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On January 16, 2020, the Verkhovna Rada adopted in the second reading the Draft Law that introduces a three-level structure of transfer pricing (TP) documentation for international groups of companies, which includes Local file (TP documentation), Master file (global TP documentation), and Country-by-country reporting (CbCR).

We will consider in the following article the main new requirements of the adopted Draft Law No. 1210.

Related parties

In addition to the already existing criteria for recognition of parties as related, a new one was added: “when conducting transactions by entities without the status of a legal entity with a related party of any of the parties to the joint venture agreement, whose contributions to the common property are 25 percent or more, entities without the status of a legal entity (of joint venture agreement) and such a related party of any of the parties to such an agreement are deemed related”.

In addition, the dramatic change is the increase in the percentage of corporate rights ownership from 20% to 25%, for which persons are recognized as related. This change can also be tracked in Article 39 of the Tax Code of Ukraine in the context of the use of information on comparable legal entities for the purpose of substantiation of the conditions of the controlled transactions under the arm’s-length principle.


The definition of the notion of quoted prices has been added to Article 14 of the Tax Code of Ukraine. According to it, the quoted prices are the prices of the commodity in the corresponding period, which were received in the international commodity market. A quoted price is defined as the price (average price) and/or the range of prices on a certain date or period.

This innovation is aimed at transforming so-called exchange commodities into commodities as well as at establishing a more transparent and clear process for justifying controlled transactions, where commodities will be featured. In this case, such justification will be carried out using the comparative uncontrolled price (CUP) method as a priority.

The taxpayer conducting controlled commodity transactions shall inform the supervisory authorities about the conclusion of the respective agreement (contract). This notification will serve as documentary evidence that the parties to the controlled transaction had agreed to the material terms of the agreement (contract) at the time of entering into such an agreement.

Thus, the taxpayer is entitled to compare the price of the controlled transaction with the quoted prices as of the nearest date to the price formation date agreed upon by the parties to the controlled transaction.

Otherwise, the supervisory authority will compare the price of the controlled transaction with the quoted prices on the date of transfer of ownership rights of the object of the controlled transaction or on the date of shipment of goods under the commodity transportation document.

Please note that the Cabinet of Ministers of Ukraine determines the list of commodities. In addition, the Central Executive Body that implements the state tax policy publishes the recommended list of sources of information for obtaining quoted prices.

Verification of economic (business) purpose of transaction

The next requirement is the establishment of criteria for the absence of a reasonable economic (business) purpose for the taxpayer in transactions with non-residents, namely:

  • the main purpose or one of the main purposes of the transaction and/or its result is the non-payment (partial payment) of taxes and/or reduction of the taxable profit of the taxpayer;
  • in comparable conditions a counterparty would not be able to buy (sell) such works (services), intangible assets, other objects of business transactions other than goods from non-related parties.

From now on, the taxpayer is required to provide a justification of the economic feasibility (economic benefit) of the completed transactions and the availability of a business purpose (for transactions other than commodity ones) in the TP documentation. If the supervising authority proves that completed transactions have no economic (business) purpose, the financial result from the taxpayer’s operating activities is increased by the amount of expenses incurred by the taxpayer in such transactions with non-residents.

Adjustment of financial result

According to the adopted amendments, the financial result of the taxpayer is increased by 30% of the cost of goods, works and services sold to residents of low-tax states (territories), and counterparties, whose legal status is included in the list approved by the Cabinet of Ministers of Ukraine.

Similar to the Paragraph 140.5.4 of the Tax Code of Ukraine, the requirement for the taxpayer to apply the above adjustment can be avoided if the operation is not controlled and the taxpayer confirms the amount of such income at arm’s-length prices without submitting a report.


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Significant changes adopted in the legislation on accounting and audit in Ukraine have affected many medium and large enterprises.

In this article, I would like to highlight the sanctions that may be imposed on companies for violations related to the non-publication of financial statements and the auditor’s report as required by the new legislation.

It is worth noting that the fines themselves are not that significant. A more substantial risk for large enterprises is the non-acceptance of the tax return for 2019 and subsequent years, if they were prepared on the basis of the financial result in accordance with Ukrainian Accounting Standards (UAS), rather than under International Financial Reporting Standards (IFRS), and not confirmed by the external auditor. The very fact of the violation of local compliance may be important for medium enterprises, especially those with foreign capital.


