Audit firms with a regular licence should immediately get to work on improving their client acceptance process

A key prerequisite for the quality of statutory audits is that audit firms apply a proper client and engagement acceptance or continuance (CEAC) process

A key element of the CEAC process is the prior safeguarding of the auditor’s independence in order to ensure, for example, sufficient segregation of audit and advisory services. The CEAC process should also include a review of the integrity of the audit client and of whether the audit firm has sufficient time, resources and qualified staff available to properly perform the statutory audit.

In its assessment of 30 audit firms with a regular licence, the AFM found that the CEAC policy was inadequate at 18 of these audit firms

The CEAC policy should be clear and unambiguous to ensure that the CEAC process is implemented in accordance with the rules and in a consistent manner. The AFM has found that when an audit firm’s CEAC policy is inadequate, the CEAC process is likewise inadequately implemented for most of the statutory audits concerned.

CEAC process inadequate for 71 of 83 statutory audits assessed

For 54 of these 71 statutory audits, the CEAC review was inadequate and/or non-timely. For 17 of these 71 statutory audits, the CEAC review was inadequate, but risk mitigation measures had been taken where necessary, and the review was completed in good time. A CEAC process is a key safeguard for the quality of statutory audits. The AFM’s assessment did not look at the quality of the statutory audits concerned.

Improvements are needed in the CEAC process; audit firms with a regular licence should get to work on this immediately

The AFM expects that all audit firms with a regular licence will need to make improvements in their CEAC process, as the audit firms it assessed are a representative sample of this segment of the audit firm market. In the coming years, the AFM will continue to actively monitor the quality improvement efforts on the CEAC process and adjust its supervisory activities accordingly.

Besides points for improvement, the AFM also found examples of good practices

The AFM has also examples of good practices with respect to the CEAC policy and the implementation of (part of) the CEAC process. These good practices have been included in the AFM’s report, along with the identified points for improvement, to enable audit firms to learn from each other. To support this, the AFM will host a round table with the 30 audit firms that were included in the assessment, as well as two webinars.

More information

Report 'Act on this! Outcomes of the review of client and engagement acceptance or continuance at non-PIE audit firms' (pdf, 2.3 MB)