Your options for an auditing firm
Joe Smoczyński is a partner at Moore Stephens (Smoczyński i Partnerzy) auditing and consulting firm
Depending on how you estimate it, large companies account for 20 percent to 35 percent of Poland's GNP. The rest, which form the major part of the economy, also require auditors, and in Poland their options for an auditing firm are noticeably varied.
The local auditing profession can be divided into at least five groups. First come the "Big Four," which are made up of national firms working in a close organization tied in by capital or agreements, often subsidiaries of the main international organization. Their main client base is formed by multinationals and large domestic companies, and their structure is such that they are organized to control audits carried out in many countries simultaneously, and then to consolidate those figures. Their structure is costly, and their fees reflect this. Having this structure also gives them the ability to do large national projects. Their largest client contributes less than 5 percent to their annual turnover, which is an internationally recognized criterion for independence. Therefore, they need to be large in order to service large clients. They are, however, not well-organized to service smaller firms.
The second tier usually consists of eight to 10 associations of independent firms, each working as one professional organization. Often there is cross-fertilization, but in the main these companies pride themselves on being independent practices working together to a common high standard of service. Clients of second-tier firms typically want comprehensive service, meaning that they expect their auditor to wear two hats: one for statutory work and the other to use the experience the auditor has gained to advise the client in other matters. The client base includes large national firms and the smaller multinationals. However, for public clients, where the second-tier firms must be seen to be independent, they do not offer other services. Second-tier firms have more affordable fees because they have a simpler national structure, smaller European headquarters and international offices. Like the Big Four, second-tier firms may not earn more than 5 percent of their fees from one client, unless they can show that the firm is independent.
There is a third group that also has international links, though these links are more formal than practical. These cross-border groups provide contacts with similar small firms in other countries so that international tax advice can be obtained, consolidations made, and so on. Some of these "names" are an association where there is little help except for a brochure, a manual and membership handbook. These firms, in general, have little influence on the marketplace. They sometimes appear high in the international rankings because they have a membership in the hundreds or thousands of small firms.
The fourth group in Poland are local practices which operate out of one office, many of which have more than 10 people on staff. Their experience of operating in a foreign language, and their understanding of international accounting standards (IAS) or generally accepted accounting principles (GAAP) outside of Poland is usually limited. They tend not to have in-house translators, and in Poland they tend to have only a few permanent staff, while the rest work on a subcontract basis. Their quality of work can be to a high standard, but generally they do not have internal procedures for consistent, uniform presentation. Subcontracting work to other auditors keeps costs down but increases the audit risk (of a lack of independence) since the contracting auditors' fees may be a significant part of their annual income, meaning more than 10 percent and often closer to 50 percent.
The fifth group mainly consists of retired auditors who work during the audit season, usually working alone, or splitting the work with a colleague or two if dealing with a large assignment. Polish accounting law states that in order to be independent you cannot have more than 50 percent of your annual income from one client. They often only carry out two to three audits per year. Due to the difficulty of keeping abreast of the changes in the various tax and accounting laws, as well as IAS and the auditor's norms, their resultant Auditor's Opinion tends to be a rubber-stamping exercise. Their clients hire them because they are very cheap (virtually no overhead) and the client often regards the audit as a necessary evil with no real benefit.
Each of the five groups have their own natural client base which overlap to some extent. Increasingly banks and other institutions look at the independence issue with concern. Therefore the international firms, in their internal standards, address this issue as fundamental for membership and long-term existence.
A personal note
On July 11 the funeral of Professor Jerzy Sablik took place in Poznań. As the president of the Association of Accountants in Poland when the Berlin wall came down, Sablik reshaped the accounting profession and reintroduced the auditing profession, giving it the status it had prior to World War II. As a result of his vision, we in Poland have the most advanced National Chamber of Auditors of all central European countries. Despite his long illness and advanced age, he was never a man to retire, always keeping himself busy by giving advice and continuing to shape the profession. I remember him as a person determined to ensure that the auditing profession in Poland achieve recognition in the EU countries. We are all sad to see such a practical visionary depart.
