PricewaterhouseCoopers faces the prospect of losing top clients in Russia as it goes up against the Government over its role in the Yukos case. One client has already dropped the firm as its auditor since a Moscow arbitration court ruled that the firm was “practically a participant in implementing illegal tax schemes” at Yukos.

This week, the state-owned car manufacturer AvtoVAZ dropped PwC as its auditor after 13 years of working with the firm, in favour of Ernst & Young. AvtoVAZ cited commercial reasons. Stanley Root, a PwC partner, insisted that the Yukos affair was not a factor and that the firm had simply lost out to competition.

Mr Root said: “We are not afraid of competition, because in many cases we come out the winners. For example, last summer we won the tender for the audit of [the Russian truck manufacturer] Kamaz.”

PwC was fined $14 million in March by an arbitration court in Moscow for its alleged role in helping Yukos to avoid taxes in 2002. It denies the charges and is appealing against the decision. However, the Russian Government is coming under international pressure to ease off the firm. Yesterday, Carlos Gutierrez, the US Secretary of Commerce, who was in Moscow on a political visit, told the Russian paper Kommersant: “We expect that Russian laws will be applied consistently and regardless of what company we are talking about, where it comes from and what clients they have.”

At stake for PwC is its fastest-growing market in the world. The company’s Eastern Europe division, which is dominated by its Russian business, made $474 million in 2006, which is 26 per cent more than in 2005. It has been the leader in the Russian accountancy market for the past seven years.

One foreign investor has accused the firm of colluding with Russian companies in questionable financial schemes. Hermitage Fund, the largest foreign fund in Russia, sued the company in 2002 for allegedly providing a false audit of Gazprom’s transferral of assets to a related company. The case was dismissed.

“We were told shareholders can’t sue auditors under Russian law,” Bill Browder, the chief executive of Hermitage Fund, said.

Other Western auditors have also been criticised for apparently legitimising aggressive Russian business practices. Most recently, Deloitte came under criticism from foreign investors in 2006 when it worked as consultant for Rosneft as the oil giant consolidated subsidiary companies. Deloitte valued a refinery in which foreign investors owned a stake at $40 million, although other analysts were said to have claimed that the refinery was worth more than $700 million.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts