Accountancy & Management: Building a profession on the Bloc: Former Communist states are learning about financial reporting. Roger Trapp reports

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The Independent Online
CYNICS have for some time questioned whether the beleaguered peoples of Eastern Europe would have risked life and limb to batter down the barriers with the West if they had realised there would be armies of management consultants on the other side.

This view might be unfair, but there is a perception that the rush for freedom in the former Eastern Bloc at the end of the Eighties was a godsend for the Big Six firms.

It came at a time when the economies of the United States, Britain and elsewhere were losing steam. Lacking demand for their employees' skills at home, the firms were able to send them off to take part in the modernisation of telecommunications, establishment of power networks and other labour-intensive infrastructure projects.

Now it is the turn of their colleagues in the accounting and auditing divisions to get in on the act. Their task is to change a whole generation's attitude towards financial reporting. As Kalman Wenig, managing partner of Arthur Andersen's Budapest office for the past six months, says, there was no need under the Communist system for accountancy as it is generally known. What accountants there were in Hungary and elsewhere mainly confined themselves to bookkeeping and the like.

But, he added, 'they realise that if they are to attract investment they need proper accounts'. The process of getting there is going on throughout the region through the co-operation of the Big Six firms with local practitioners and their governments.

In Hungary, Arthur Andersen is involved in a project designed, in Mr Wenig's words, to update the profession by 40 years under the European Community-backed Poland and Hungary Aid for the Reconstruction of the Economy (Phare) programme. This scheme has been extended to the rest of Central and Eastern Europe, with a separate one set up for the Commonwealth of Independent States.

'The Hungarian accountancy profession wants to be accepted by the EC. It wants to be part of the EC just like the country wants to be part of it,' Mr Wenig said.

A first step in the process came in May 1991, when the Hungarian parliament passed a law intended to bring the country's accounting regulations into line with international standards. The law defines methods for valuing assets and liabilities, specifies reporting requirements and outlines auditors' responsibilities. But it is not enough on its own to bring about the necessary changes.

Transforming accounting departments from bookkeepers to providers of genuine management and financial accounting advice who are heavily involved in the day-to-day running of businesses will require extensive training. This is being supervised by the country's finance ministry, but the real expertise is coming from the Big Six. Which is why Mr Wenig and his colleagues are surveying best practice in several EC countries in an effort to help establish the right standards.

'We're not going to write the rules,' he says. 'We're trying to create the framework.' Nor, he insists, is it the intention to colonise the region. Although Arthur Andersen - in common with the other leading firms - has offices all over the region, it creates about four jobs for every expatriate sent out to them. And by training these people, it is helping to build a local profession.

'Our goal is to have a Hungarian firm serving the Hungarian market. It will take perhaps 10 years, but it's a model we followed in France, Spain, Germany and elsewhere. We want to serve not just international clients looking to invest in Hungary, but local institutions and firms as well.'

Before moving to Budapest with his family, Mr Wenig set up and ran for 12 years an office on the northern outskirts of the firm's home city of Chicago. He says he is familiar with the problems of emerging businesses of the type that are likely to arise in Hungary.

But it is not all altruism. The large firms are contributing time and money to developing a proper profession because it is to their long-term benefit. 'We're doing it because we want an environment we can practise in.'

(Photograph omitted)

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