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PwC Withdraws Yukos Audits

by Tatiana Smolenskaya,, Moscow

27 June 2007

Accounting firm PricewaterhouseCoopers has announced the withdrawal of its audits of the oil firm Yukos, after apparently learning that the bankrupt company had withheld certain information that it said should have come to light earlier.

"As a result of recent information that has come to the attention of ZAO PricewaterhouseCoopers Audit in relation to OAO NK Yukos, PwC has written to the management board of Yukos informing them that the PwC audit reports on Yukos for the periods ended 31 December, 1995–2004 inclusive should no longer be relied upon or associated with Yukos’s financial statements," PwC said in a statement.

The statement went on to add that:

"PwC decided to withdraw its audit opinions for Yukos when it became aware of new information which had it been known at the time may have affected Yukos’s audit reports. PwC now believes information and representations which was provided to PwC by Yukos’s former management may not have been accurate."

"In addition, PwC’s decision to withdraw the reports was influenced by the fact that some former shareholders and management of Yukos are continuing to encourage others to rely on PwC’s audit reports."

Yukos was last year declared bankrupt after being saddled with billions of dollar worth of back tax claims. The company's former chief executive, Mikhail Khodorkovsky, was jailed in 2005 after being found guilty of money laundering, embezzlement and tax evasion.

Those familiar with the Yukos case have surmised that PwC has come under political pressure from the Kremlin to withdraw the audit reports, as the authorities pursue fresh charges of money laundering against Khodorkovsky.

"It is inconceivable that there is any 'new information' that PwC did not have already or had access to because they had full access to everything available to the management of the company," observed Yukos's former CEO Steven Theede, and Chief Financial Officer, Bruce Misamore, in a statement quoted by the Associated Press.

The withdrawal of the reports is thought likely to weaken Khodorkovsky's defence against the new money laundering charges, since they would have been cited as evidence that Yukos had followed internationally accepted accounting practices.

PwC's involvement with Yukos has already landed it in hot water with the Russian authorities, and in March 2007 it was fined 16.8 million roubles (US$647,000) because of supposed irregularities in its audits of company between 2002 and 2004, when it supposedly completed two separate audit reports - one intended for the oil firm's shareholders, and another allegedly for internal use, warning of illegal actions undertaken by Yukos.

Also, PwC has itself been the subject of a tax investigation by the Russian authorities, and in March it came to light that government investigators had searched the company's offices in connection with allegations that it evaded about 243 million roubles in taxes in 2002.

PwC has said that it "strongly denies" any wrongdoing in either the 2002 tax case or in relation to its audits.

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