  1. The Law “On Accounting and Financial Reporting in Ukraine” No. 996-XIV as of November 16, 2018 does not contain any sanctions for enterprises.
  2. The Law “On Audit of Financial Statements and Auditing Activities” No. 2258-VIII of 21.12.2017 regulates the issue of sanctions/penalties for violations.
  3. This Law supplements the Code of Administrative Offences of Ukraine with Article 163-16. This provision came into force on January 1, 2019.

“Article 163-16. Violation of the procedure for disclosure of financial statements or consolidated financial statements.

Violation of the procedure for disclosure of financial statements or consolidated financial statements, along with the audit report, entails the imposition of a fine from 1,000 to 2,000 of tax-free minimum incomes of citizens* (i.e. from UAH 17,000 thousand to UAH 34,000 thousand).  A repeated violation under paragraph one of this article, in respect of which the person has already been subject to administrative penalty during the year, entails the imposition of a fine from 2,000 to 3,000 of tax-free minimum incomes of citizens (i.e. between UAH 34,000 thousand and UAH 51,000 thousand)”.

* Tax-free minimum incomes of citizens = UAH 17.

There’s an important point to be emphasized here. If the company does not rectify its violation (i.e. does not prepare financial statements in accordance with IFRS and does not conduct an audit) within the period specified in the order of the supervisory body, it may be fined again.

The Law on audit specifies the supervisory authority that will regulate these violations.

“Article 244-22. Public supervisory authority for audit activities.

The public supervisory authority for the audit activities considers cases of administrative violations related to the violation of the procedure for disclosure of financial statements or consolidated financial statements, as well as the audit report  (Article 163-16, except for violations committed by banks, non-banking financial institutions and issuers whose securities are admitted to trading on stock exchanges or in respect of whose securities the public offer was made by professional stock market participants), provision of information by the auditor, in cases determined by law, to the public supervisory authority for the audit activities (Article 166-26)”.

That is, public supervisory authority for the audit activities will fine all enterprises subject to statutory audit (whether large or medium) for violations, except the following:

  • banks (the National Bank of Ukraine supervises them as before);
  • financial institutions, such as insurance and leasing companies (the National Commission for State Regulation of Financial Services Markets is the supervisor);
  • public joint-stock companies, asset management companies (the National Securities and Stock Market Commission supervises them as before).


If your company meets the criteria of medium or large enterprises, and you still have questions in the field of new legislation, Kreston GCG experts will be happy to answer them.

Andrii Popov
Partner of Kreston GCG

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Significant changes made in 2018 to the accounting and audit legislation in Ukraine affected a large number of medium-sized and large companies.

Let me remind you that these companies need to conduct a statutory audit of the financial statements for 2019, and companies that fall under the category of large should transfer to the preparation of financial statements in accordance with International Financial Reporting Standards (IFRS). We have already discussed risks that threaten enterprises for failure to conduct a statutory audit in another article.

Also, I would like to point out that the category of medium-sized enterprises includes enterprises that meet 2 criteria out of 3: revenue of which amounts to EUR 8-40 million, assets – EUR 4-20 million, and the number of employees is 50-250 people. The category of large enterprises includes enterprises with revenue more than EUR 40 million, assets more than EUR 20 million, and the number of employees more than 250 people.

Revenue and asset indicators are taken as at the reporting date for the year preceding the reporting period (line 2000 of the statement of profit or loss and line 1300 of the balance sheet, respectively) at the average annual Euro exchange rate; the number of employees is calculated based on the average annual indicator for the year preceding the reporting period in accordance with Form 1.

It is widely considered that in order to be included in a particular category, an enterprise has to meet the criteria for two years instead of one.

This issue is particularly critical for large enterprises due to the need for IFRS transition and higher requirements for auditing companies of public interest.

Indeed, the Law of Ukraine “On Accounting and Financial Statements in Ukraine” No. 996-XIV dd. 16.11.2018 (hereinafter – the Law), after enumeration of the respective categories of companies (Article 2, paragraph 2), indicates that:

If an entity from one of the above categories does not meet these criteria for two consecutive years in the annual financial statements, it is considered to be in the appropriate category of entities.

