Unofficial translation
Explanatory Notes for the NVKS
20 July 2017
This document is a translation of the official Dutch version.
The Dutch version is leading when discussions take place how to interprete the document.
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NVKS Regulations for Accountants: Preconditions for Conducting Assurance Engagements, Translations of Law
The NVKS (Nadere Voorschriften Kontrole- en Overige Standaarden) are a set of rules for accountants conducting assurance engagements or related services engagements in the Netherlands. the preconditions for accountants units (firms and departments) to fulfill these requirements, including the involvement of ultimately responsible professionals, distribution of voting rights, and determining day-to-day policy. It also discusses the quality management system and additional requirements for assurance engagements.
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Unofficial translation
Explanatory Notes for the NVKS
20 July 2017 This document is a translation of the official Dutch version. The Dutch version is leading when discussions take place how to interprete the document.
DRAFT General Explanatory Notes for the NVKS 1 Introduction 1.1 What do the NVKS regulate, and why? The Regulations for Quality management systems (NVKS) contain rules for the establishment of a quality management system in an accountants unit. A quality management system is essential for the quality of the work performed of an accountants unit, and protects the public interest and the professional group from the mistakes made by individual accountants. A quality management system is the most important instrument for an accountants unit to control the activities of accountants and other employees and to demonstrate that the procedures have been performed in a high quality manner and in accordance with the applicable laws and regulations. The NVKS stipulate certain minimum requirements. The quality control decision maker (see paragraph 3.4) considers whether there are circumstances under which the quality management system should go further than these minimum requirements. The accountants unit’s risk assessment can be an important source of information for this consideration. The NVKS provide smaller accountants units (accountants departments and accountants firms) the possibility of taking their nature and extent into consideration when fulfilling the requirements. 1.2 Which regulations do the NVKS replace? Rules for quality management systems are not new. Until 1 January 2018, the following regulations apply: Temporary Regulations for Quality management systems (Temporary NVKS); Regulations for Audit Firms - assurance engagements (NVAK-ass.); and Regulations for Audit Firms - related services engagements (NVAK-aav.). Accountants departments also base their quality management systems on the Directive for Accountants departments Quality Control (RKB1).^1 On 1 January 2018, these guidelines will be revoked, and the RKB1 will no longer be relevant. The NVKS will then supersede these regulations. The NVKS form a single set of rules for accountants conducting assurance engagements or related services services engagements subject to the Regulations audit- and other standards ( Nadere voorschriften controle- en overige standaarden - NV COS), with the exception of statutory audits.^2 The NVKS apply to accountants in public practice, internal accountants and public sector accountants. The NVKS are based on the premise that the rules apply depending on the nature of the engagement, and not the role of the accountant conducting the engagement (accountant in public practice, internal or public sector accountant). This premise is in accordance with other regulations, such as the Verordening gedrags- en beroepsregels accountants (VGBA), the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO) and the Regulations audit and other standards (NV COS). An accountant involved in conducting an engagement or operations at an accountants firm or accountants department is either an accountant in public practice, internal or public sector accountant. The table below indicates which regulations apply to which individuals until 1 January 2018, and after that date. (^1) Not entirely current. RKB1(15 June 2005) is derived from the version of ISQC1 approved on 15 June 2005. (^2) The NVKS also establish requirements on the quality management system of an accountants firm (not an accountants department), where an ultimately responsible professional conducts engagements equivalent to assurance engagements or related services services engagements, and which are conducted subject to regulations other than the NV COS (see paragraphs 2.2 and 2.3).
