AFM Inspection

What is AFM Inspection?

The AFM holds supervisory authority over all audit firms licensed to perform statutory audits in the Netherlands under the Wta, which has been in force since 1 October 2006. The inspection programme operates on two tracks. Regular inspections assess the firm's ISQM 1 system of quality management and examine a sample of completed engagement files. The AFM does not review the entire file. Inspectors select two to three focus areas per engagement based on the audited entity's risk profile and the key items in the financial statements, then assess whether the auditor obtained sufficient appropriate evidence and documented the reasoning behind significant judgments.

Thematic inspections target a specific topic across multiple firms simultaneously. The AFM's March 2024 thematic review on engagement quality reviews is a recent example: the regulator assessed EQCR policies and execution at both PIE and non-PIE firms and published sector-wide findings without naming individual firms. EU Regulation 537/2014 article 26 sets the minimum inspection frequency for PIE auditors at once every three years. For non-PIE firms, the Wta requires at least one inspection per six-year cycle, though the AFM may inspect more frequently based on a risk analysis.

After an inspection, the AFM communicates its findings to the firm. Where it identifies non-compliance, the regulator can impose measures ranging from informal corrective instructions to formal enforcement under Wta article 54, including administrative fines and (in severe cases) licence withdrawal.

Worked example

Client: Dutch transport and logistics company, FY2025, revenue EUR 19M, Dutch GAAP (RJ) reporter. The statutory audit is performed by Brouwer & Verhoeven Accountants, a non-PIE licensed firm with six partners and approximately 30 statutory audit clients.

Step 1 — Notification and scope

The AFM notifies Brouwer & Verhoeven that a regular inspection will take place in Q2 2026. The notification letter identifies the Van der Berg Logistics FY2025 engagement as one of two files selected for review. The AFM selects revenue recognition (the firm's largest client revenue stream is contract logistics with volume-based pricing) and going concern (the entity reported negative working capital of EUR 1.4M) as the two focus areas.

Documentation note: retain the AFM notification letter in the firm's regulatory correspondence file. Identify the engagement partner, the engagement quality reviewer (if applicable), and the key working papers for each selected focus area.

Step 2 — File review by AFM inspectors

The inspectors examine the engagement team's testing of revenue cut-off at year-end. Van der Berg recognises revenue based on completed delivery runs, with December revenue of EUR 1.7M. The team performed a cut-off test on the final five business days but did not document the basis for selecting five days rather than a longer window. The inspectors also examine the going concern assessment, where the engagement partner concluded that a new three-year contract (signed January 2026, value EUR 8.5M) mitigated the negative working capital. The inspectors request evidence that the team verified the contract's enforceability and assessed whether the projected cash flows were sufficient to cover obligations falling due within twelve months.

Documentation note: the AFM will request access to the working papers for revenue cut-off testing and the going concern evaluation. Ensure the file contains the engagement team's rationale for the scope of cut-off testing and the corroborating evidence for the new contract (signed copy, projected cash flow analysis, management representation).

Step 3 — Firm-level quality management review

In parallel with the file review, AFM inspectors assess the firm's monitoring and remediation process. They examine how many engagement files the firm inspected internally during the most recent cycle, what deficiencies were identified, and whether root cause analysis was performed. The firm internally inspected four files (13% of the portfolio). The AFM notes that the firm's internal inspection did not cover any logistics or transport sector clients, despite this sector representing 40% of the portfolio by revenue.

Documentation note: prepare a summary of the firm's internal monitoring cycle, including the number of files inspected, the selection criteria, the sectors covered, and the link between identified deficiencies and remedial actions taken.

Step 4 — AFM findings letter

The AFM issues a findings letter identifying two observations. First, the revenue cut-off working paper lacks documented reasoning for the scope of the test (ISA 330.28 requires documentation of the nature, timing, and extent of further audit procedures). Second, the firm's internal monitoring programme does not adequately cover the firm's risk profile because the largest sector by revenue was excluded from the inspection sample. The AFM requests a remediation plan within 60 days.

Documentation note: file the AFM findings letter, the firm's remediation plan, the revised monitoring selection methodology, and evidence that the revenue cut-off documentation deficiency was addressed through updated guidance to engagement teams.

Conclusion: the inspection identified two specific deficiencies (one at engagement level, one at firm level), and the firm's remediation plan must address both the documentation gap on the Van der Berg file and the structural weakness in the monitoring programme's coverage.

Why it matters in practice

• The AFM's March 2024 report on engagement quality control reviews found that 26 of 30 EQCRs assessed at non-PIE firms lacked sufficient depth. The reviewers checked documentation completeness but did not evaluate the substance of the engagement team's significant judgments. The AFM also found that 13 of 15 assessed non-PIE firms had inadequate EQCR policies. This is a firm-level systems failure, not an engagement-level documentation gap.
• Non-PIE firms frequently treat the six-year inspection cycle as a reason to deprioritise internal quality monitoring between AFM visits. The AFM's State of the Auditing and Reporting Industry 2025 report noted that consultation occurred in only 14% of statutory audits at small non-PIE firms, compared with 40% at large firms. A firm that reduces its own quality vigilance between inspections accumulates deficiencies that surface as clustered findings when the AFM does arrive.

AFM inspection vs. firm internal monitoring inspection

The two are complementary, not substitutes. A firm with a well-functioning monitoring and remediation process will have already identified and fixed many of the issues an AFM inspection might otherwise catch. The AFM's inspection then serves as a second line of assurance that the firm's own system is working.

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