However, the Law states quite clearly that this paragraph, so to speak, is intended rather for leaving the category than for entering it.

Criteria for entry into the relevant enterprise category (micro, small, medium, large) are specified several times in the list of categories itself. The Law explicitly states that the analysis of criteria shall be based on the indicators as of the date of annual financial statements for the year preceding the reporting year.

Please note, not for the two previous years, but for the year preceding the reporting one!

Thus, if your enterprise is classified as large, based on indicators as of 31.12.2018, and, for example, as at 31.12.2019 and 31.12.2020 it is classified as medium, then you should submit reports for both 2019 and 2020 as a large enterprise, and only in 2021 you can submit a report as a medium enterprise.

If, for example, as of 31.12.2019, the enterprise became medium, and as of 31.12.2020 – again large, then, accordingly, this single fallout is not taken into account, and the enterprise continues to submit a report as large.

These examples are applicable if the law is followed.

Certainly, the regulators may treat enterprises that have entered a higher category once but have not transferred to the appropriate reporting with the statutory audit, favorably. In particular, it may be the case for large companies that they need to spend a sufficiently large amount of resources to prepare IFRS reports, and that the first report under IFRS 1 must contain two full years (reporting period and comparative one).

However, it is better to confirm the exception to the rules with your regulator in advance – first of all, with the tax authorities.


Andrii Popov, Partner of Kreston GCG

This post is also available in: Russian, Ukrainian

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New technologies have dramatically changed the financial sector and the payment system as a whole, making it easier, faster, and more convenient. In turn, it seriously affects the development of the entire global economy.

Financial technologies = quality of life

I think the World Bank research is the most eloquent answer to these questions. Over the past few years, it has prepared a series of reports on financial inclusion mechanisms. The term refers to the conditions under which both individuals and businesses are provided with equally easy and fast access to financial technologies (Internet banking, electronic payments, etc.). World Bank experts note that due to this, it is possible to effectively combat poverty and economic growth.

In particular, the Financial Inclusion report. Europe and Central Asia Economic Update emphasizes the obvious interconnection between the level of penetration of financial technologies and the quality of life of the population. The higher the first, the higher the second. The experiments confirm that. In 2016, for example, Kenya found that after local households were able to store and send funds via mobile apps, their savings increased by 20%, and their overall poverty rate fell by 22%.

Why is this happening? Due to the fact that financial technologies give people new opportunities for saving and managing their money. In Ukraine, Pryvat 24 is a striking case in point. Many people are well aware of the fact that this application contains moneybox tool (“Skarbnychka”). It allows users to automatically deposit a part of their money into a digital account without any effort. The accumulation function is also well managed by all kinds of deposits, which can be easily opened via the application. Indeed, on the one hand, you will not save much using these tools. On the other hand, you will not spend all your money at once, as it often happens with cash. In this way, financial technologies teaches us to save some money and manage it more consciously.

They also significantly accelerate and simplify payments, which facilitates the solution of everyday tasks and increases the mobility of people. For example, some time ago, before you travel somewhere, you had to come personally to the railway station first and then buy a ticket there, but now all the issues can be solved via the Internet in 5 minutes. Now it is easier to go somewhere just for the weekend. That is why people travel more, spend more on journeys, and finance the corresponding companies. The latter, in turn, earn more and pay more taxes to the state budget. This scheme works not only in tourism but also in all places where it is possible to buy something without cash (food, clothes, education, etc.). Consequently, the economy is growing.

For these reasons, the World Bank considers financial inclusion to be one of the main drivers of economic development in the future. In fact, it initiated a project known as Universal Financial Access a few years ago. The UFA goal is to ensure that by 2020, all people have free access to the basic financial technologies, such as bankcards. According to World Bank statistics, about 1.7 billion adults worldwide (or 31% of the total population) do not have a basic transaction account and do not use other financial opportunities.

It points to the fact that cashless payments will be increasingly widespread around the world, and the use of cash will be reduced. However, that does not mean that it will be replaced by Bitcoin or anything else.

Fintechs and banks

The so-called fintech startups have become the ambassadors of changes in the financial world. Ukrainian users certainly know such services as Liqpay, Easypay or IBox, but in general, there are more than 80 financial companies. Most of them, however, offer a narrow range of services, usually in the field of payments and money transfers, or online lending. Whereas in Western countries, fintechs are developing complex B2B solutions using digital technologies. There are already algorithms for combating money laundering, services of development of the business plan for obtaining loans, tools for valuation of investment projects, and much more.

The fintechs showed such impressive results that a couple of years ago, it was discussed, that in the future they would supersede banks and replace them. The boom occurred in 2014-2015 when the amount of investment in the industry tripled compared to previous years. Now the hysteria has gone. It became clear that the fintechs were not able to compete fully with the banks that had understood the trend and successfully developed their financial solutions.

There are several reasons why fintechs failed. These are both greater customer confidence in the banks (will you most likely take your money to a startup or an organization with a long history?) and legal risks.

For example, a startup making transfers from card to card of the users has to pay Visa and MasterCard charges for each transaction, as well as to the acquiring bank. However, the banks themselves should not pay in such a situation because they are the principal members of Visa and MasterCard. It is almost impossible to compete in such conditions.

However, this situation does not mean that the fintechs will disappear.

Nowadays, there is an interesting phenomenon – a symbiosis of banks and fintechs. The first either buy/absorb the second, or work on a partnership basis. Perhaps there is a future behind this cooperation. Banks have experience, connections and clients. Fintechs have technologies. If we combine their strengths, they will work with the greatest efficiency.

Blockchain is out of range

The fate of blockchain technology is similar to the fintechs’ fate. In 2015, blockchain technology was promised a great future in the financial segment and some even assured that we would pay by Bitcoin via blockchain while other services would be extinct.

Nevertheless, the situation has been the opposite in recent months. There are no ready-made developments on blockchain. Most of them are either niche or still in the development stage. This resulted in an outflow of investments from the segment. The graph below shows that there has been a sharp decline and the highest peak in the last year.

In 2019, blockchain is likely to develop in several directions. First, in niche applications where the technology has already demonstrated itself. Secondly, in innovative developments with a long-term perspective of implementation. That is, in projects that initially do not promise fast capitalization.

You have to admit this is far from the revolutionary changes that we were told about a year or two ago. Of course, the situation may change at any time. Maybe tomorrow a startup will appear, that will put the whole world on blockchain in a year. Nevertheless, we cannot talk about it yet.

Key findings

The financial system is changing and will continue to change in the future. New developments in this segment will contribute to the emergence of new financial services, changing our lives and the global economy as a whole. At the same time, all these changes represent not so much the creation of a new and the abandonment of the old as the modernization of the old. Intensive, deep, but still modernization. Therefore, one should not expect anything as surprising as the disappearance of banks and the mass transition to blockchain in the short to medium term, for sure.

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Global statistics show that 10-15% of the company’s turnover loss is due to fraudulent actions of the third parties. Ukrainian statistics shows that more than 30% of losses incurred due to fraud (ed. – IT fraud) in companies.

What is usually at the mercy of fraudsters?

  1. First of all, the company’s assets:
  • movable property;
  • real estate;
  • the company’s reserves;
  • cash on hand;
  • intellectual property: process sheets and formulations;
  • corporate rights, etc.
  1. Next, illegal misrepresentation of financial statements for various purposes. Misinformation of a shareholder, as in the case that was investigated recently. In this example, top managers of a well-known company managed to pay royalty to the owner from credit funds.

Hence the rule: if you are the owner and you decide to get out of operational control, you need to:

  1. a) set metrics to check your business success barometer through the prism of various KPIs: gross margin, EBITDA, net profit, retained earnings etc.
  2. b) appoint an external independent person or an audit company (necessarily with a global brand and the reputation that could be lost) that will check the reliability of these indicators in order to avoid the above-mentioned case, where the credit funds were used to pay royalty to the shareholder, while the company incurred real financial losses. The owner thought he was doing great, and he could enjoy his vacation. In fact, the financial indicators were artificially increased, but the company was actually brought to bankruptcy, market share was lost, and the amount of debt amounted 10x to EBITDA.
  3. Different kickbacks. According to global statistics, 90% of fraud cases are recorded in the procurement of raw materials. For example, an employee of the procurement department colludes with a supplier of raw materials and artificially increase the purchase price in sales. When selling, the commercial department makes the maximum discount and completes the sale with the net loss. The first and last manipulations are possible when the company does not have a clear procurement and sales policy.

