Public companies’ transparency in Ukraine: key regulatory requirements

Public companies as strategically important and economically powerful Ukrainian companies should be classified as public interest entities in the context of European integration. Based on the research methodology of the Index of public companies’ transparency of the Center for CSR Development and research of largest public and private companies’ transparency in Ukraine, conducted by TI, the authors concluded about critically low level of transparency of public companies in the disclosure of audited financial reporting, as well as non-financial reporting. This research may contribute to the existing literature in regard to identifying key areas of improving transparency of public companies in Ukraine on the basis of amendments to the existing order of reporting and additional disclosure of non-financial information and carrying out the statutory audit, taking into account European experience. Among the issues that require further study, the authors should name the relationship between the level of transparency of public companies, their financial efficiency and investment attractiveness. Among the promising areas of research, the extension of the study on transparency of public interest entities after the publication by the European companies of the first statements prepared in accordance with Directive 2014/95/EU is worth noting. Limitations of the research carried out concerned the size of the sample Ukrainian public companies analyzed.


Introduction
In the context of anti-corruption activities, distribution of reporting transparency (IPFSD, OECD, IOSCO, ESMA, EITI, EU's FLEGT) of public interest entities (PIEs) and public companies as their representatives may be considered a driver of structural changes in the economy.
Moreover, in cooperation with the IMF and World Bank, there was agreed a strategy of state property management reform (The order of the Cabinet of Ministers of Ukraine 662, May 2015). One of its key areas is the improvement of corporate governance practices and increase in transparency of public enterprises activities. For this purpose, the Guidelines on transparency of entities in the public sector were adopted, which encouraged state-owned enterprises to disclose their quarterly and annual information on the results of financial and economic activity.
Unprofitability of the largest public companies (in 2014, their combined net loss was 115.4 billion UAH) prevents using the potential opportunities of public companies as driving forces for structural changes in the economy and its progress towards sustainable development.
Studies of particularly important public companies' transparency in Ukraine as PIEs are regulatory motivated and relevant for the following reasons: the vast majority of public companies in Ukraine by the legal form are public joint stock companies and issuers of securities that are traded; the price of assets of the majority of public companies that are subordinate to the Ministry of Economy and Development of Ukraine and at times exceeds the threshold of 20 mln Euros set by the accounting 34 th Directive for large companies; the importance of transparency of public companies with a view to ensuring their investment attractiveness, management effectiveness and financial-economic activity because of their strategic importance to the economy and a monopoly on the market.
The purpose of the article is to analyze the level of Ukrainian public companies' transparency in the light of adaptation to international requirements.
A key problem associated with low transparency level of Ukrainian public companies is absence of good corporate governance mechanism and informational disclosure practice, as well as incomplete information on companies CSR and the lack of its verification. Authors proved that the way of solving this problem lies in the field of implementing the provisions of Directive These rules represent main regulatory requirements for providing transparency of PIEs and should be implemented for Ukrainian public companies in the light of Association Agreement with EU.

Regulatory requirements
Ensuring transparency in corporations' activity has coverage among regulators and scientists. The importance of transparent corporate environment is primarily linked to the profitability of companies. According to the study of Healy, Hutton, Palepu (1999), the increase in transparency of corporate reporting pushed up stock prices of companies by sectors in the first year by 7.1% and in the second year by 8.4%.
Information transparency is the key component of corporate governance according to the Principles for the corporate governance of the Organization for Economic Cooperation and Development (OECD) and the G20 countries. Particularly, Section 5 of the Principles states that corporate governance should provide timely and accurate disclosure of all material aspects regarding the corporation, including the financial situation, performance, ownership and management of company. Important documents on promoting transparency in corporate reporting are the Objectives and Principles of Securities Regulation (IOSCO) -in the context of financial markets, UNCTAD's Investment Policy Framework for Sustainable Development (IPFSD) -in the context of promoting sustainable development initiatives.
Among the key priorities of the European Organization for Securities and Markets (ESMA) and the Working Group on Financial Reporting (EFRAG) are improving the transparency and comparability of financial information, reducing information asymmetry between users of reporting, ensuring consistency in the application of alternative methods for assessing and restoring public confidence in the statements as a whole.
Specific documents designed to improve the transparency of public enterprises is a standard Extractive Industries Transparency Initiatives, that is implemented in 50 countries of the world (in

Public companies as PIEs
Taking into account the provisions of Directive 2013/34/EC into national economic and accounting legislation in the process of European integration has led to the introduction of a new grading of companies. An average number of workers, the result of the balance sheet, net turnover for the financial year is the basis for splitting the companies into the micro, small, medium and large.
The subjects of natural monopolies, enterprises of mining sector and public companies are obliged to make statements under IFRS, to provide its disclosure in annual reports with audit report to improve transparency.
However, national legislation does not contain a definition of criteria for companies -PIEs. Specific provisions for such companies are contained in the draft Law "On audit of financial reporting and auditing" (2017).
We consider it necessary to note that the definition of this category of companies is systemically important and should be done not at the legislative level, but at the level of the Commercial Code.
This status is necessary for the company in the light of European legislation to make and reveal some forms of non-financial reporting according to requirements of the 95th Directive and to carry out statutory audits, as it is required by 56 th Directive and Regulations.

