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Collaboration in the performance of statutory audits requires safeguards

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Collaboration between audit firms can contribute to the quality of statutory audits, provided that proper quality safeguards are established. This is the outcome of an exploratory study by the AFM among 16 audit firms with a regular licence. The outcomes of this study can be used by audit firms in their current and future collaborations.

In brief

  • Collaboration enhances opportunities to improve the quality of statutory audits
  • Intensity of collaboration in the performance of statutory audits varies
  • Extent of collaboration affects risks and requires safeguards

Collaboration enhances opportunities to improve the quality of statutory audits

The audit firms in the study collaborate when performing statutory audits because this creates economies of scale when they invest in quality, such as in audit software and training. Such collaboration also enables them to use the expertise and specialised knowledge of other parties. In addition, the performance of statutory audits is separated from other services, which reduces risks to auditor independence. The AFM supports such initiatives focused on improving the quality of statutory audits.

Intensity of collaboration in the performance of statutory audits varies

With 10 of the 16 audit firms in the study, the collaboration focuses on referring clients for statutory audits to be performed by an audit firm with a regular licence. This audit firm then performs the statutory audits on its own. Six of the audit firms in the study make use (to a varying extent) of the services of partner firms or self-employed professionals for the performance of statutory audits. This is a more far-reaching form of collaboration.

Extent of collaboration affects risks and requires safeguards

The AFM observes that the far-reaching form of collaboration with other audit firms, where an audit firm contracts statutory auditors and other staff of partner firms, may give rise to risks. Risks can arise due to insufficient expertise, ‘illusory’ independence and the lack of a uniform application of the system of quality control. This can impact the quality of statutory audits. The six audit firms with a far-reaching form of collaboration have established safeguards when setting up the collaboration, in the performance of statutory audits and in the system of quality control. The manner in which these safeguards have been established and the depth of the safeguards differ between the audit firms in the study.

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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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