How to minimize such fraud actions?

You should build a maximum number of anti-fraud barriers, each of which will be more expensive than the previous one. In this way, fraudulent actions committed by intruders will become financially inexpedient.

Stealing from your company will be a costly affair providing that the following rules are implemented:

  • automatization of all processes;
  • division and digitalization of the business;
  • distribution of authorities and responsibilities among the managers;
  • conducting an annual spontaneous forensic procedure;
  • conducting a mystery shopper procedure;
  • creation of an internal control system at your company: regulations, policies, compliance system, RCM (risk control matrix);
  • whistle blowing system — feedback system, etc.;
  • order a spontaneous procedure regularly, and then you definitely will be able to refract both local and global statistics of frauds;
  • a spontaneous regular forensic procedure will definitely enable you to refract both local and global statistics of frauds; make sure the intruders do not stand a chance.

Test your business by using forensic. Then you will know exactly what your business and your team are worth.

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The year 1993 marked the issue of IFRS 11 “Construction Contracts” and IFRS 18 “Revenue”, and it was a time when some of us were still attending the school. Since then, a number of amendments have been made to the above-mentioned standards as a result of the issuance of new International Financial Reporting Standards (IFRS).  In addition, IFRS and a number of Interpretations related to income have been issued. For example, IFRIC 13 “Customer Loyalty Programs”, IFRIC 15 “Agreements for the Construction of Real Estate”, and IFRIC 18 “Transfers of Assets from Customers”.

The new revenue recognition standard IFRS 15 “Revenue from Contracts with Customers” is effective for accounting periods beginning January 2018.

The main difference is that revenue will be based on the changes in assets and contract liabilities. All contracts will be analyzed as contract assets and contract liabilities.  Revenue would only be recognized when either the net contract liability is reduced or the net contract asset has increased as a result of the performance of the entity’s contractual liabilities. The transfer of control evidences the fulfilment of obligations.

IFRS 15 includes a five-step model framework. Changes under each of them were as follows:

Identify of contracts with a customer. In some cases, the distinction between whether the parties act as an agent in a contract or as a customer has changed. House builders were obliged to separate the sales of new buildings from the contracts to sell old ones taken on partial exchange basis, for example. This problem also affects companies in software, transportation, and property management. As a result, what was a commission cost may become a discount and so a reduction in revenue, and vice versa. The impact of such changes was less on the bottom-line profit than on gross revenue or the reporting margins of different business directions, but in some companies, the impact can be equally significant on both.

Identify separate performance obligations in the contract. As it was expected, this change had the biggest impact. The greater unbundling required by IFRS 15 changes the timing of revenue recognition and profit, and this means that retained earnings will be restated. For example, the separation of the sale of equipment and software from the provision of services, maintenance, and installation accelerated the recognition of revenue/profit for mobile phone contracts; for others, the recognition of income for previous periods has been derecognized and deferred. In case of property developers, revenue should be allocated to five-year warranties provided as part of the “package” and cannot be merely allocated as a provision for the estimated cost of claims.

Determine of the transaction price. Companies do not distinguish major changes in the treatment of variable consideration. This indicates that volume discounts or bonuses on milestones, for example, have already been accounted for cautiously. IFRS 15 mainly changes treatments to a greater extent on contract acquisition costs.  It was not covered by the previous standard, but now such costs must be allocated in advance in line with revenue. Apparently, some engineers involved in large equipment sales, mobile phones companies, house builders had previously written off substantial commissions to intermediaries as they incurred.

Allocate the transaction price to the different performance obligations.  The option to disregard the financing element when the time difference between receipt of cash and performance under contract is less than 12 months, is widely used where there are substantial customer down-payments. The requirement to identify standalone selling prices for separate performance obligations was considered by many entities to be difficult to apply and it was a requirement where a certain degree of judgement was necessary.

