Arthur Andersen & Co. has become the first U.S. public accounting firm permitted to audit companies in the Soviet Union under an agreement signed with the Soviet Ministry of Finance.
The agreement should help foster ties between Soviet and Western companies
because it will provide a means for Soviet enterprises to adopt Western accounting standards."Soviet enterprises have to be brought up to world accounting standards if they're going to attract international investment," said Paul Hoffman, a partner in Arthur Andersen's New York office.
The traditional Soviet accounting model, Mr. Hoffman said, was focused almost entirely on production and failed to take into account costs and profits. To Western companies, Soviet financial statements have been virtually
Arthur Andersen will work with Soviet companies to transform their
financial records into a format that's acceptable to potential Western partners and customers.
"It's not something as easy as moving numbers around," Mr. Hoffman said. ''It will take a lot of training . . . There are deep conceptual differences between our systems."
Under the agreement with the Ministry of Finance, Arthur Andersen will hold a 70 percent interest in a joint venture with Promstroybank, the largest bank in the Soviet Union, and with NPO Dinamo Moscow, an engineering and industrial management company. Promstroybank will own 25 percent of the venture; NPO Dinamo will hold 5 percent.
The venture, called Arthur Andersen in the USSR, marks the first time the Soviets have allowed a professional services company to own a controlling interest in a Soviet joint venture, the Chicago-based company said.
Although it will provide assistance to Soviet enterprises and state-owned companies, the primary goal of the venture is to assist Arthur Andersen clients in their Soviet dealings, the company said.
The challenge to Arthur Andersen will be to gather the kind of financial information Western firms require of potential partners. With past financial records on most Soviet companies inadequate and with the sweeping changes in the Soviet economy, that may be a difficult task.
"The Soviet Union is moving from one era to another, so the information of the past may be useless today," said Joseph Tagert, an economist with PlanEcon in Washington. "The accountants may have to assess how a company will perform now that its government subsidy is removed or the subsidy of its leading customer is removed."
Mr. Hoffman conceded that the accounting task in the Soviet Union may be more difficult than in other Eastern European countries. But owing to the country's huge potential, Arthur Andersen is committed for the long term.
"The problems are more severe in the Soviet Union than in Hungary, Poland or Czechoslovakia," he said. "You have to be something of a visionary to go into the Soviet Union at this time."
There are now 1,542 registered joint ventures between Soviet and Western companies, 172 of which involve U.S. companies, PlanEcon said. The most active joint ventures are in tourism and various services, areas in which hard currency is easily obtained.
The Soviet Union would like to attract joint ventures in manufacturing, Mr. Tagert said, perhaps along the lines of General Electric Co.'s joint venture in Hungary to manufacture light bulbs. To do that, accurate financial statements are essential.