Kazakhstan ratifies the agreement on auditing activities in the EAEU, and the local business is preparing to «bury» 76% of its auditors.
The situation looks paradoxical — with all the apparent advantages of Eurasian integration, certain types of businesses simply will not survive the influx of Russian competitors. It’s simple: locals will be overwhelmed by the quantity from outside, while from within, they are systematically eroded by state barriers.
Cutting-Edge «Care»
Passions have been heated around the EAEU agreement on auditing activities since 2022. A year ago, Kazakhstani auditors managed to convince the presidential administration that the ratification of the document should be postponed until 2026, or at least until amendments are made to our local law, which severely hampers the development of the internal market for auditing services.
We sent our objections to the draft Law of the Republic of Kazakhstan on the ratification of the Agreement and pointed out that the Ministry of Finance did not show the socio-economic effects and consequences of its ratification. We were promised that such an analysis would be included in the explanatory note to the draft, but this was not done. Similar issues were raised by some deputies of the Majilis in 2023, —
says the Deputy Chairman of the Board of the Collegium of Auditors of Kazakhstan, expert of the Research Institute of Audit Activity and Financial Reporting Daniyar Nurseyitov.
Here, for example, is one such statement.
«I want to point out that because of such ratifications, we have given away our entire domestic market to neighboring countries. Because of another such ratification, in the last 3-4 years, all the old cars of the Union are in our country. For example, ‘Zhigulis’, ‘Moskvichs’, ‘Volgas’. We claim that we do not import cars below Euro-4, but we allow buying old cars from Union countries. All because we ratified a similar agreement before. More than 70% of the entire domestic market for the transportation of food and agricultural products is occupied by foreign carriers. Again, because of such a ratification.»
«We are not even able to fully provide work for our auditors, but still, we want to open our market to neighboring countries. Tomorrow, after the ratification of this agreement, our local audit firms will start to suffocate. We must protect our auditors.
The President’s message of September 1, 2023, states that we need to strengthen protection from the state, so we must not forget about this. I ask you to pay attention to these issues,» — on October 4, during a session in the Majilis, MP Bolatbek Nazhmetdinuly noted.
But coherent responses from the state bodies did not follow, which did not prevent the Ministry of Finance from still getting the agreement through the Majilis. It seems strange, but in reality, there is nothing strange: there are much fewer Majilis members who actually adequately assess all the «charms» of Eurasian integration, compared to those who do not mind throwing their own under the tanks of so-called Eurasian competition. It’s a manifestation of the syndrome of brave kamikazes inherent to Kazakhstan.
Cherished memory instead of a bright future
We were expecting amendments that were supposed to abolish the professional council for audit activity under the Ministry of Finance, which since 2021 has not issued a single new auditor’s license, but has influenced the reduction in the number of audit organizations. We think that the amendments were not introduced into the law thanks to the opposition from the Deputy Minister of Finance Dauren Kenbeil, as he heads the professional council in the department and simultaneously oversees audit, accounting, appraisal, and state procurement,
Nursultan Narseitov noted.
According to him, apart from the obvious ministerial haste with the ratification of the agreement, activity was also evident in neighboring Russia.
«The ratification of the agreement in Kazakhstan coincided with the start of discussions by the government of the Russian Federation and the Central Bank on September 28 on the issue of Russian auditors working in ‘friendly countries.’ The initiator – the Russian self-regulatory organization ‘Sodruzhestvo’ (Community) – directly states that the decision of the Russian state bodies will allow the expansion of the presence of audit firms in friendly countries and ‘create international groups controlled by Russian audit companies.’ The Chamber of Auditors of Kazakhstan – a close partner of this Russian association, which also established the professional council that has become a barrier to free audit activity – looks like preparation for the expansion of Russian auditors in Kazakhstan», — the expert said.
The Kazakhstan Association of Auditors notes that they are not against Eurasian integration and not even against the ratification of various agreements on common markets, but at the very least, local Kazakhstani business entities should be ready for this. And they are not ready.
The Research Institute predicts that with the arrival of Russian auditors in Kazakhstan, local losses will account for 60% of the market, and 76% of Kazakhstani audit organizations will cease to exist.
«The Russian audit services market is worth 318 billion tenge (converted to our currency for ease of understanding), the Kazakhstani market is about 12 billion tenge. Russian auditors’ losses due to sanctions in 2023 will amount to between 3 and 6 billion tenge. Compensating for these losses in a ‘friendly’ market, especially under the guise of Eurasianism, is an excellent move. The main thing is that the ‘friendly’ market itself doesn’t particularly object, with the exception of individual speaking heads.»
