Accountants Join Rush to East Bloc
ROLE IN REFORMS
LONDON — WESTERN accounting firms, usually regarded as plodding, are dancing a polka in East Europe. Accounting firms have contributed to key reform projects, including helping to create a Western-style double-tier banking system in Hungary, and setting up the Budapest Stock Exchange.
Most recently the Hungarian government has asked Price Waterhouse to work on the draft of its audit requirement law. If all goes according to plan, the law will be debated in the fall of 1990 in the Hungarian parliament. ``We hope to present the first draft this spring,'' said Les Bonnay, managing partner of Price Waterhouse in Budapest.
Five of the Big Six firms and some of the mid-sized ones have set up offices in Hungary. Price Waterhouse opened their doors over a year ago. Most accountancy firms are doing work in Poland and two firms have started joint ventures in Moscow.
East European nations are seeking out accountancy firms for a number of reasons. Foremost is their widely noted lack of Western management skills. In many instances, basic management practices such as profit-and-loss accounting are being introduced for the first time.
``Ownership was entirely different, so the bookkeeping system was different. We asked different questions and looked for different answers. Now we need a similar system as the rest of the world,'' says Tibor Voros, the Hungarian commercial secretary in London.
Tripling their salaries
The accountants, for their part, see that delivering these missing skills could be very profitable. ``An accountant who speaks Hungarian and hasn't tripled his salary in the last year or two isn't paying attention to his profession,'' says Mr. Bonnay. ``The market potential for both auditing and management consulting work is enormous,'' says Jurgen Weiss, the Arthur Andersen partner managing their efforts in Eastern Europe.
Accountancy firms, however, are also slated to be key planners in privatization work. Hungary has already privatized 45 companies and literally hundreds more are scheduled.
It is not a simple proposition. Hungarian accounting, according to Mr. Voros, is ``geared at keeping track of statistics and not profit.'' Business in Hungary has met production quotas, not profit targets.
Furthermore, it is not even clear who owns the individual businesses. ``First you have to set up the company's legal shell and value the company, then you have to arrange the financing,'' said Mike Hoyle, a partner at Ernst & Young.
Using foreign accounting firms to value national companies which are then sold off to foreign investors is a recipe for unrest. However, it is doubtful any Western companies would buy another company without the imprimatur of an international accounting agency.
``A foreign company contemplating buying a Hungarian company is obviously anxious to get an objective picture. Western companies are far more comfortable if the valuation is done by a well-known firm,'' says Voros.
Despite suspicions that the West is buying Hungary cheap, there is little alternative to selling off privatized companies to raise investment capital. ``A lack of capital and up-to-date technology'' is hurting Hungary, Laszlo Bekesi, minister of finance, told a privatization conference organized by the London and Budapest stock exchanges.
From an accountancy firm's perspective Eastern Europe is still a gamble. By all accounts the Hungarian economy is a mess. Inflation approaches 30 percent, interest rates are high, and foreign debt is nearly $20 billion. There are restrictions on ownership of private property and the government still sets most prices.
Further, many of the economic side effects of moving to a market economy, most notably unemployment, cannot help but be unpopular. ``They introduced a personal income tax and there was a collective gasp,'' says Neil Payne of Coopers & Lybrand.
Yet the needed Western investment of both capital and skills appears to be forthcoming. There are 300 to 400 joint ventures with Western partners in Hungary to date. Western companies made capital investment totaling $200 million in 1988.
That number could easily double this year, given General Electric Corporation's $150 million acquisition of Tungsram. General Motors has announced plans to invest in Hungary, while Suzuki of Japan is considering a $150 million car assembly plant.