Commission
Recommendation 2002/590/EC contains the following criteria to PIEs: type of business, volume of activity, the number of employees, corporate status, which provides for a significant number of shareholders.
These companies, in particular, include credit institutions, insurance companies, investment companies and funds, pension companies and funds as well as listed companies, i.e., corporations whose shares are registered and are traded on recognized stock exchanges.
This list essentially meets the requirements of Art. 8 "Mandatory audit" of the Law "On Auditing" and Art. 14 "Presentation and disclosure of financial statements" of the Law "On Accounting and Financial Reporting in Ukraine" (see Table 1), the requirements of the revised draft Law "On audit of the financial statements and auditing" (2017). The last bill essentially consolidates individual project requirements of the Law "On Auditing" (2015) and the draft Law "On audit of financial reporting and Auditing" (2015).
Thus, according to the draft Law "On Auditing" audit for two significant categories of financial and economic activities -social and public is mandatory. Socially significant entities are those whose financial and economic activities according to their legal status may affect the interests of society or the state. Considering the cases of a statutory audit, this circle of subjects includes corporations, bond issuers, professional participants of the securities market, financial institutions, insurance companies, other financial market intermediaries and other entities reporting of which under the laws of Ukraine is subject to official publication, except for enterprises, institutions, organizations fully funded by state or local budgets. Public important entities are the subjects financial and economic activities of which affect the interests of a wide range of people. These include non-profit and charity organizations if their annual economic turnover is over twenty million UAH, and in the case of recognition of bankruptcy or termination of a legal entity.
In fact, the bill is operating with somewhat mixed concepts, it refers to those socially important entities, statements of which are subjects to disclosure and partly complies with requirements of European 34th, 95th and 56th Directives.  However, none of the analyzed documents directly includes public companies to the list of PIEs. In this connection the proposal of Shalimova (2016) to define a range of such companies considering public companies at the level of Civil Code, Commercial Code, National Classifier of Ukraine "Classification of economic activities", the Law "On Accounting and financial reporting in Ukraine" and "On auditing" in view of the EU criteria is appropriate.
The entities of social (public) interest are public joint stock companies, banks, issuers of bonds, securities and derivatives, professional stock market participants and other entities that conduct economic activity in the financial and insurance activities (group 64 "Financial services, except insurance and pension", group 65 "Insurance, reinsurance and private pension provision, except compulsory social insurance", group 66 "Insurance, reinsurance and private pension provision, except compulsory social insurance" CTEA GC 009, 2010), entities of public sector, institutions and organizations which are fully funded from state and local budgets, enterprises founded on state and municipal property, business partnerships, shares of which are state or municipal property, and other entities that receive (receiving during the period verified) funds from the budgets of all the levels and state funds or use (used during the period verified) state or municipal property (Shalimova, 2016).
In our view, the criteria indicated by the author should be supplemented by quantitative criteria, as well in order to determine PIEs for achieving full compliance with the requirements of the EU Directives.

