Press release 30/01/25

Auditors need to adopt a more specific and in-depth approach in response to fraud risks

When performing statutory audits, auditors devote time and attention to fraud risks and associated audit procedures. A review by the Dutch Authority for the Financial Markets (AFM) shows that these audit procedures lack sufficient specificity and depth, as a result of which a material misstatement due to fraud may remain undetected. The AFM reviewed 32 statutory audits of financial statements. In two-thirds of the audits reviewed, we found that the audit procedures for one or more fraud risks were insufficient.

In short

Importance and special nature of fraud risks require extra attention in the audit
More in-depth and specific audit procedures needed
Provide relevant and reliable information in the fraud section of the auditor’s report
Joint call by AFM, NBA and SRA for improvement plans

Importance and special nature of fraud and fraud risks require extra attention in the audit

Audited companies are primarily responsible for preventing and addressing fraud. Auditors play a crucial role in the audits of financial statements by promptly identifying fraud risks and executing appropriate audit procedures to address them. During the audit, the auditor first performs a fraud risk analysis, to identify potential risks. Subsequently, the auditor addresses these risks through specific audit procedures. This is a crucial step. The AFM therefore reviewed the quality of these audit procedures. We examined 32 statutory audits conducted at 3 PIE and 10 regular audit firms.

More in-depth and specific audit procedures needed

We observed that auditors devote time and attention to fraud risks and the associated audit procedures in the statutory audits they perform. These audit procedures need to be more specific and in-depth. For 23 of the 32 audits we examined, we found that the auditor did not obtain sufficient and appropriate audit evidence to address one or more fraud risks. We also observed that auditors do not specifically adapt the nature, timing and extent of their audit procedures to the identified fraud risks, or do not do so sufficiently. These audit procedures must be more tailor-made: more specific, more in-depth and also more extensive.

Provide relevant and reliable information in the fraud section of the auditor’s report

Auditors report on fraud in the fraud section of the auditor’s opinion. In 10 of the statutory audits that were examined, the fraud section in the auditor's report was incorrect and thus presented an overly positive picture of the audit procedures performed.

Joint call by AFM, NBA and SRA for improvement plans

The AFM expects audit firms to take note of the results of our review, to reflect on them and implement improvement measures where necessary. Together with the NBA and SRA, we call on auditors and audit firms to improve the audit procedures addressing fraud risks. We also draw their attention to the need to focus on behavioural aspects that hinder or stimulate professional scepticism. In our report, we share several good practices from which organisations can draw inspiration. The role of auditors in identifying and following up on fraud and fraud risks will continue to be a recurring theme in the AFM's supervision in 2025.