A customer who does not take personal costs very seriously, so that they are included as business costs in the annual accounts: how do you deal with this as an accountant? An AA was satisfied with answers from an entrepreneur that should have been the reason for adopting a more critical attitude, the Accountants Chamber ruled. As a constituent accountant, he also allowed the annual accounts to be signed by only one of the two shareholders. Added together, the disciplinary judge finds that sufficient to impose a reprimand on the AA.
Verdict: 21-125 AA (pdf)
The accountancy firm where the AA works compiles the annual accounts of a BV with two shareholders/board members. The accountant is responsible for those activities at the office and is the point of contact for the client. At the beginning of 2020, he compiled the 2019 annual accounts. In a meeting with one of the two shareholders on March 10, 2020, he issued a compilation statement on those annual accounts. The shareholder present signed the annual accounts twice, both with the name of the other shareholder preprinted in the annual accounts and with the name of his own personal BV with which he held the shares in the joint venture.
Other shareholder dissatisfied
The other shareholder approached the AA later that year because he wanted consultation and an explanation of the administration of the joint BV. That shareholder subsequently informed the accountant that, as far as he was concerned, private expenditure had incorrectly been included in the annual accounts and that he had not been informed about the discussion of the 2019 annual accounts. Finally, he went to the Accountants’ Chamber, where he complained, among other things, that the AA failed to notice the non-business charges and was not alert to possible fraud. The 2019 annual accounts would also not have been checked and, according to the dissatisfied entrepreneur, there was forgery, because the signature of his authorized representative was allegedly forged.
Judgment of the Audit Chamber: missing signature
The disciplinary court rules that the AA has indeed made mistakes. Article 2:210 of the Dutch Civil Code stipulates that the annual accounts are signed by all directors and supervisory directors. If a signature is missing, this must be reported. The AA witnessed one shareholder sign, was aware that this was not the right course of action, but took no action against it. In this way, in the opinion of the Accountants’ Chamber, he allowed that his client did not act in accordance with the statutory regulations. He also failed to verify whether the absent shareholder agreed with the annual accounts and whether a legally valid decision to prepare the annual accounts had otherwise been taken at management level. For that reason, too, there were doubts about the signing of the annual accounts by (only) one shareholder, the Accountantskamer ruled. By allowing this to happen and by not urging the shareholder present for an adequate settlement, the AA acted contrary to the principle of professional competence and due care that applies to it.
Familietripje New York
The AA also acted incorrectly in a second part of the complaint, in the opinion of the disciplinary court, namely in justifying the costs of a family trip to New York of one of the shareholders. This item is listed in the sponsorship section in the general ledger. The AA stated at the hearing that it had discussed this item with the shareholder who signed the annual accounts as part of its compilation activities. The auditor stated that according to that shareholder the accounting for this item as costs was correct in view of the presence of various relations of the company at the marathon in New York in which he participated. His wife also worked for the BV. At the time, the AA was satisfied with this explanation and did not ask further.
Possible non-businesslike character not well identified
The Audit Chamber is of the opinion that the accountant should not have been satisfied with (only) this explanation from the shareholder, especially where the costs recognized also included the travel costs of his children. It is correct that a compilation engagement is not an assurance engagement, so the AA did not have to verify all the information provided by the client. This does not alter the fact that from the above example it appears that the person concerned has not properly identified the possibly non-businesslike nature of a specific cost item that he has discussed with the shareholder, or at least has not made sufficient inquiries about it. Any (permanently) unsatisfactory explanation from the shareholder should have given the AA reason to also ask (further) questions about (the business nature of) other cost items. The fact that the invoice for the trip to New York in itself may not have been material to the financial statements does not alter the foregoing. After all, accountability as a business cost item also has tax implications, and in principle there is no materiality limit for this. In the opinion of the Accountants’ Chamber, the accountant has not sufficiently demonstrated a professional critical attitude. He has not acted in accordance with the provisions of paragraph 32 of Standard 4410. Within the scope of these proceedings, the Audit Chamber cannot determine whether, and if so, to what extent, the items cited by the complaining shareholder relate to non-business expenses. It is also not possible to determine whether fraud has occurred.
According to the Audit Chamber, the measure of reprimand is appropriate and required because the accountant has failed to comply with the fundamental principle of professional competence and due care in several areas.
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