Auditors should maintain appropriate professional scepticism when auditing the financial statements of financial companies, according to the Netherlands Authority for the Financial Markets (AFM) following its 2008 review of the audit of the 2007 financial statements. The AFM performed its review in the light of the credit crisis. Audits performed without appropriate professional scepticism may result in errors in the financial statements going undetected, potentially resulting in unqualified audit opinions being issued where they shouldn’t.
The AFM’s review focused on the four major audit firms and their audits of financial assets in the 2007 financial statements of eighteen Dutch financial companies. The AFM’s main findings are:
- Auditors should demonstrate greater professional scepticism in auditing the valuation of financial assets by verifying whether there is information from an independent source supporting the asset’s valuation basis.
- Auditors should pay more attention to establishing that disclosures in the financial statements are understandable and adequate, particularly disclosures regarding any uncertainties in the valuation of financial assets.
- Group auditors involved in the audit of multinational financial companies should adopt a more active and critical attitude towards any auditors engaged in other countries. They should manage the performance of the audit by these auditors in other countries more closely and ascertain that the audit was performed adequately.
- Audit firms should focus more on ensuring that internal guidance and instructions are applied in practice.
The AFM’s interim findings were discussed with the audit firms in December 2008. Audit firms have implemented measures to safeguard that audits are carried out with the necessary professional scepticism.
The AFM’s regular reviews in 2009 included several audits of the financial statements of financial companies, partly to assess whether the measures implemented by the audit firms had been effective. The AFM expects to report on its regular review findings in 2010.
Please download a PDF version of our report, 'Report on the general findings of the credit crisis review’, from this webpage.
The AFM promotes fairness and transparency within financial markets. We are the independent supervisory authority for the savings, lending, investment and insurance markets. The AFM promotes the conscientious provision of financial services to consumers and supervises the honest and efficient operation of the capital markets. Our aim is to improve consumers’ and the business sector’s confidence in the financial markets, both in the Netherlands and abroad. In performing this task the AFM contributes to the prosperity and economic reputation of the Netherlands.
The AFM is committed to promoting fair and transparent financial markets.
As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.