“Grant Tornton” CJSC, Grant Thornton International’s (GTI) member firm, has been working in Armenia since early 90-s and provides accounting and consulting services to local privately owned businesses and public sector entities. Armenian member firm not only works with local market, but also carries out international work through its subsidiaries in Georgia and Tajikistan. On June 22-24 GTI Global Leadership Team member Gernot Hebestreit visited Armenia for the first time in order familiarize with Grant Thornton Armenia\'s activities and plans, as well as to share the views of GTI global strategy with Armenian partners. In an exclusive interview to Mediamax and Banks.am Gernot Hebestreit tells about the purposes of his visit and shares his perceptions on issues of audit in Armenia.

- What are the purposes of your visit to Armenia and what agreements have you reached here?

- First I had a long-standing invitation by the Armenian firm to come and meet with our Armenian partners. Secondly, of course it’s a business reason, connected with our global strategy, which is to double our revenue from today’s $3.7bln to $8bln by 2015. This will be the purpose for our member firms across the world. So one of the purposes of my visit was to discuss with the Armenian firm what their development and business plan will be over the next 5 years, and what their contribution will be to our global strategy.

- How do you assess the activities of your Armenian member firm?

- We are very pleased with the developments of Grant Thornton in Armenia; it’s clearly the market leader. In that regard there is nothing else we could wish for any market, but of course, being a leader also means your responsibility towards the market as such, and it’s more difficult to defend the number one position than to achieve it. The Armenian firm will take the leading role in developing our business and capabilities in the CIS region, Armenian firm has already got subsidiaries in Georgia and Tajikistan, but together with our member firms in Kazakhstan and Uzbekistan we would also like to have our presence in other countries of Central Asia, and the next countries we are looking at are Turkmenistan and Kyrgyzstan. So, seeing the opportunities in the Armenian, Georgian and Tajikistani market, plus the opportunities we see in two new countries, where we\'ll establish our presence, we’re very optimistic; we see a very strong growth of our Armenian firm over the next 5 years.

- Three out of «Big Four» world’s largest audit firms are present in Armenia.  Isn\'t it difficult to work in such a competitive environment, especially now, when the number of local audit firms grows due to introduction of compulsory audit in Armenia?

- Yes, it is a challenge in any market to achieve the number one position but when we look at the early days when we just entered the Armenian market, as far as I know, there was just one another international audit firm besides us. So we started at about the same time, but the talent of our management and our people, the commitment and the hard work for the last 12-13 years helped us achieve the number one position in Armenian market. It also requires significant investment on behalf of the partners but also support from our entire firm and Grant Thornton International, to reach this market position.

- In 2011, companies with assets of 1bln AMD and more following the results of previous year are subject to compulsory audit. Because of high level of shadow economy, businesses in Armenia are more likely to perceive audit as something negative.  How, in your opinion, can this attitude be changed and, in general, what is the motivation of companies holding initiative audit?

- Your question addresses one of the major issues we are facing here, and everywhere else in the world. And the question is – what is the value of the audit? I think what the financial crisis has demonstrated is that there is value in the audit. Every stakeholder, investors, regulators, the governments, they all after deliberations came to a conclusion, that financial stability requires more reliable financial information. To achieve this objective we need to have an audit. So there is value in the audit for the society and the stability of financial market. There’s no doubt about that.

The question is - what do we need to do to better address the changing needs of the investors and the markets. That’s a discussion that is currently going on.
And if we look at this issue from a micro level, from a perspective of an individual entity, first of all, if you have a qualified audit opinion by an audit firm that is recognized for high quality, it should give you a better access to financing. Ideally it makes you able to obtain the financing at lower cost of capital, it should build confidence with potential investors and it will simply enhance your own reputation in the market.
Plus, as a result of our audit, you get a very good understanding of the business. We don’t just deliver an audit opinion: our philosophy at Grant Thornton International and our member Grant Thornton Armenia is that our observations around businesses go beyond issuing just an audit report; we try to make our contribution to improve the operations of the entity, because we understand the business, we have very big experience and we can bring all that experience altogether to the table and work together with management to identify areas of improvement.

- As to compulsory audit, there is a widespread practice in Armenia, when a huge company, which is partially in shadow, establishes an affiliated audit firm. Speaking of this issue in the interview to our agency, Grant Thornton managing director Gagik Gyulbudaghyan suggested that Government compiles a “short list” of authoritative audit firms, which will work with large enterprises. The opponents of this view say, that the clients should decide themselves the services of which company to take. What do you think?

- I think the concern that you have raised is very much about the independence [of the audit firm] on the one hand and then ensuring that you are able to deliver a quality that is required. In regards of independence I personally believe that when we look at the international independence rules, they are very good and very robust so I would encourage Armenia to adopt these international independence rules. And this would require that every audit firm will have no personal or financial relationship with the entity that they\'re auditing.

The so called «short list» means that there could be a limited number of firms who would be entitled to do the audit, and maybe that could be a good intermediate stage. I would like to see a well-functioning market, where certain minimum quality standards are simply set, and that the audit firms have to make sure that they reach these standards. The role of the government here is to ensure that audit quality is regularly monitored, as it is anywhere else in the world.

- Are you negotiating with the Armenian government on these issues?

- We had discussions with the government on how we can improve the framework in which audit is delivered in Armenia. It\'s an ongoing discussion. I think what we would like to see is stronger involvement of all stakeholders in the audit. I think all audit firms should be more engaged in this discussion. We are supporting all the initiatives the government has already undertaken. We will also encourage large businesses in Armenia to come to discussion and jointly agree what is the right solution for Armenia.

- The above mentioned problems are not specific to Armenia, are they? How are they solved everywhere else?

- They are solved by having leaders coming from three areas: business community, audit community and from the government, working together. We, as Grant Thornton Armenia, are prepared to make our contribution and take a leadership role in that and we did so in the past. Now it’s simply getting a team together that\'s committed to get it done.

- Are there some kinds of such short lists anywhere else?

- There are different solutions worldwide. I\'m German, so I can share the German experience with you: in Germany there is a practice called «peer review», when one audit firm examines another one’s audit quality. And the only way to have the right to audit listed companies is to have the corresponding certificate from another reputed audit firm. And there is actually a short list of companies, who can issue such certificates.

- Is this your first visit to Armenia? What impressions have you got here?

- Yes, this is the first time. I’m impressed with the hospitality that I have received so far, not only from my colleagues at Grant Thornton but also from the Finance Minister and other officials, and the clients of Grant Thornton. I was also impressed by the openness and friendliness. After being here for two days I feel on personal level, that here’s the environment, where I can feel myself very comfortable. I like the atmosphere of Yerevan very much.