The public interest entity (PIE) audit market has been shrinking in the Netherlands in recent years, leaving only six players remaining on the field; a concerning trend we previously discussed this summer.
Nevertheless, companies have been scrambling to find a new auditor – a task which is becoming increasingly difficult. With only six firms to choose from, companies may be limited even further if one or more firms may not be able to take the job because of independence issues, or because of the mandatory three-year cooling-off period, during which time firms are prohibited from re-engaging with a company.
In this post, we look at a company with a track record of complex and challenging audits and how the limited supply of audit firms could negatively affect companies like this.
As we reported earlier, some companies had to delay their 2019 financial statements pending the appointment of a new audit firm. Other companies had to engage the assistance of the Royal Dutch Institute of Chartered Accountants (NBA) to assist in finding a new auditor.
Plaza Centers NV, listed on the London Stock Exchange, the Warsaw Stock Exchange, and the Tel Aviv Stock Exchange, found itself in a “deadlock situation” when Baker Tilly announced that it was giving up its PIE audit license in 2020, just two years after accepting the initial engagement.
“Despite significant effort of the Company which included cooperation with the Royal Dutch Institute of Chartered Accountants (Koninklijke Nederlandse Beroepsorganisatie van Accountants, NBA) in order to find a new Dutch PIE auditor none of those has been prepared to accept the Company as their client, which left the Company in the awkward position of not being able to meet its statutory obligations regarding the statutory audit.”
Plaza Centers’ IFRS financial statements have been audited by Ernst & Young’s Israeli affiliate, Kost Forer Gabbay & Kasierer since 2015. In the absence of a Dutch statutory audit firm, which is required for the approval of the Dutch statutory accounts, Plaza Centers has decided to appoint EY Israel and submit the IFRS accounts as a “workaround” while they continue to search for a Dutch auditor who will accept the engagement.
“the appointment of EY Israel by the annual General Meeting does not constitute the appointment of a statutory auditor within the meaning of the laws of the Netherlands or the Articles of Association.”
While we do not know for certain why the six PIE auditors have not accepted Plaza Centers’ engagement, it is likely that the complexity of their financial statements would require a significant amount of work for their auditor without the promise of a significant fee. Baker Tilly received only €58,000 for their work in 2018.
The IFRS opinion signed by EY Israel notes a material uncertainty relating to the going concern assumption, as well as naming key audit matters that include the valuation of trading properties and an investment that is in breach of a Public-Private Partnership (PPP) agreement.
Plaza Centers has had a going concern modification in their opinions since 2015, which was noted by both Baker Tilly and Grant Thornton. In fact, Grant Thornton, in their two years as auditor, was forced to issue disclaimers of opinion based on contract irregularities and potential legal issues, as well as an inability to verify the profit and loss account.
In an audit market with more players, it might be easier for Plaza Centers to find an auditor willing to take on the challenges of such a complex audit. However, we anticipate the six firms in the Dutch market will continue to be reticent to take on this engagement.
Additionally, with so few firms available for PIE audits, we note that a number of Dutch companies are still searching for an auditor: Alumexx NV, Esperite NV, Lavide Holding NV, AND International Publishers, and Value8 NV.
We would like to thank Tjibbe Bosman at the Foundation for Auditing Research for his contributions to this analysis.
This analysis uses data from the Europe Audit Opinions database, powered by Audit Analytics.
For more information about Audit Analytics or this analysis, please contact us.
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