Financial regulator says accountants are not doing enough to prevent risks of fraud

The Dutch Authority for the Financial Markets (AFM) has written to accounting firms in the Netherlands following a critical report on their investigation into fraud risks at companies. The regulator has concluded from a sample of audits of annual accounts that accountants often do too little to detect possible fraud.

“Considering the importance and the exceptional nature of fraud risks, these risks require extra attention during controls. The accountant must adjust the nature, timing, and scope of the controls to respond to these risks," the AFM wrote to accountants.

Companies and organizations can use fraud to give incorrect information about their turnover or to bribe people. The AFM has stated that accountants play a significant role.

During 32 audits, the AFM examined how accountants investigated the risk areas that they had identified themselves. The regulator found that the accountant had insufficient or unsuitable information to be able to judge the fraud risks in 23 of these cases. They also often did not properly tailor their control methods to specific risks.

The AFM also stated that they felt there was a lack of “professional critical mentality” in six of these cases. In these cases, insufficient extra research was done into noteworthy information. For example, payments to countries with a high number of corruption cases.

The AFM has been pushing for improvements to accountants' controls of possible fraud for a longer period of time. The institution said in 2023 that there were shortcomings in the analysis that accountants use to determine the area with the highest risk of fraud at certain businesses.

Letters were sent this week by the AFM in which they called for accountancy agencies to create a plan of approach to improve investigations into fraud risks. They also want the agencies to check how effective these measures would be at improving the issues.

The Royal Netherlands Institute of Chartered Accountants (NBA) said that the results of the investigation are “disappointing.” At the same time, the NBA emphasized that there were also positive results for accountants who did the controls in the right way.