It was recently announced that an audit of the operation of Electric Networks of Armenia (ENA), a subsidiary of Inter RAO UES Company, will be conducted under the auspices of the Russian-Armenian intergovernmental committee.

Mediamax has talked to the heads of Grant Thornton Armenia CJSC and Paradigma Armenia Consulting and Research Company with regard to the idea of carrying out an audit at the ENA, the mechanism, possible deadlines and further developments.

Managing Partner of Grant Thornton Armenia Gagik Gyulbudaghyan told Mediamax that the idea to check the validity of the rising electricity price is late yet it’s commendable.

“The Armenian government and the Public Services Regulatory Commission (PSRC) should have carried out a check-up of the validity of electricity rate right after the ENA applied for increasing the electricity price and only after that the Commission should have made a decision,” said Gagik Gyulbudaghyan and added, “We believe that given these circumstances a special purpose audit should be conducted, i.e. an audit of the separate items, accounts and articles of the company’s financial reports in compliance with the International Standards on Auditing (ISA). In addition, the consultants should also carry out certain additional studies.”

Our interlocutor noted that prior to this in 2015 an audit of ENA’s 2014 annual financial reports was conducted and the company received a modified (positive with reservation) auditor’s conclusion. However, he said the following:

“To understand the issues that have emerged in the sector as well as their solutions we should conduct the abovementioned special purpose audit and other studies, and draw up an accurate and detailed technical task. The audit of the complete financial statements cannot give answers to those questions.”

According to Gagik Gyulbudaghyan, the group of experts involved in the process should take the following steps:

-an audit of the separate items, accounts and articles of the company’s (in this case, ENA’s-Mediamax) financial statements, which might include, for instance, the audit of the cost price of the company’s services and other expenditures;

- with regard to the rising electricity rates, the study of the commitments the company has undertaken regarding the investments in its business plan over the past years and the status of their realization;

- a study of the new plan submitted by the ENA and the assessment of how realistic its implementation is.

“Once these three steps are taken we can have a clear idea of the validity of the proposed increase in electricity rates,” said our interlocutor and added that in any case, there are a number of open questions regarding who will order the audit and the studies, which organization will be selected for it and what tasks will be assigned to it.

“The audit/consulting firm should be assigned a clear technical task, which will entail the abovementioned three steps. Such a work will require four-five months at the least. The ENA is today rumored to be sold, nationalized or be transferred for another organization’s management. If this is the path along which they will proceed, then we should follow another direction. We should firstly find out the path and only then decide the frameworks and the depth of the audit not to double the work in the future,” said Gagik Gyulbudaghyan.

Asked what should be expected from the special purpose audit, Gagik Gyulbudaghyan answered:

“The special purpose audit completes with a conclusion, which can find out to what extent the services contain correct expenditure items or whether all expenditures that were made were purposeful or not, etc.”

Our interlocutor noted if the audit is carried out by a foreign company, then local experts should by all means involved in it. He said that “it should be transparent and the public should be regularly informed about the process.”

“In this regard, drawing up a correct technical task is highly important: the success of this initiative is contingent on the specified technical task,” concluded Gagik Gyulbudaghyan.

Founder and Expert at Paradigma Armenia Consulting and Research Company Aharon Chilingaryan also believes that a special purpose audit with a clear technical task should be conducted at the ENA.

“The parties should have a clear idea of the structure and the depth of the audit. They should know what is envisaged afterwards – a reference, a statement or an auditor’s conclusion. The ineffective management of the company seems to be talked about more. If there is a need for the assessment of the ineffective management, then it differs from the audit rules and has other criteria; the evaluation of the efficiency of the management is carried out based on a different system,” said Aharon Chilingaryan and stressed the importance of the availability of the clearly formulated technical task.

Our interlocutor found it hard to speak about the audit deadlines noting that it is accounted by the degree of complexity of the technical task. Aharon Chilingaryan believes it is too early to speak about the developments expected to follow the audit results saying that we should firstly focus on having clearly formulated questions regarding the audit.

Siranush Yeghiazaryan