The four largest audit firms (the Big 4) are making progress in achieving a quality-oriented culture and their boards are managing continuous quality improvement. The application of quality safeguards that for instance detect problems in statutory audits at an early stage can be intensified. This is the conclusion of a new assessment by the Dutch Authority for the Financial Markets (AFM).
- Preconditions for the quality of statutory audits assessed
- The Big 4 are focusing on quality improvement and a quality-oriented culture
- Quality safeguards need to be strengthened
- New assessment to begin in 2020
- Improving quality is an important issue for society
Preconditions for the quality of statutory audits assessed
The assessment focuses on the key preconditions for good quality of statutory audits. The AFM has assessed the results of the quality improvement at Deloitte, EY, KPMG and PwC and has looked at how the boards are working on creating a quality-oriented culture, managing quality and applying instruments to permanently safeguard quality. The quality of the statutory audits was not inspected. This assessment is thus an intermediate step.
The Big 4 are focusing on quality improvement and a quality-oriented culture
The AFM notes that the Big 4 are systematically focusing on continuous quality improvement in their respective organisations. The boards are setting a good example with their conduct and taking decisions that are in line with a quality-oriented culture. The statutory auditors and staff are also experiencing support in the achievement of a quality-oriented culture. There are challenges with respect to learning from mistakes, pressure of work and the example set by statutory auditors.
Quality safeguards need to be strengthened
The quality safeguards support statutory audits and have an important signalling function, for example by detecting problems at an early stage before an audit is completed. The AFM assessed the way in which the Big 4 firms apply these quality safeguards and sees potential for strengthening their application. The firms could for instance tighten their policy and strengthen its conduct, while their boards could improve their insight into this conduct.
New assessment to begin in 2020
The AFM also assessed the quality improvement process at the PIE audit firms, including the Big 4, in 2017. The conclusion was that this process was moving too slowly. In 2019, the supervisor concluded that there were large variations in the quality improvement process between the PIE audit firms immediately below the Big 4. The insights from the assessment are relevant for all audit firms to deal with this issue. Starting in 2020, the AFM will assess the achieved quality improvements at the six PIE audit firms and inspect the quality of their statutory audits.
Improving quality is an important issue for society
The audit firms have been structurally engaged in sustainably improving the quality of their statutory audits since 2014. This is an important public interest issue. Investors, banks and other stakeholders must be able to rely on financial statements. Auditors provide assurance with respect to financial statements with their statutory audits.
Journalists may contact Daniëlle de Jong, AFM Press Officer, on 020 797 2129 or [email protected]