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AFM imposes fine on Deloitte Accountants for failure to comply with duty of care

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On 15 February 2012, the Authority for the Financial Markets (AFM) imposed an administrative fine of €54,450 on Deloitte Accountants B.V. (Deloitte).

As part of its regular supervision in 2009, the AFM reviewed 14 audit files. The fine was imposed because the AFM takes the view that in ten of the files for statutory audits conducted for the 2008 financial year, Deloitte did not adequately ensure that its external auditors (auditors who conduct statutory audits of financial statements) complied with the professional regulations to which they were subject.

These regulations are the Further Regulations for Audit and Other Standards [Nadere voorschriften controle- en overige standaarden, or NVCOS], the  Professional Code of Conduct [the Verordening gedragscode, or VGC] and the Further Regulations regarding the Independence of External Auditors [Nadere voorschriften onafhankelijkheid van de openbaar accountant, or NVO]. These are important regulations that must be observed by an external auditor throughout the audit. By failing to adequately ensure that these regulations were complied with, Deloitte was in breach of Section 14 of the Audit Firms Supervision Act [Wet toezicht accountantsorganisaties, or Wta].

The external auditor performs a duty that is prescribed by law, and therefore has a position of trust as a representative of the public interest (in the form of business, government, and the financial markets). Investors, creditors and other stakeholders need to be able to rely on the opinion of the external auditor as expressed in his audit opinion attached to the financial statements. It is therefore crucial that the external auditor conducts the statutory audit of the financial statements in accordance with the applicable regulations. Among other things, this means that the external auditor must assess whether an audit engagement can be accepted or continued and whether the audit opinion to be expressed is substantiated by adequate audit information.

Deloitte provided the AFM with a list of 3,354 statutory audits it has completed. The AFM has limited the selection of the audit files to a number of sectors that were particularly affected or could have been affected by the financial crisis, and selected 13 files within these sectors. The AFM also selected one file from another sector. In its assessment of the files, the AFM focused on elements of the file where it identified particular audit risks. The fine imposed by the AFM is solely in relation to the elements of the audit files it reviewed. No general conclusions may therefore be drawn with regard to the files or elements thereof that were not reviewed.

In 10 of the 14 statutory audits reviewed, the AFM established that the external auditor failed to comply with the applicable professional regulations. In these 10 cases, there were failures by the external auditor regarding one or more important parts of the audit. This means that Deloitte failed to comply with its obligation to ensure that its external auditors comply with the applicable professional regulations.

Examples of the failures identified by the AFM include:

  • In four cases, the external auditor failed to obtain adequate audit information on the revenue and operating result, including profits from projects under development.
  • In one case, the involvement of the external auditor was so limited that there was no reasonable basis on which he could take responsibility for the audit opinion that was expressed. Also in this case, the external auditor failed to adequately acknowledge or take account of threats to his independence.
  • In two cases, indications of fraud were in the AFM’s opinion insufficiently investigated and not subjected to an adequate degree of professional scepticism.
  • The notes to the financial statements of one company presented certain bonds as being less liquid. The audit file did not show that the external auditor had discussed this method of presentation during his audit.
  • In the statutory audit of a Dutch company, the external auditor based his opinion on the opinion of a foreign auditor without having established whether the audit activities conducted by this foreign auditor were adequate.

Partly in response to the AFM’s findings, Deloitte has taken measures to restore the situation and to discourage similar failures occurring in future.

The AFM’s decision may be tested in the courts by the interested parties. For questions or complaints, please contact the AFM Financial Markets Contact Point (Meldpunt Financiële Markten) by telephone on 0800-5400 540 (free of charge).    

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.

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