A new era for the accounting industry

2014, a turbulent year for accounting firms, given that several scandals occurred within the offices of the big four, partly concerning fraud. Another issue reported by the Dutch SEC, called AFM, was the high percentage of subpar annual audits performed by the biggest accounting firms, namely 45 percent. The AFM researched the matter and concluded that in almost half of the audits performed, accountants signed off on audits without knowing if the information within was completely accurate, a capital sin within the profession.

Former Minister of Finance Dijsselbloem gave the industry one more chance to better their performances, and chance the dated structure and culture. Shortly after, a group of young accountants hired by the professional organization for accountants, NBA, proposed 53 measures that would alter the current system. One of the most striking measures is the bonuses that will be cut throughout the industry. A partner will now get a maximum bonus compensation of 20 percent of his income, which will be given based on long-term qualitative outcome. The bonus will partly be held from the partner for six years and can decrease over time if long-term goals aren’t met. Another important measure is the increased amount of partner per client. Due to efficiency within the office, audits were mostly executed by young professionals, with the partner having a managing role in the process. Now each client will get more time from an experienced partner within the office.

The NBA also proposed external supervision and supervisory board for accounting firms, thus stalling the absolute power partners currently have. Members of the supervisory board will for the most part elect and dismiss executives and control their yearly performance. Lastly, they want to initiate a cultural change by letting new accountants take an oath, and hopefully giving them a larger sense of responsibility for their work. Because finding the cause of all the problems requires a lot of guesswork, the industry is also planning on building an institute that will research the issues in detail. Because of the outstanding solutions, there was no political control on the development for a couple of years, and realization of these measures soon seemed too good to be true.

The AFM again published a report in 2017, with the same horrible results as published in 2014. Besides this report, the monitoring committee of accountants, initiated by the industry itself, and formed by 3 accountants and 3 non-accountants, also reported little change within the professional realm. The main problem they found is that accountants overestimate themselves when it comes to the goals that were set, and feel like they already made enormous progress, and on the other hand they can’t fathom the complexity of the problem. Smaller firms lack the required progress. The committee also finds the partner structure and business model to not match the societal function the firms have. Because of the high incentive for profits, the client must pay much higher fees and accountants abuse their legal monopoly on annual audits, and thus not performing their societal duty as they should. This model also makes the accountant amiable towards the client and is thereby decreasingly critical towards the administration. Another issue the AFM has found, is the combination of auditing and consulting, which decreases the independence of the accountants.

Due to the minimal change, current Minister of Finance Hoekstra has installed a committee to oversee developments. The committee concludes in a report that the accounting firms are hanging on to the

Written by Sebastian Cornielje