DRAFT Comment: Enhancing Audit Quality in the Public Interest–A Focus on Quality Control, Group Audits and Professional Skepticism’ published in December 2015, were also taken into consideration. This also takes into account that these insights have not yet been implemented in draft or current regulations. A comparison has also been made with the regulations for the statutory audit domain (EU regulation/Wta/ Bta and VAO). This comparison was made primarily to determine that the differences between the requirements for statutory audits and for all other assurance engagements were logical and explainable. Where the differences were not logically explainable, the requirements for the other assurance engagements were amended, or a conscious decision was made to maintain the differences. Naturally, the Temporary NVKS, NVAK-ass, NVAK-aav, and RKB1 were taken into account, as were the NV COS for requirements at the engagement level. All of these regulations were considered in the context of the fundamental principles (VGBA) to which each accountant should comply, as well as the independence requirements in the ViO. Inasmuch as the NVKS pertain to the conduct of engagements from an accountants firms, it takes the public’s expectations into consideration. This is because many of an accountants firm’s activities are conducted on behalf of the public interest. 1.4 Primary changes relating to the regulations prior to 1- 1 - 2018 New elements include: Limited requirements for the application of the NVKS for smaller accountants units. The purpose of the limited requirements is to prevent smaller accountants units from being burdened disproportionally (see paragraph 2.5). A discretionary authorization of the board of the NBA to grant exemptions in exceptional circumstances from the requirement that the majority of voting rights in an accountants firm that conducts assurance engagements should be held by accountants (see paragraph 3.5 for the nuances). An exemption makes it possible to conduct a limited number of assurance engagements under certain conditions, even if the voting right requirement cannot be complied with. Rules established on the cooperation between accountants firms and administration firms in order to protect the accountants profession (see paragraph 3.6) ; The requirement to conduct an engagement quality control review for audit engagements of financial statements at public interest entities (see paragraph 4.2). This is accordance with ISQC1. The NVKS introduce the terms ‘quality control decision maker’ and ‘quality manager’. A quality control decision maker is the accountant responsible for the quality management system (see paragraphs 2. and 3.4). A quality manager is the person who is operationally responsible for the design, implementation and monitoring of the system of quality control (see paragraph 5.2). The term ‘quality control decision maker’ is new, but his responsibilities correspond to those of the accountant in public practice who determines the day-to-day policy at an accountants firm (the party to whom the Temporary NVKS, NVAK-ass. and NVAK-aav. apply). Any quality manager falls under the professional responsibility of the quality control decision maker. The rules pertaining to cooperation with other professionals have been amended (see paragraph 2.2). 1.5 Legal framework The NVKS are based on Article 24 of the VGBA. With the establishment of this article, the members meeting authorized the board of the NBA to formulate regulations to elaborate the provisions of the VGBA. The VGBA implements Article 3 and 19, second paragraph, part a, of the Professional accountants Profession Act (Wab) in order to establish regulations to promote the proper conduct of the profession among accountants. The preparers of the NVKS took into consideration the ‘Instructions for the Regulations’ used by the national government to draft laws and regulations. 1.6 Relationship to the Quality control review Regulation
DRAFT The Quality control review Regulation also includes requirements relating to the quality policy and to the system of quality control. Both regulations therefore deal with the same subject, but they regulate different matters. The NVKS deal with the establishment of the quality policy and the system of quality control within an accountants unit. The Quality control review Regulation deals with external review of the quality policy and the system of quality control in relation to the NVKS and other relevant regulations by the Supervisory Board of the NBA. 1.7 Reading guide The NBA will publish a colour-coded reading guide to illustrate which provisions in the regulation apply to particular accountants and accountants units. 2 Scope 2.1 Who is the intended audience of the NVKS (to whom does it apply?) In principle, the NBA can only address its regulations to its members, the accountants (AAs and RAs). This means that NBA cannot directly obligate accountants units to establish a quality management system. Therefore, the NVKS apply to the accountant, specifically those in the function of: The party to which this applies Requirements at the level of Ultimately responsible professional accountant Individual engagements Quality control decision maker The quality management system Another member of the engagement team that is involved with business operations His own performance The ultimately responsible professional accountant^7 The ultimately responsible accountant is only allowed to conduct an NVKS engagement if the accountants unit on whose behalf he conducts the engagement has established a quality management system. Quality control decision maker The function of quality control decision maker (see paragraph 3.4) entails the responsibility of establishing a quality management system that provides reasonable assurance that the NVKS engagements (see paragraph 2.3) are conducted in accordance with the applicable laws and regulations. Accountant as another member of the engagement team, or otherwise involved in business operations An accountant in the function of another member of the engagement team may only be involved with the conduction of NVKS engagements if these are carried out by an ultimately responsible professional accountant or an ultimately responsible professional (see explanatory notes on Article 8). Furthermore, an accountant is only allowed to be involved in the operations of the accountants unit if he has no information that would indicate that no ultimately responsible professional accountant or ultimately responsible professional in the accountants unit or other part of the network is involved in the conduct of engagements subject to the provisions of the NVKS. In the context of the NVKS, involvement in operations is understood as: involved in any way with the activities of the accountants unit, but not as a customer or supplier. Examples of involvement in operations include the functions of security, caterer, secretary, and accountant charged with personnel policy. For every accountant applies, that they refrain from every action or failure which he knows or ought to know to be in conflict with the NVKS, regardless of his function. (^7) For the sake of readability, the regulation and the explanatory notes state that an NVKS engagement is conducted by an ultimately responsible professional accountant. This means that an NVKS engagement is conducted under his ultimate responsibility. The ultimately responsible professional accountant is often supported by an engagement team.
