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Recently, there have appeared a number of articles in the Russian press commenting negatively on Russian companies and on their auditors, including PricewaterhouseCoopers. In part, such articles may be an effort to relate the Enron case in the US to Russian companies. Such attempts demonstrate a lack of understanding of the differences between these markets – they also demonstrate a lack of understanding of the role of independent auditors. Uninformed and ill-founded commentary is unnecessarily harmful to the reputation of Russian companies, damaging to the investment climate in Russia.

We are concerned that much of the recent commentary on the work done by PricewaterhouseCoopers is based on a misunderstanding of the role and responsibilities of auditors.

In the interests of bringing professional balance to recent commentary, perhaps we can address, at least in summary, some key questions.

What is the role and responsibility of management?

It is the responsibility of management to prepare financial statements which set out the company’s financial position and the results of its operations in accordance with appropriate accounting principles (i.e. Russian or international).

What is the role and responsibility of an independent auditor?

The role is to provide an independent opinion on the fairness of client’s financial statements. As required by the audit law, it is the responsibility of independent auditors to give their opinion as to whether these financial statements are fairly presented and comply with the rules on bookkeeping in the RF. What is an independent audit? An audit is an examination on a test basis of numerical data and explanations of such data presented in a company’s financial statement. An audit includes an assessment of the principles and methods used in the preparation of those financial statements. An audit does not represent a review of each transaction or, and perhaps most importantly in the context of much recent comment in the Russian media, a qualitative assessment of a company’s performance.

Although an audit is a key component of good corporate governance it is not a substitute for good corporate governance, nor is good corporate governance an alternative to good management.

As a result of their audit work, the auditors often make recommendations to the board of directors and to management on ways to improve corporate governance, internal controls and financial reporting. However, it is the responsibility of the client to decide on whether and to what extent the auditors? recommendations are to be implemented.

Independence is a fundamental feature of the audit profession and, along with objectivity and unquestioned technical expertise, is the basis on which we at PricewaterhouseCoopers have built our name during the 150 years we have been in business. Some suggest that large fees from our clients tempt us to do less than satisfactory work. This is absurd. Not one of our clients represents more than a fraction of our total annual $23 billion fees, and no material benefit can compensate for the damage which can be done to our global reputation due to the loss of independence.

From the business perspective it is more than reasonable to avoid situations which may compromise the reputation which generations of professionals have been developing for decades. We are convinced that the market in general and our clients understand this. In fact, we take our reputation so seriously, that in order to avoid speculations on the issue of conflict of interest, a year ago we took a decision to sell our management consulting practice, by itself a $6.5 billion business.

One may then ask: why are auditors so protective with respect to attempts of third parites to discuss their work? The answer to this is simple: client confidentiality, which is a contractual, professional and regulatory requirement. While it is frustrating when we read misleading conclusions concerning our clients or speculation with respect to the quality of our work, we are constrained in our ability to respond directly with facts, as this would almost inevitably lead to violation of our professional contractual and regulatory duties.

Having operated in Russia for over 10 years years, we are interested in the development of a free and open economy in this country. Indeed we have made significant investment in the pursuit of that goal, and made our intellectual input into the development of an independent regulatory regime, fair tax legislation, modern accounting standards, a recent law on audit and the creation of a corporate governance code. We believe that we have made a contribution we can be proud of to the development of a well ordered and well regulated capital market in Russia and we are committed to continue our efforts in this direction. We are prepared, with due regard to the professional standards and regulatory requirements, to have a discussion on the matters discussed above, lead a constructive dialogue and interact with the government and its authorized bodies both on the matters of the development of the profession in general and on concrete matters which may be of interest to them.

We trust that unbiased and educated readers of some of the recent press coverage of the audit profession will recognise the need for a balanced and considered assessment of the true standing of the profession in Russia and worldwide. We are committed to continue to provide high quality work to our clients and, by doing so, to further contribute to the development of the Russian and global economy.

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