Internal Quality Reviews (IQRs) provide grip on quality of statutory audits

In brief

• AFM is mostly positive about insight provided by IQRs into achieved quality
• AFM is positive about design and performance of IQRs in 2020
• Opportunities to reinforce and renew IQRs
• Have a dialogue about the quality of statutory audits

With IQRs, PIE audit firms retrospectively review the quality of a small part of their statutory audits. Each statutory auditor is selected at least once every three years. The performance and findings of the IQRs help audit firms to be learning organisations. From 2018 through to 2020, the PIE audit firms assessed around three quarters of their statutory audits to be ‘adequate’ based on their IQRs.

Mostly positive about insight provided by IQRs into achieved quality of statutory audits

The AFM has compared the IQRs by the relevant audit firms with its own review into the quality of 18 statutory audits. For the vast majority (15) of the statutory audits reviewed, the IQR resulted in a similar assessment as that of the AFM. The AFM and the PIE audit firms therefore increasingly apply the same quality standards.

Positive about design and execution of IQRs in 2020

The AFM is positive about how the PIE audit firms designed their IQRs in 2020. The AFM assessed the following elements: selection, execution, weighting, communication, and remediation. The audit firms gain insight into their achieved quality. They use the outcomes of the IQRs for example to monitor, adjust and further improve the quality of statutory audits, as well as to encourage to be learning organisations.

Opportunities to reinforce and update IQRs

The review has also identified opportunities to reinforce and renew the IQRs. For example, the audit firms each apply different systems in their IQRs to rate the quality of statutory audits. They could update those systems by clarifying when the quality of a statutory audit is ’adequate’ or ’inadequate’. This would give the users of financial statements a more uniform insight into the quality of statutory audits.

Have a dialogue about the quality of statutory audits

Audit firms, Supervisory Boards, Audit Committees and users of financial statements, such as investors and creditors, can use the findings of this review to continue and to deepen the dialogue about the quality of statutory audits.

Journalists may contact Daniëlle de Jong, AFM spokesperson, at danielle.de.jong@afm.nl or on +31 (0)20 7972129.

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