DRAFT An ultimately responsible professional, who is not a foreign professional colleague, may only conduct an NVKS engagement if it concerns information other than financial information. This is not applicable to the exceptional situations referred to Article 7. The NVKS naturally account for anylaws and regulations that allocate engagements pertaining to financial information to the professional group of the ultimately responsible professional. If an ultimately responsible professional is a member of a professional body which is a full member of the International Federation of Accountants (IFAC), it may be assumed that he has the right qualifications to conduct engagements involving financial information (see article-by-article explanatory notes on Article 7). If an ultimately responsible professional is conducting an NVKS engagement, it is of importance that he displays his areas of knowledge and experience, and shows which rules have been applied. This contributes to transparency, and it minimises the risk that an ultimately responsible professional gives the impression that he is an accountant. In order for an ultimately responsible professional to conduct an NVKS engagement, it is of importance that he complies with a number of requirements, such as certificates for accredited exams, possession of sufficient knowledge and experience, and compliance with the rules of proper conduct of the profession. These requirements are not new. What is new, however, is that the quality control decision maker ensures that the ultimately responsible professional complies with the requirements. The system in which the ultimately responsible professional should be a member of a professional body recognised by the Board of the NBA will expire on 1 January 2018. The provisions of the NVKS pertaining to cooperation with ultimately responsible professionals entail that is not possible for an engaged engineer to sign a CO^2 assurance report, or for a tax advisor to conduct tax assurance, if these professionals do not possess additional qualifications. For the record, this is also not possible under the regulations that apply until 1 January 2018. 2.3 Which activities do the NVKS address^11 The NVKS focus on quality assurance for NVKS engagements. The NVKS engagement is a new term in the regulation. These are assurance engagements or related services engagements conducted by the ultimately responsible professional accountant subject to the provisions of the NV COS. Activities and engagements as referred to the third paragraph of the NV COS do not fall under the definition because they are excluded from the scope of the NV COS (see paragraph 2.4). Statutory audits do fall under that definition, but are also excluded from the scope of the NVKS (see Article 2). Engagements that are equivalent to assurance engagements or related services engagements, and which are conducted by an ultimately responsible professional subject to his own professional regulations, are also NVKS engagements (see paragraph 2.2). ‘Equivalent’ means that the characteristics of the content of an engagement are the same as an assurance engagement or an related services engagement. One example of such an engagement is an engagement conducted by an EDP auditor in the context of electronic information security. If a non-accountant conducts an engagement that would not qualify as an assurance engagement or related services engagement under the provisions of NV COS if it were conducted by an accountant, then the engagement cannot be considered equivalent. Equivalent engagements at an accountants department are not subject to the NVKS, because these engagements are not included in the definition of an NVKS engagement.^12 The figure below indicates which engagements are subject to the scope of the NVKS. The size of the columns is not illustrative of the share of such engagements within an accountants unit. (^11) Where these explanatory notes refer only to assurance engagements or engagements equivalent to assurance engagements, it is understood to mean only assurance engagements subject to the NV COS or equivalent engagements subject to regulations other than the NV COS. (^12) See footnote 10.
