PCAOB imposes administrative fine of $ 25 mln on KPMG Accountants Nederland for examination fraud (and its approach to it)

Widespread exchange of questions and answers to (mandatory) tests and examinations 

During a period of at least five years, hundreds of professionals had been committing fraud when taking examinations, some of these examinations being mandatory to keep professional knowledge and skills up to date for certification as a statutory auditor. The fraud was being committed by sharing questions and answers, by being given access thereto without reporting this, by taking the tests together.  Hanzo van Beusekom: “Auditors need to realise that adding trust is their core business; you cannot credibly conduct business if your own integrity and professional competence is subject to discussion.”
 

A culture that allowed for large-scale examination fraud that extended over a long period of time

Partners as well as the Head of Assurance, also member of the Management Board, were involved in inappropriately receiving and sharing answers. The approach to examination fraud exposed the inability to effectively promote an ethical culture with regard to the improper sharing of answers and the monitoring of the system of quality control aimed at this. 

The essence of an auditor’s profession is the addition of trust, which has been impaired by examination fraud

Auditors perform statutory audits of annual accounts for the benefit of society. They do this to allow users of financial statements, such as investors, to rely on the figures. The system of quality control set up to ensure the quality of these statutory audits has to contribute to this. Keeping professional competence up to date is part of this system of quality control.

KPMG Accountants Nederland is under enhanced supervision by AFM

This sanction was imposed with the understanding that the Firm will be subject to an intensive supervisory programme conducted by the AFM. This programme will include remediation, conducting a root causes analysis, the establishment of policy and procedures to prevent and detect improper answer sharing within the organisation, and exploring further appropriate changes to the Firms culture. Hanzo van Beusekom: “It is important to truly comprehend how this could have happened, and to see whether the corporate culture suffers from any more blind spots. So that this moment can be fully utilized to learn lessons for the future.”

The PCAOB and AFM are working together in supervising audit firms

Given the fact that KPMG Accountants Nederland also audits the annual accounts of certain Dutch companies with a listing in the US, it is also subject to the PCAOB’s oversight. Based on the legal framework, the AFM and PCAOB have the ability to cooperate extensively on the supervision of audit firms. Several cases of examination fraud within the audit sector have since been reported nationally and internationally. The investigations into the other PIE audit firms in the Netherlands by the AFM are still ongoing.