Public companies' transparency
In order to increase transparency and competitiveness of public enterprises and the implementation of the Strategy reform of state property management, the Ministry of Economic Development and Trade of Ukraine recommends that public companies should disclose (considering guidelines for the transparency of business entities of public sector, approved by the Order of the Ministry of Economic Development and Trade of Ukraine 116 from 11.02.2015) the following categories of information: goals and objectives of the company; financial and economic activity results (liquidity, profitability, efficiency of assets use and their changes over 3 years; accrual and transfer to the budget according to the laws of dividends, net income); results of operations; information on procurement and investment; average monthly salary, including managers, salary arrears and so on.
According to the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine regarding the management of state and municipal property", which came into force on 25 th of June 2016, the state unitary companies are now required to disclose, among other things, audited annual financial statements and the report of independent external auditors by 30 th of April.
These requirements are applied to public and municipal unitary enterprises and business associations in the authorized capital of which there are more than 50% of shares owned by the state or local community and business partnerships, 50% or more of shares of which belong to commercial companies, the state share or community share of which is 100 percent.
However, the given list of information only partially takes into account the requirements of the 34 th and 95 th EU Directives on disclosure of non-financial and diversified information, presenting of management report, report on corporate governance and report on payments to the government. The issues of statutory audit, the criteria for election of auditors for public companies are also problematic.
In general, this negatively affects the level of transparency of most public companies despite concerted government efforts to improve it. According to the study results, the transparency level of Ukrainian public companies is 21.2 points out of 100 possible, herewith about half of companies (26 of 60) have a higher than average level of CSR disclosure.
Key evaluation parameters are such as content, strategy and reporting and navigation.
However, despite the fact that the transparency of the top 10 public companies is 42%, including the parameter "Content" -32.3% (19.7 points out of 61 possible), "Strategy and Reporting" -50.6% (15.2 of 30) and "Navigation" -83.3% (6.6 of 9) (Table 2), the average level of CSR disclosure on websites of public companies on key parameters of assessment is rather low. Table 2. Transparency index of Top 5 Ukrainian public companies by the methodology of the Center "CSR Development" (2015) TOP 5 public companies in terms of disclosure on the parameter of "Content" TOP 5 public companies in terms of disclosure on the parameter of "Strategy and Reporting" SE "National Nuclear Energy Generating Company "Energoatom" 36 PJSC "Ukrhidroenergo" 26 OJSC "Zaporizhyaoblenergo" 25 SE "NAEC" Energoatom 23 State territorial and sectoral unification "Southwestern Railroad" 24 SE "Ukrkosmos" 20 PJSC "Tsentroenergo" 22 SC "Oschadbank" 20 SE "The administration of sea ports of Ukraine» 21 PJSC "Tsentroenergo" 13 The average level of disclosure on the parameter "Content", which includes such components of non-financial information as the presence on the website of complete information on key aspects of social responsibility: corporate governance, labor relations, human rights, environmental policy, fair operating practices, relationships with stakeholders and community development -is 16.3% (9.98 points from 61 possible). More than half of companies (35) have sufficiently low disclosures of main aspects of CSR -they scored lower than average amount of points.
The average level of disclosure on the websites of public companies on the parameter "Strategy and Reporting", which includes components of the publication on the website of the business strategy and the strategy of corporate social responsibility, financial reporting and CSR reporting is 16.7% (5.06 points of 30 possible).
In the study of transparency of private and public companies in particular, conducted in 2017 by Transparency International Ukraine to assess the implementation of policy of compliance with norms in major companies of the country 50 private Ukrainian companies and holdings that were presented in the rating of "Major businesses of Ukraine" of Forbes magazine in 2015, and 50 public Ukrainian companies from the list of "100 largest public companies of Ukraine for 6 months of 2015", published by the Ministry of Economic Development and Trade on its website were analyzed (TI Ukraine, 2017).
Evaluation of these companies was conducted in three thematic blocks: disclosure of anti-corruption programs, organizational transparency, disclosures about the activities and operations in other countries, covering 27 issues. Maximum scoring -10 points -the highest transparency and 100%, respectively. The results of the study are summarized by the author in Table 3. The general conclusion of the study is relatively low transparency of private and public companies on disclosure of anti-corruption programs and ethical codes, complience, corporate reporting and countryby-country reporting. It should be noted that the highest rates were showed in the direction of institutional transparency -76.9% on average for the sample investigated, but not all the companies even given the legislative requirements publish their financial statements confirmed by the auditor. It should also be noted that there is the coordination of results of the two methods in the determination of a leader -SE "Energoatom".
Thus, the results of evaluation of transparency of public companies demonstrate the need to improve it in the part of disclosure of the audited financial statements, as well as non-financial information on CSR.

Conclusion and remarks
To sum up, it is worth noting that public companies as strategically important and economically powerful Ukrainian companies in the context of European integration should be classified as PIEs. The main ways of increasing public companies' transparency in Ukraine should be formulated as follows: Promoting initiatives for the non-financial reporting (management report, corporate governance statement, report on payments to the government), development of calculating and disclosure methodology for sustainability indicators according to GRI, verification procedures by auditors as part of building a CSR strategy in the public sector; increased requirements for quality and reliability of financial reporting of public companies as the PIEs and its statutory audit; consideration of European approaches to PIEs statutory audit, along with protecting the interests of Ukrainian audit companies, promotion of fair competition in the market of audit services.
As part of the promotion of public companies' transparency for operators of the extractive industries, regulators should intensify efforts to adopt the draft Law of Ukraine "On information disclosure in the extractive industries". It was aimed at implementation of international standards in Ukraine and best practices of information disclosure in the extractive industries under the Extractive Industries Transparency Initiative.
Increased transparency of these companies through the development of methodologies of country-bycountry reporting best meets the objectives of sustainable development, effective management and use of natural resources, can reveal the mechanism of government revenues formation from the mining sector, especially oil and gas.
Another trend in increasing the Ukrainian public companies' transparency is the participation of the Audit Chamber of Ukraine and audit community in Ukraine in convergence process of audit regulation harmonization, including the provisions of Directive 2014/56/EC and Regulation 537/2014.
Among the issues that require further investigation, we must underline the study of relationship between the level of public companies' transparency, their financial efficiency and investment attractiveness. Among the promising areas of research, it is worth to note the study of PIEs transparency following the publication of the first European companies reporting prepared in accordance with Directive 2014/95/EU.
Limitations of the research carried out concerned the size of the Ukrainian public companies' sample analyzed and different types of transparency methodology used.