For int'l accounting firms the party is going strong
A variety of factors, both inside and out of Poland, are pushing new clients to the international accountancy practices. These include a growing need on the part of Polish companies to tap capital markets, the firms' own expansion into cities outside Warsaw, beneficial effects from the Russian crisis and the move toward the European Union (EU), as well as changes in accounting law.
"Business in Poland is excellent," said Greg Doyle, senior partner at KPMG Polska. "Growth is significant and it is going to continue this way."
The firm's auditing department, which accounts for 60% of total revenue, saw revenue grow 78% to zl. 41 million ($11.7 million) while total revenue nearly doubled to zl. 68 million ($21.25 million) in 1997, Doyle said. In 1998, the firm's total revenue rose 29% to zl. 105 million ($30 million).
Accounting agency heads said they expect such heady increases to continue for at least the next three years.
New business is generated by foreign companies entering Poland. With foreign direct investment (FDI) in Poland expected to increase to $30 billion by the end of this year, many more new accounts are expected.
But that's only part of the growth story. Polish companies are also generating more and more business for the Big Five, either because they want to deal with investors or are taking a long-term view of their position on the market.
"They understand now that it is better to choose an auditor from the Big Five, because they are thinking already about Poland's integration with the European Union," said Jerzy Cieslik, managing partner at Ernst & Young. His firm recently benefited from such thinking when it won a tender for audit work at Telewizja Polska (TVP), replacing Polish firm Finans-Servis.
"It is long-term thinking, which is becoming a general trend among Polish companies," Cieslik said. "For Polish firms that are already preparing to perform on open markets, it is a way of reassuring foreign investors about their trustworthiness."
Doyle said this reassurance becomes especially important when a company wants to tap either debt or equity markets. An audit by a Big-Five firm is the stamp of approval many investors look for.
The investors' view is so important that the higher cost of an audit by an international company, compared to a Polish firm, does not become an issue. "The much broader range of services we provide justifies the price differential," Doyle said.
In fact, Polish firms, no matter how cheap, have virtually no chance currently to represent a company that is planning to raise capital publicly, said Zdzislaw Paryzinski, vice-president of Finans-Servis, Zespol Doradcow Finansowo-Ksiegowych accountancy firm.
"Even if it used to be our client," he added. According to Paryzinski, Polskapresse which still is the company's client might soon turn to one of the foreign auditors because it will be what its parent company, Medien Passau Germany, decides.
That doesn't mean that international firms can just sit back and wait for business to roll in the door. Rather they have to fight each other, as well as Polish firms for business. To better wage battle, many of the Big Five are finding that they have to follow their clients outside Warsaw.
Ernst & Young, for instance, has six offices beyond Warsaw with 630 employees. Other firms have opened three to four offices outside the capital.
"We need to be close to our customers and Poland is a big country," Cieslik said. "The final number of our local offices might even reach the number of new provinces."
Other firms are also contemplating rapid expansion. KPMG has offices in Krakow and Poznan, but isn't content. "It's too few," Doyle said. "Over the next two years, we'll open two new offices because our clients are already there."
While the business is there for growth, human resources have limited some firms. Doyle said his firm does not have enough people to expand as quickly as it would like.
"We haven't been able to recruit enough senior people for our minimum 25-person offices," he said. "And you can't run an office without enough human resources to service your clients."
On the other hand, the international firms don't want to rush outside Warsaw willy-nilly. Rather they want to see that there is definitely enough business in another city, even if servicing companies there from Warsaw can cost up to 15% of a total audit fee.
"We have to be sure that the volume of business justifies the opening of a new office," said Tony Reczek, head of the auditing department at PricewaterhouseCoopers.
Not that PricewaterhouseCoopers, which was formed in a merger this summer between Price Waterhouse and Coopers & Lybrand, is hurting for business. The new company's auditing business is now three times as large as it was before the merger. The 420-person firm also counts 30% of the companies on the Warsaw Stock Exchange (WSE) as its clients.
But the big fish that the Big Five hunt aren't the only game in town. Smaller international companies are also finding business abundant and expect 2000 to be a gold-rush year.
The turn of the century marks a new legal requirement for all companies above a certain size to have annual audits. This will affect companies that either have more than 50 employees or net revenue above ECU 3 million.
And this will mean new business for smaller accounting companies, said Andrew Kinast, managing partner at Potworowski Kinast Grant Thornton. "Many companies try to postpone audits because it is a costly service," he said, adding that this will now change.
