In a move that many are condemning as a climbdown in the face of Kremlin pressure, PricewaterhouseCoopers has withdrawn all of the Yukos audits it undertook between 1995 – 2004:

“PwC now believes that information and representations which was provided to PwC by Yukos’ former management may not have been accurate,” the firm said in a statement issued Sunday.

I don’t really want to focus on whether PwC decided pleasing the Kremlin was more important than its long term integrity. Iinstead, I’m more interested in the longer term impact of PwC’s decision to withdraw its Yukos audits, and whether it will turn out to be a pyrrhic victory for the Russian government.

I don’t think there is any doubt that this tactical victory for Yukos’ prosecutors – PwC’s decision adds yet more weight to evidence against Yukos, and I’d imagine that more charges may well result from the allegation that the auditors were misled.

But, in the longer term, I think today’s news may well present a larger strategic problem for business in Russia.

If PwC can be so easily fooled by one company – ‘but Yukos executives lied to us’, the auditors indignantly claim – then one must surely assume that any other Russian company could have also pulled the wool over the eyes of PwC’s naive auditors.

If some of the biggest, and supposedly best auditors in the world can be so easily deceived, then there is absolutely no reason why anyone should trust their audits of any other big Russian firm.

And if an auditor can be deceived, why not an investor?

Update: A Fistful of Euros are also unimpressed, although they detect the heavy hand of the Russian state at work, rather than lying Russian businessmen and naive auditors:

At any rate, the message is clear: Audits of businesses that are important to the Russian state will say what the state wants them to say. Caveat lector.

Either way, not a good day for PwC.

Tagged as: Business/Economics