The Dutch securities regulator has called for a comprehensive review and overhaul by the audit profession of its procedures for detecting fraud in the wake of a spate of European corporate scandals. In an article published in today’s Financial Times, Paul Koster, a member of the executive board of the Netherlands’ Authority for Financial Markets, says recent financial scandals has shown existing procedures to be inadequate. “It is imperative that the audit profession plugs this gaping hole in its approach,” Mr Koster writes. Efforts by legislators, regulators and accountants to restore investor confidence – including audit firm rotation – have been undermined by events at Parmalat, he says. He wants the introduction of minimum due diligence procedures by incoming auditors “to catch wrongdoing that the outgoing auditors may have missed”. He also urges a comprehensive review of recent incidents by international accounting firms “to challenge existing procedure and come up with industry-wide standards”. Mr Koster says audit firms should consider introducing supervisory boards to replace the ‘obsolete’ partnership structure. Finally, he suggests that a top level committee, within the European Committee of Securities Regulators, should co-ordinate and focus the response to accounting regulatory issues highlighted by Ahold, Parmalat and Adecco. The call comes as the regulator considers an investigation into Parmalat’s subsidiaries in the Netherlands and Netherlands Antilles. AFM has been gathering information that suggests the Dutch units have violated securities laws in relation to the majority of more than Euro 5bn in bond issues. It is likely to decide at a board meeting tomorrow that a formal probe is justified.
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