Toespraak van minister Dijsselbloem bij de FEE Members Assembly

Toespraak | 23-09-2015

Ladies and gentlemen,

Somewhere in the Roman Empire, there once was a jealous man who kept his wife locked up in the house. To prevent her from being unfaithful, the man placed several guards outside the door. This didn't stop her. In fact, she cheated on her husband with the guards. Juvenal wrote this story in the second century AD. Of course, he was writing satire. In fact his message was political. And he ended this story with an interesting question: Who watches the watchmen?

His question was relevant two thousand years ago and today. Because over the last few years, auditors have had a bad press. Many incidents have involved financial statements which, despite receiving the stamp of approval from the audit firm, did not reflect the true state of affairs at the company. In the public and the private sector, I might say. And these incidents are not limited to the Big Four audit firms. As a politician, I can assure you there's nothing harder to win back than trust. The banks know this. Insurance companies know this. And now audit firms know it too.

The situation is, I'm afraid, quite serious: if your seal of approval is questioned, the added value of your work itself is at stake. And with every new incident, it becomes more and more difficult for the public to determine which charts, figures and results can be trusted. And of course, this is not what you want; it is not what we want. You want to represent a sector that is justly proud of its work.

Your approval should not give reason for doubt; it should be a byword for reliability and precision. If it’s not, audit firms lose their raison d’etre. If it's not, people will again start asking the age-old question: Who watches the watchmen? I think my point is clear: we all want to strengthen the quality of audits and restore trust in audit firms and auditors.

In Europe, several measures have been taken to refocus audit firms on their main task: the quality of control. Of course we still have a long way to go.

And it will take even longer to restore confidence. I want to highlight two measures in particular. Firstly, Europe has introduced a strict separation between audit and non-audit services such as tax advice and other forms of consultancy.

It emerged that many audit firms provided audit services to companies at the same time as providing advisory services. This situation allows too much scope for conflicts of interest. And it provides scope for the last thing you need: doubts about your independence. Secondly, Europe has introduced mandatory rotation for audit firms. In this way, auditors do not become 'one of the family'. As of mid-2016, companies will in principle be required to switch to a different audit firm after 10 years.

Ladies and gentlemen,

In the Netherlands, the Authority for the Financial Markets is the supervisory body responsible for overseeing audit firms. The AFM conducted an investigation into the quality of audits carried out by the Big Four audit firms. And its report appeared in September 2014. The AFM concluded that 45 percent of them were not up to standard. I want you to let this number sink in. 45 percent. I realise these are not all catastrophic mistakes. But imagine you bring your car to a mechanic for a periodic inspection and he doesn't check the brakes. It doesn’t mean the car won't brake any more. The brakes may be fine. But it does mean that an essential part of the vehicle hasn’t been checked and that the seal of approval is deficient. I should add that in the 2010 investigation the percentage of audits which were not up to standard was even higher with 52 percent. The improvement since has been unacceptably small. Again, this was not a problem only at the Big Four audit firms. Small audit firms also showed insufficient quality.

Dutch parliament called on the sector to come up with proposals to improve the quality of audits. The Netherlands Institute of Chartered Accountants and the rest of the sector responded expeditiously, submitting 53 proposals for improvement. Examples of important elements of these proposals are a quality-based remuneration and a claw-back scheme for audit partners, a better leverage model, and a promotion policy which takes proven professional qualities as its starting point. In addition to these proposals, I intend to take a number of legislative measures to improve the quality of audits. One of these is a mandatory internal supervisory body, comparable to a supervisory board. Because independent internal supervision may ensure that audit firms adopt a long-term policy. A policy aimed at integrity, independence, professional skills and effectively changing the corporate culture. Moreover, members of the executive and supervisory boards at audit firms will have to pass a fit-and-proper test. Because it is crucial that audit firms are run by people who have the right knowledge, professional qualities and competences. Because we need real watchmen.

Ladies and gentlemen,

New and stricter rules are necessary. And yet, rules alone, however, are not enough. Auditors also have to change their corporate culture. This is no easy task. Clear rules are necessary. You need a framework. The EU has done that.

The Netherlands has done that also. But the second step is up to you. You need to take the necessary steps yourself. And I think professional organisations like yours can play a key role in helping audit firms adopt this new mentality. For one thing, auditors need to act in the spirit of the law, as well as the letter. Auditors do not just work for their clients. Auditors always have to act in the public interest. This requires an independent, prudent and precise mentality. With the combination of new rules and your willingness to win back the public’s trust, I believe we can restore the reputation of audit firms.

Changing a culture is difficult. It will not be done overnight. You can only do it step by step. Unfortunately, we are in a hurry. The Romans were familiar with this challenge. Martial, the Roman author who lived around the same time as Juvenal, once wrote: ‘Divide the work and thus shorten it.’ So this is what we must do. With the EU and the member states, the professional organizations and the audit firms. So people will again trust the watchmen.

Thank you.