DRAFT 2.4 NV COS exceptional situations Engagements conducted by accountants, but which are excluded from the application of the NV COS, do not fall under the definition of an NVKS engagement. On the basis of provisions in the general section of the NV COS, all accountant in public practice, internal and public sector accountants working in the Netherlands are required to apply the NV COS for all assurance engagements and related services engagements. Exceptions have been made for certain situations. This takes into consideration the conduct of engagements within accountants departments, and it is possible that an accountant at an accountants firm participates as a member of an engagement team in engagements conducted by an ultimately responsible professional, subject to regulations other than NV COS. The condition is that an accountant complies with the fundamental principles of professional competence and due care in some other manner, as referred to Article 2 of the VGBA (see third paragraph in the general section of the NV COS). If he does not do so, or does so in an unsatisfactory manner, then the quality of the engagement conducted by him cannot be sufficiently ensured, and he may face disciplinary actions. 2.5 Limited requirements regime The NVKS provide smaller accountants units (accountants departments and accountants firms) the possibility of taking their nature and extent into consideration. These smaller accountants units may establish a quality management system tailored to their circumstances. This prevents smaller accountants units from being burdened disproportionally. For example, if an accountants firm has no employees, then it is not necessary to implement a personnel policy. There is a general provision, based on which the detailed requirements for the quality management system may be omitted or applied limitedly if they are not relevant for the conduct of an engagement or operations due to the extent of the accountants unit. There is also a special regime for accountants units which the NVKS considers to be ‘small’. These are accountants units where: a maximum of two ultimately responsible professional accountants are employed, along with a maximum of five other persons involved in the conduct of engagements or operations; or one ultimately responsible professional accountant and one ultimately responsible professional are employed, along with a maximum of five other persons involved in the conduct of engagements or operations. The figure below shows the requirements for the various types of accountants units. This figure may help answer the question of which regime applies to an accountants unit. It is also important that the regime corresponds to the specific characteristics of the accountants unit.
DRAFT risks may seem new, but the requirement to take the nature and extent of the accountants unit into consideration in establishing the system involves just such a risk assessment. 3.2 Quality The principle of the NVKS is: An accountant provides quality when he realises the objectives of the standards (NV COS) pertaining to the engagement. In the context of the NVKS, complying with quality standards is understood to comply with: laws and regulations, including the engagement objectives as defined in the NV COS; and the expectations of the client, the public interest, or users of professional accountants reports. The NV COS require that the accountant at least complies with the objective of the engagement as referred to in the Standards (NV COS), the fundamental principles of the VGBA and, for assurance engagements, the independence requirements of the ViO. An accountant conducts his activities as part of an accountants unit, which should be able to ensure that the accountant provides quality work. A quality management system is the most important instrument for the accountants unit to control and demonstrate the quality of its NVKS engagements. 3.3 Quality ambition The quality ambition is the quality which the accountants unit pursues. When dealing with laws and regulations applicable to assurance engagements or related services engagements, such as the NV COS, the ambition should at least focus on compliance with these regulations. When dealing with the expectations of engaging parties, the public interest or users of professional accountants reports, an accountants unit may formulate how and which expectations are complied with, and which level of quality it wishes to attain, in its ambition statement. This does not only deal with compliance with rules set by others, but also with goals that the accountants unit sets for itself. In doing so, it can differentiate itself from other accountants units. 3.4 Quality control decision maker A new aspect of the NVKS is the term quality control decision maker. The quality control decision maker is responsible for the quality management system. The Wta and Bta use the term ‘policy maker’. The term ‘policy maker’ is not used in the NVKS, because not every quality control decision maker needs to be a policy maker (see Article 3). A quality control decision maker is always an accountant. The quality control decision maker is often a policy maker. Only if none of the policy makers is accountant, then the function of quality control decision maker will be filled by another accountant. The quality control decision maker is assigned due to his knowledge and experience of quality, and his position within the accountants unit. Naturally, if an accountants unit has a board member who is responsible for quality, then this board member should take on the function of quality control decision maker. The activities of the quality control decision maker are a professional service within the meaning of the VGBA. The quality control decision maker can delegate tasks to others, such as the quality manager (see paragraph 5.2) , but he remains at all times ultimately (professionally) responsible for the quality management system. The quality control decision maker may be held liable for disciplinary law if the
DRAFT quality management system fails. Holding a person liable is a logical step based on the premise of an effective system of administrative organization and internal control. The term ‘quality control decision maker’ is new, but his responsibility is not.^13 For example, Article 2 of the NVK-ass. states:
1. “These regulations focus on the day-to-day policy maker at an accountants firm.
