also for a number of new organizations.

- “Grant Thornton Amyot” renders audit and consulting services to many Armenian banks and credit organizations. Has the demand for services in the sphere of risk management increased? What tasks were of priority importance for banks and financial organizations in working with consultants this year?

- Since in conditions of the crisis the problem of credit repayment becomes urgent, banks are serious about the issue of choosing borrowers and require more information on their activity.

This information may include the business plan of the borrower, in case of large loans – due diligence or audit of that company.

In this view, now consulting companies have more work to do: borrower companies turn to them, ask them to carry out audit by international standards in their companies, prepare business plans or carry out due diligence.

Besides, a group of banks turned to us. They want to prolong the terms of repaying already issued credits. To go through the formalities of the already issued credit again, one should carry out corresponding investigation in the borrower company to be sure that the prolongation of repayment terms is justified.  

- What expectations does “Grant Thornton Amyot” have from economic developments in Armenia next year?

- There is already stirring up observed in the economy. It is mainly conditioned by the governmental support for the construction sector and stimulation of the mortgage market.

These measures gave a result and today there are no such mortgage lending conditions as in Armenia in any CIS country. We function almost in all CIS countries and in none of them mortgage loans are issued for the term of 15-20 years at the annual interest rate of 12%.

Revival of the mortgage market in its turn leads to stirring up of construction. And this may lead to quite a positive economic effect.

At that, our economy depends much on transfers, which have reduced by 30%. Reestablishment of the previous volumes of money flows to Armenia depends on the economic situation in Russia and this is why it is difficult to make forecasts.

- How do you assess the actions of the government, directed at economy diversification?

- The government tries to stir up small and medium entrepreneurship and it has attracted a significant volume of financial means to that end. And the direction, in which the Armenian economy should move, should not be dictated “from the top”, but by the market itself.

The practice shows that they do not manage to diversify Armenian economy by these or those special guidelines. The market should develop by a course, which can be accepted and implemented in our country. Today all conditions for small and medium enterprises’ development are established in Armenia. The government attracts loan resources to that end, and banks, meanwhile, experience difficulties in placing those means in the view of lack of proper programs and borrowers.

- At the beginning of 2009, “Grant Thornton Amyot” organized an international conference, devoted to prospects of the capital market. Do you plan to realize new events?

- Undoubtedly. In 2010, we intend to put forward one or two interesting initiatives by presenting to the Armenian market directions, which really need to be developed.