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AFM imposes administrative fines on Big 4 audit firms for failure to comply with their duty of care

Measure

Fine

On 16 March 2016, the Netherlands Authority for the Financial Markets (AFM) imposed fines on the Big 4 audit firms: Deloitte, EY, KPMG and PwC. The fines were imposed because earlier AFM inspections showed that these audit firms did not comply with their duty of care.

Audit opinions insufficiently supported

Audit firms are subject to a statutory obligation to ensure that its auditors comply with the professional standards. Earlier AFM inspections showed that the audits of financial statements for the 2012 financial year and in some cases for the 2011 financial year conducted by the Big 4 audit firms contains significant shortcomings. Several audits inspected by the AFM included such shortcomings that the auditor failed to obtain sufficient and appropriate audit evidence in order to support the issued auditor’s opinion. This means that each of the Big 4 audit firms acted contrary to the law.

Fines

The AFM considers the offences to be serious and imposed the following fines on the Big 4 audit firms. The links to the press releases and the decisions to impose fines on the individual audit firms can be found below.

The AFM considers these fines applicable and appropriate for this offence. The AFM took into account the seriousness and culpability of the offence when it determined the amount of the fine. The AFM applied a different, compound basic amount for each of the Big 4 audit firms, which amount is based on the period of the offence. The fact that the fines were increased on 1 January 2013 and the periods of the offence vary means that the basic amount of the fine differs for each of the Big 4 audit firms. The absolute amount of the fine therefore does not correspond one-to-one to the seriousness and culpability of the offence for each individual audit firm. The AFM also took into account the fact that it imposed a fine on Deloitte and EY for a similar offence once before, which means that the basic amount of the fine was obligatory doubled.

2014 report on deficiencies

Auditors have a statutory audit function. Investors, creditors and other interested parties must be able to rely on the opinion of an auditor as expressed in the audit opinion that accompanies the financial statements. This is only possible if an audit opinion is substantiated with sufficient and appropriate audit evidence. The AFM published a report concerning this subject in September 2014: ‘Results of the inspection of the quality of statutory audits at the Big 4 audit firms'. By imposing the fines the AFM is taking action against the shortcomings in the audits of the Big 4 audit firms identified in that report.

Change and improvement

The Big 4 audit firms have since announced several improvement measures. In 2015, the AFM performed an inspectioninto the design of the change and improvement measures at audit forms that perform statutory audits at Public Interest Entities, which are known as PIE audit firms. The AFM published its findings in October 2015 in the report entitled 'Dashboard 2015 - Change and Improvement Measures PIE Audit Firms'. This year, the AFM will review whether the measures designed by the audit firms are operating effectively and the AFM will again inspect the quality of the audits conducted. This can also be read in Agenda 2016-2018.

Parties concerned can request a judicial review of the AFM decision.

If you have questions or complaints, you can contact the AFM's Financial Markets Information Line: 0800-5400 540 (free of charge).

Information for the press

Journalists who have questions can contact AFM spokesperson Ward Snijders. Contact details: 06 1585 6043, ward.snijders@afm.nl

This is an English translation of the original Dutch text, furnished for convenience only. In the event of any conflict between this translation and the original Dutch text, the latter shall prevail.

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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