«According to our Institute’s forecasts, with the arrival of Russian auditors in Kazakhstan, the losses for local auditors will amount to 60% of the market, and 76% of Kazakhstan’s audit organizations will cease to exist.
The size of the audit services market in Russia is 318 billion tenge (converted to our currency for ease of understanding), while Kazakhstan’s market is about 12 billion tenge. The losses of Russian auditors due to sanctions in 2023 will range from 3 to 6 billion tenge. Compensating for these losses in a ‘friendly’ market, and even under the guise of Eurasian integration, is an excellent move. The main thing is that the ‘friendly’ market itself does not particularly object, except for a few vocal heads.
That is No Competition, But Risk
To what do local auditors pay their primal attention? To possible risks associated with the takeover of the discussed business by Russian colleagues
Audit ensures the economic security of an enterprise in terms of tax, economic-legal, financial, property, and information risks. Despite the small number of auditors in Kazakhstan, their impact on the economy is significant both in terms of the reliability of the financial reporting of individual companies and in terms of the objective reflection of the financial position of the country as a whole. Our Institute has found, for example, that about 30% of the financial reporting of the companies of the ‘Samruk-Kazyna’ fund may contain significant distortions, directly affecting the budget and the National Fund. The Chairperson of the Supreme Audit Chamber, Natalya Godunova, also spoke about significant distortions in reflecting the state’s assets, amounting to a trillion tenge. Distortions in the consolidated financial reporting and quasi-public sector, in particular, are related to the lack of independence of auditors and audit organizations from the Ministry of Finance,
notes Daniyar Nurseyitov.
The entry of Russian auditors into the Kazakhstan market, according to the expert, will lead to the outflow of capital to Russia, which will inevitably affect the tax revenue in Kazakhstan’s budget. Not to mention the threat of secondary sanctions. He cited as an example the words of the Russian Foreign Minister Sergey Lavrov that «Russia is strengthening the economies of the Eurasian Economic Union countries to successfully counter Western sanctions.»
«Russian auditors’ access to the Kazakhstan market will significantly hinder investments from other countries, which will increase Kazakhstan’s dependence on Russia and China,» says the expert.
Indeed, if one analyzes the various integration agreements within the EAEU, and also takes into account how actively the bilateral format of Russia’s economic cooperation with the same Uzbekistan is developing outside the framework of Eurasian integration, one can conclude: for the Russian economy, which is clearly larger and much stronger than in other EAEU countries, the union is merely a tool for the unimpeded capture of neighboring markets. There is objectively no talk of any principles of equality.
Privileges to Them, Barriers to Others
Moreover, the Auditing Agreement being ratified is far from the only document of Eurasian integration with clearly negative prospects for Kazakhstan.
Certificates of compliance with the technical regulations of the Eurasian Economic Union (EAEU) have become a tool for limiting competition and entrepreneurial activity in the field of product compliance certification, for example. Russian companies are beginning to dominate in all spheres, except for those where agreements have not been ratified. Interestingly, the number of Russian IT companies in Kazakhstan in 2022 increased threefold (from 415 to 1,100), but since 2016 the Russian government has created a barrier for Kazakhstani software suppliers in the Russian public procurement market with its decree. Russia has also established other restrictions in the field of procurement of goods and services from EAEU countries. For example, in 2020, laws were adopted according to which the Russian Federation can set a limit on the share of public procurement of goods and services from EAEU countries. Such restrictions are not provided by Kazakhstani public procurement rules,
says Gulmira Zharmukhambetova, Executive Director of the Institute of Auditing Organizations and Auditors of Kazakhstan.
Kazakhstan expects a similar development of events in 2025, when the single EAEU energy market will come into operation. The marking of goods and new excisable products in the context of Eurasian integration are also the subject of heated discussions in state bodies. However, Kazakhstani officials continue to pretend that integration in its current form is an excellent opportunity for Kazakhstani businesses to freely enter other markets. Theoretically — yes, but Kazakhstani goods and services are not competitive in cost, while Russia subsidizes its producers on all fronts, thanks to which even long logistics still make Russian goods more «tasty» in terms of prices in neighboring markets.
Currently, Kazakhstan is of interest to Russia also as a transshipment base for the delivery of sanctioned goods. But at least here we have shown our teeth. A couple of weeks ago, Vice Minister of Trade and Integration Kairat Torebayev mentioned in the corridors of the Majilis the restriction on the re-export to Russia of 106 various military goods. There is very little Kazakhstani content in them, so it has no impact on the well-being of local business at all, it is purely a political issue. In other respects, we continue to demonstrate softness and inability to protect our economic interests.
