On 21 February 2011, the Netherlands Authority for the Financial Markets (the AFM) imposed administrative fines of €871,250 and €10,000 on KPMG Accountants N.V. (KPMG). In the period of 22 February 2008 to 1 July 2009, KPMG did not take sufficient policy measures to improve a part of its quality control system that was not functioning properly: the engagement quality control review (EQCR). In the period from 22 February 2008 to 15 December 2009, parts of KPMG's quality control system furthermore contained inaccurate, incomplete and unclear procedures, descriptions and standards with respect to the EQCR.
Every audit firm has to have a quality control system in place. A quality control system includes procedures, descriptions and standards that have to be followed by the audit firm and its employees. The quality control system concerns, among other things, the EQCR. The EQCR constitutes an important instrument that is used to assess the quality of the audit before the auditor's report is issued and that can be used to remedy any defects. The EQCR was made mandatory by the legislator for statutory audits at, inter alia, listed companies, banks and insurers.
The AFM already warned KPMG at the time it granted the licence that the firm’s EQCR required attention. Thereafter there were also numerous signals and specific indications within KPMG that there were serious defects in the structure and operation of and compliance with the EQCR procedure. Parts of the procedures, descriptions and standards used by KPMG for the EQCR were incorrect and insufficiently elaborated. This also meant that it was unclear what activities had to be performed. KPMG failed to ascertain the underlying problems and it did not draw up or implement specific and appropriate measures to ensure that the EQCR procedure functioned properly and according to the relevant rules. KPMG accordingly did not exercise sufficient influence on the quality-oriented thinking and conduct within its organisation.
On the basis of Section 8, first and second paragraph, of the Audit Firms (Supervision) Decree (Bta), an audit firm has to have a policy with respect to the quality control system and it must have procedures, descriptions and standards in place designed to ensure compliance with the rules concerning the EQCR. In the opinion of the AFM, during the periods to which the fines relate (2008 and 2009) KPMG’s policy with respect to the quality control system and specifically to the EQCR was inadequate. The procedures, descriptions and standards at KPMG were not sufficiently effective to comply with the rules regarding the EQCR.
The AFM maintained the fine in its decision with regard to KPMG’s notice of objection dated 16 February 2012. KPMG then filed an appeal against this decision. In a decision dated 30 May 2013, the Rotterdam District Court upheld the fines imposed by the AFM. KPMG has indicated that it will not appeal against this decision.
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