Recognize revenue when the performance obligations are fulfilled. The key criterion for fulfillment under IFRS 15 is that control passes to the customer, either at a point in time or over time. It is difficult to determine the consequences from this from the separate performance obligations of equipment delivery and service.

There are also more important detailed effects – for example, the transition from percentage of completion method to proportion of costs incurred method for the measurement of milestones achieved.  In real estate projects, the point in time for sale changes from the exchange of contracts and actual completion of construction to legal termination of the contract.

It may seem unclear that, even under IFRS 15, all housing projects will have the same revenue recognition model, but some may be recognizing over time, while others at a point in time.

Transition and restatement

Companies seem to be divided equally between companies with full retrospective restatement and those who choose the modified approach. Large number of companies did not make the final choice at the end of 2017, even for the interim reports in 2018, for many the choice of transition remains still not clear. Thus, users may not be aware of whether the previous year’s numbers are comparable or not.

Restatements can be an increase or decrease, although the telecoms companies have seen steady increase as a result of prior recognition of the sale of equipment.

Much about adoption of the new standard in 2018 remains to be disclosed and evaluated. The absence of full retrospective restatements means that the real impact on profit will not fully emerge until the publication of the reports for the fiscal year 2019.

Today, the impact of IFRS 15 is variable – what has changed varies (and may be in the details of the standard), as does the degree of impact from one entity to another, and some sectors (e.g. retail and property investments) have hardly been affected.

In general, the impact of IFRS 15 on profit or net assets may be insignificant, although the effort required to implement it may be significant as companies try to understand fully many types of contracts with customers.

So has it all been worth it? The benefits of improved reporting – greater clarity and consistency, and better disclosure – will probably only become evident only in future periods when the new accounting standard becomes fully embedded into corporate reporting.


Overview of ACCA articles under the new IFRS 15
Y. V. Staroverova, FCCA

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Rule #1: reputation analysis. Imagine the situation. A venture capitalist holds business meeting with young startupper who invented a universal translator. They have already reached agreements on investing in the project and are about to sign the shareholder’s agreement. Some details remain to be discussed. And now, in the middle of the conversation, the investor’s phone rings. The unknown person informs that he knows about the planned transaction and offers to listen to information before all formalities are settled.

The investor agrees with curiosity. According to the caller’s words, the young entrepreneur is a fraud. He uses his idea as a cash-cow – he pulls money out of investors and then disappears. Having weighed everything, the investor still ignores the strange unknown righteous man. The young entrepreneur showed himself well at the stage of negotiations and description of the idea, moreover, he was firmly in control of the project figures.

So the contract is signed. Everything seems to be going smoothly, but after a few months the prodigy startupper suddenly faces insurmountable difficulties, and the project collapses. The decisions made by the young entrepreneur turned out to be short-term, the declared terms and stages of the project implementation were not fulfilled. The investor has to fix losses due to unsuccessful investment.

All of the above is quite real example. However, such problems can be avoided by the timely involvement of forensics experts who specialize in identifying unreliable subjects through the OSINT/HUMINT procedure, which focuses on comprehensive analysis of person’s reputation using a variety of information sources, both open and closed.

Success of the startup is predictable

Rule #2: feasibility study. Any startup can be assessed and understood both in terms of its market prospects and the level of efficiency of the business models used by its management. The purpose of the feasibility study is to determine the basic parameters of the startup financial model, which is ICMS – Idea, Cost, Marketing, Sales. Having made correct prediction in the context of these indicators, the probability that the startup will not be included in the valley of death will increase significantly.

This is what the investor in the above example has not done or has done badly. In this case, he went even further and openly ignored the warning about the danger.

Unfortunately, such embarrassing failures are common among investors. Like any purchaser, they are penchant for advertising and loud promises. Charm (even if this is an important and famous person) and loud promises can still not come true. Theranos and Elizabeth Taylor, its founder, are clear proof of this. The other recent example is shut down of Yogome startup due to accusations of fraud and incompetent management of its founder.


Any startup must be carefully checked before investing. For this purpose, there are many types of check-ups, some of which are feasibility studies and forensic check-ups, which are designed to study the financial model of a startup and to track the movement of all financial flows within the project for their intended use, excluding fraudulent schemes.

