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AFM imposes administrative fine on the partnership Baat accountants en adviseurs for failing to observe its duty of care

Measure

Fine

On 16 December 2014, the Netherlands Authority for the Financial Markets (the AFM) imposed an administrative fine of €285,000 on the partnership Baat accountants en adviseurs (hereinafter, ‘Baat’).
Update 2 november 2015: The AFM held, in the objection, that the fine regime that applied before 01 August 2009 and the related fixed fine amount of €96,000 apply to this violation. The AFM therefore mitigated the fine to €91,200.

It is not a simple matter for the ordinary person to establish whether financial reporting is reliable. The auditor’s opinion is supposed to provide the public with a reasonable degree of certainty with respect to reliability. An auditor should carry out thorough research before he issues his opinion. The auditor needs to have obtained sufficient and appropriate audit evidence in order to do this.

The AFM’s inspection of the audit files of Baat revealed that the auditors had failed to carry out sufficient research in six out of seven cases. The AFM takes action against audit firms whose auditors fail to carry out adequate research or contravene other regulations that apply to them. The AFM thus contributes to the trust that the public should be able to place in the auditor’s opinion.

The AFM had already inspected five statutory audit files in 2010 in which a Baat auditor had issued the audit opinion, and it identified various shortcomings. Baat introduced various measures as a result of this inspection. The AFM subsequently assessed two other statutory audit files in 2011 at Baat’s request, and again identified serious shortcomings in one of these cases.

The fine is imposed because the AFM is of the opinion that in the period from 29 January 2010 to 7 June 2011 Baat failed to adequately ensure that its auditors complied with the professional regulations with regard to competence. Given the seriousness and number of the shortcomings in the files assessed by the AFM, the AFM concludes that Baat has not observed its duty of care. By failing to adequately ensure that these regulations were complied with, Baat has contravened Section 14 of the Audit Firms (Supervision) Act [Wet toezicht accountantsorganisaties, or Wta].

Besides the fact that Baat’s auditors had failed to obtain sufficient audit evidence in various cases, two audit files identified events or circumstances that could have raised doubts regarding the ability of the audited entity to continue its business as a going concern. The external auditor however failed to carry out specific audit procedures in these cases. In one case, the external auditor moreover failed to adjust the text of the opinion section in the audit report. There was reason to do this, since the external auditor was not in a position to obtain sufficient audit evidence with respect to the revenue in order to conclude that this item was not materially misstated. In addition, various other contraventions were identified.

The base amount for contravention of the duty of care used to be €500,000 (currently €2 million). When setting the amount of the fine, the AFM takes account of the size of Baat. The AFM also considered the time it has taken to deal with this case. The AFM considers a fine of €285,000 to be appropriate and called for.
Update 2 november 2015: The AFM held, in the objection, that the fine regime that applied before 01 August 2009 and the related fixed fine amount of €96,000 apply to this violation. The AFM therefore mitigated the fine to €91,200.

The AFM’s decision may be tested in the courts by the interested parties. For questions or complaints, contact the AFM Financial Markets Contact Point (Meldpunt Financiële Markten) by telephone on 0800-5400 540 (free of charge), or from abroad +31 20 797 3976.

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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