International firms could also receive an additional boost because many Polish accounting professionals can be expected to retire in a few years, Reczek said. "Foreign firms with their staff training programs, will be the best to fill that gap," he said.
"Business in Poland is excellent," said Greg Doyle, senior partner at KPMG Polska. "Growth is significant and it is going to continue this way."
The firm's auditing department, which accounts for 60% of total revenue, saw revenue grow 78% to zl. 41 million ($11.7 million) while total revenue nearly doubled to zl. 68 million ($21.25 million) in 1997, Doyle said. In 1998, the firm's total revenue rose 29% to zl. 105 million ($30 million).
Accounting agency heads said they expect such heady increases to continue for at least the next three years.
New business is generated by foreign companies entering Poland. With foreign direct investment (FDI) in Poland expected to increase to $30 billion by the end of this year, many more new accounts are expected.
But that's only part of the growth story. Polish companies are also generating more and more business for the Big Five, either because they want to deal with investors or are taking a long-term view of their position on the market.
"They understand now that it is better to choose an auditor from the Big Five, because they are thinking already about Poland's integration with the European Union," said Jerzy Cieslik, managing partner at Ernst & Young. His firm recently benefited from such thinking when it won a tender for audit work at Telewizja Polska (TVP), replacing Polish firm Finans-Servis.
"It is long-term thinking, which is becoming a general trend among Polish companies," Cieslik said. "For Polish firms that are already preparing to perform on open markets, it is a way of reassuring foreign investors about their trustworthiness."
Doyle said this reassurance becomes especially important when a company wants to tap either debt or equity markets. An audit by a Big-Five firm is the stamp of approval many investors look for.
The investors' view is so important that the higher cost of an audit by an international company, compared to a Polish firm, does not become an issue. "The much broader range of services we provide justifies the price differential," Doyle said.
In fact, Polish firms, no matter how cheap, have virtually no chance currently to represent a company that is planning to raise capital publicly, said Zdzislaw Paryzinski, vice-president of Finans-Servis, Zespol Doradcow Finansowo-Ksiegowych accountancy firm.
"Even if it used to be our client," he added. According to Paryzinski, Polskapresse which still is the company's client might soon turn to one of the foreign auditors because it will be what its parent company, Medien Passau Germany, decides.
That doesn't mean that international firms can just sit back and wait for business to roll in the door. Rather they have to fight each other, as well as Polish firms for business. To better wage battle, many of the Big Five are finding that they have to follow their clients outside Warsaw.
Ernst & Young, for instance, has six offices beyond Warsaw with 630 employees. Other firms have opened three to four offices outside the capital.
"We need to be close to our customers and Poland is a big country," Cieslik said. "The final number of our local offices might even reach the number of new provinces."
Other firms are also contemplating rapid expansion. KPMG has offices in Krakow and Poznan, but isn't content. "It's too few," Doyle said. "Over the next two years, we'll open two new offices because our clients are already there."
While the business is there for growth, human resources have limited some firms. Doyle said his firm does not have enough people to expand as quickly as it would like.
"We haven't been able to recruit enough senior people for our minimum 25-person offices," he said. "And you can't run an office without enough human resources to service your clients."
On the other hand, the international firms don't want to rush outside Warsaw willy-nilly. Rather they want to see that there is definitely enough business in another city, even if servicing companies there from Warsaw can cost up to 15% of a total audit fee.
"We have to be sure that the volume of business justifies the opening of a new office," said Tony Reczek, head of the auditing department at PricewaterhouseCoopers.
Not that PricewaterhouseCoopers, which was formed in a merger this summer between Price Waterhouse and Coopers & Lybrand, is hurting for business. The new company's auditing business is now three times as large as it was before the merger. The 420-person firm also counts 30% of the companies on the Warsaw Stock Exchange (WSE) as its clients.
But the big fish that the Big Five hunt aren't the only game in town. Smaller international companies are also finding business abundant and expect 2000 to be a gold-rush year.
The turn of the century marks a new legal requirement for all companies above a certain size to have annual audits. This will affect companies that either have more than 50 employees or net revenue above ECU 3 million.
And this will mean new business for smaller accounting companies, said Andrew Kinast, managing partner at Potworowski Kinast Grant Thornton. "Many companies try to postpone audits because it is a costly service," he said, adding that this will now change.
International firms could also receive an additional boost because many Polish accounting professionals can be expected to retire in a few years, Reczek said. "Foreign firms with their staff training programs, will be the best to fill that gap," he said.