Personal participation in startup development is also important. For this purpose, there are special tools (SCRUM, Deming cycle, Agile, Kaizen, Lean etc.) designed to assess the performance of the business as a whole and by segments.

Obviously, such approaches carry risks as well. For example, check-ups and meetings take time and often happens that parties simply do not have that time. But on the other hand, any kind of check-up can be done in an express form, i.e. 3-5 days before spending time on a project. In this period you will not get an understanding

of all aspects of a startup, but you will have accurate information about the main financial indicators, as well as you will know more about the reputation of people with whom you negotiating the deal.

Source: biz.nv.ua

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The term squeeze-out (which implies mandatory buyback of equity shares of a company from minority shareholders) came into use in Ukraine with the adoption of the Law “On Amendments to Certain Legislative Acts of Ukraine on Improving Corporate Governance in Joint-Stock Companies” No. 1983-VIII, dated 23.03.2017.

The adoption of this Law is stipulated by the harmonization of the national legislation on corporate law with the EU legislation, where this term was introduced in 2004 (Directive 2004/25/EC) as generalizing result of the corporate law practices of the EU countries.

In the world practice, this term has already existed since the 90s and has become widespread as a result of share buyback practices in mergers and acquisitions.

In Ukraine, the application of squeeze-out procedure has its own specific features. The main owners of joint-stock companies have long awaited the adoption of this Law. In fact, the overwhelming majority of joint- stock companies were created as a result of mass privatization in the 90s, when even department stores were corporatized. Therefore, most of the newly established joint-stock companies were not interested in offering and supporting the listing of their shares in order to attract investment.

The shares held by citizens were very small, so they had neither opportunity, nor desire to participate in the life of the enterprises. This situation eventually led to the phenomenon of “dead souls”, when the heirs of the deceased shareholder did not register the shares obtained as an inheritance.

There was actually a situation when the main advantage of this organizational-legal form, namely the possibility of attracting financing through the stock market, was not achieved in Ukraine. At the same time, companies continued to incur additional costs related to the functioning as a joint-stock company.

The number of reports complained to the National Securities and Stock Market Commission of Ukraine (SSMCS) reached 24 by the end of 2018. After squeeze-out procedures of Metinvest companies, which caused wide response, Stock Market Commission of Ukraine (SSMCS) and the State Property Fund of Ukraine (SPFU) initiated the development of additional requirements for appraisers, who carry out valuation for squeeze-out purposes. It is noteworthy that not all claims to the appraisers’ reports are justified and satisfied in the courts.

At the same time, the owners of the majority packages, in order to protect themselves during the squeeze-out procedure, in addition to more thorough selection of the appraiser, can also receive a review of the appraiser’s report. This step will improve the quality of the reports and minimize the risk of litigation.

In turn, appraisers, when conducting stock valuation for squeeze-out procedure, face a number of unresolved methodological issues that complicate the work and constitute potential sources of conflict. This is the basis of valuation, the use and determination of the discount in value for lack of control, the priority of approaches in valuation.

The market value is the basis for the valuation of shares in the squeeze-out procedure, which implies the voluntary execution of the transaction between the purchaser and the seller, which in fact does not exist.

In addition, questions arise in the application of valuation approaches. According to the national standards, income based valuation approach is prioritized for the valuation of the Central Election Commission of Ukraine (CEC), but there are cases where, for a number of reasons, the application of cost approach would result in higher share price. But following the standards, the valuator applies income based valuation approach, thus causing complaints and accusations of undervaluation by minority shareholders.

From July 2017, when Law No. 1983-VIII came into force, 200 joint-stock companies conducted the squeeze-out procedure until January 2018. According to the preliminary estimates of SSMCS, the minority owners of the stakes were paid UAH 350 million and another UAH 400 million are on escrow accounts at the end of 2018.

Despite the difficulties, legislative shortcomings, and criticism arising from squeeze-out, we can say that this procedure is becoming an effective mechanism for improving corporate governance in Ukraine.

Source: finance.ua

Sergej Beljasov
Senior Analyst, Valuation and Business Modeling Department

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Cryptocurrency markets have collapsed again. For some, this has already become cast iron proof of the imminent death of both Bitcoin and the company. Others insist that the fall of the cryptocurrency market is temporary and natural. So where is the truth? As always, in the middle.

How did the fall start?

The fall began with the takeoff. It happened a year ago, when the price of bitcoin skyrocketed and then dropped as rapidly. This became a point of no return.

This already happened, for example, in 2013, when the Bitcoin price soared from $130 to $1150 and then returned to the initial positions. Digital assets have their own specific features, based on the fact that – and that’s what everybody knows today – the absence of direct reference to the exchange rate, valuable resources, etc.

However, we should admit that the current decline in the exchange rate is one of the most protracted.

What are the reasons?

There are a lot of them, let’s consider the main ones.

  • Market overheating

Let’s remember the statistics: at the beginning of January 2015, the price of Bitcoin was $315, in January 2016 it increased to $430, and at the beginning of 2017, it rose again within normal limits. At that time, the price of Bitcoin was just over a thousand dollars.

And suddenly, in November, its price was already at $7,000. Thus, the growth for six months amounted to 600%. And the next month, it reached up to $20,000.

Bitcoin course over the past few years. Source: MarketInsider

Such sharp and positive dynamics is anomalous for any market.

In this case, it is an evidence of excessive investment in cryptocurrencies, revaluation of their investment potential. Correctional movements are direct consequence of this situation. Put simply, the decline. In fact, now the market is returning to its natural state.

Mining problem

Mining of large quantities of coins is very expensive. On average, according to Crescent Electric, it is necessary to spend $7,275 for mining of 1 bitcoin.

Not everyone can withstand these costs, which leads, on the one hand, to a decrease in production and, on the other hand, to an outflow of miners. This reduces the price of Bitcoin and other cryptocoins. In turn, the decline in price makes mining even more unprofitable, increasing the outflow of miners.

The manufacturers of mining equipment also had a problem. Their products are no longer purchased so actively, resulting in trivial overstocking of warehouses.

Hacking and fraud

According to the CipherTrace report, USD 927 million worth of cryptocurrency were stolen in the first 9 months of the year, which is several times more than in the whole for 2017. In short, it looked like this:

In January, NEM cryptocurrencies (positioned as one of the most reliable) worth over USD 500 million were stolen from the Japanese Coincheck exchange. In February, Nano tokens worth USD 170 million were stolen from the BitGrail exchange, which led to the bankruptcy of the exchange itself. In June, Bithumb and Coinrail stock exchanges in South Korea were hacked. In September, Japanese stock exchange Zaif was hacked.

In addition to the hackers, the cryptocurrency exchange add fuel to the flames. Thus, in May, Bitcoin fell in price by more than a thousand dollars based on the message about the presumable fraud of the stock exchange Upbit.

51% attack and cryptocurrencies

51% attack becomes possible when a person holds more than half of the entire network. The last known case of such break-in occurred at the beginning of January this year. The fact of the attack was recognized by Gate.io and Bitfly cryptocurrency exchanges.

Finally, 51% attack on large networks is too expensive to invest in. To compensate for all the expenses, you need to have on your wallet a huge amount of coins for double write-offs, because each subsequent false write-offs will reduce their cost.

51% attack pose risk to the small developing cryptocurrencies and their holders. The networks of such alto-coins are smaller and the number of users in them is smaller too, so it is much easier to “become a leader”. It  will not bring significant profit and there will be problems with the sale of stolen coins. But the reputation of the cryptocurrency itself will suffer, moreover, after such attack it may lose all its users and, as a consequence, cease to exist. 


The cryptocurrency market is now facing a lot of problems and this article comprises only some of them. In fact, there are more factors that have caused the current collapse.

All of the above-mentioned does not mean that the market will soon cease to exist. At the moment it is in the process of recovering and stabilizing after the wave of an incredible hype.

All these ups and downs of cryptocurrency prices are likely to continue. As long as the market finds the system of operation acceptable for all its participants: miners, investors, the state.

But there is a possibility that this will not happen, neither in the near future nor in the distant future. Then, it makes sense to talk that one day cryptocurrency may cease to exist.

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