- The person determining day-to-day policy ensures that the other professional employed or affiliated with the accountants firm, and who conducts an assurance engagement on behalf of the accountants firm, complies with the regulations applicable to himself and to the assurance engagement.” On the basis of the definitions in the NVAK-ass, a day-to-day policy maker is an accountant in public practice as stipulated in Article B1-291.2 of the VGC, the predecessor to the VGBA. The term ‘day-to- day policy maker’ refers to the accountant in public practice who: _1. determines the day-to-day policy of an accountants firm; and
- ensures that the accountants firm:_ a. implements a policy that is not in conflict with the provisions of this regulation; b. complies with the regulations specified below. The responsibilities correspond to those of the quality control decision maker. The disciplinary law liability also corresponds to this. See also Article 5 of the Quality control review Regulation: 1. “The board can submit its findings in the form of a complaint to the chamber of accountants, if in the conduct of the supervising process, facts or circumstances give reasons to apply a disciplinary measure or declare the complaint valid.
- If multiple accountants are employed at an accountants firm or accountants department, or if multiple accountants are affiliated with an accountants practice or accountants department, then the board determines for the application of the first paragraph against which accountant he submits a complaint.” According to the Wta and Bta, the responsibility seems to lie primarily with the accountants organization. At the same time, the day-to-day policy makers at an accountants organization with a PiE^14 license are expected to make a statement as to whether the system of quality control functions effectively or not (a type of ‘in control’ statement). The Wta and Bta also indicate that a policy maker has his own responsibility, for which he can be held accountable professionally. 3.5 Preconditions Before a quality control decision maker can accept his function, he should determine that the accountants unit complies with a number of preconditions. These are shown in the diagram below: (^13) The NVAK-ass. focus on the day-to-day policy maker at an accountants firm. In the NVAK-aav., other accountants are addressed because the policy maker need not necessarily be an accountant. (^14) Public interest entity.
DRAFT less than 10% of the annual revenue and less than 10% of the annual hours are devoted to assurance engagements or equivalent engagements; and other safeguards are present to ensure that the accountants within the accountants firm have authority over the conduct of NVKS engagements. The board of the NBA can be requested to grant an exemption to enable the conduct of an assurance engagement or equivalent engagement, even if the requirements for distribution of voting rights has not been complied with. An exemption may also be useful if the conduct or completion of assurance engagements should suddenly be replaced within an accountants firm which no longer meets the requirements for the distribution of voting rights. For example, if the owner of a small accountants firm suddenly passes away, and his heirs are not accountants. In that case, the accountants firm would no longer comply with the requirements for the distribution of voting rights, and a representative would not be able to complete the current assurance engagements. This is not desirable, and is also in conflict with the intended objective of the requirement to provide replacement (Article 14): to ensure the orderly conduct and completion of current assurance engagements. An exemption would enable the representative to continue and complete the assurance engagements, despite the fact that the voting rights requirement is no longer complied with. In summary, the preconditions pertaining to voting rights and day-to-day policy can be illustrated as follows: Accountants firm that Preconditions Exemption possible has accountants that are shareholders;^16 and/or conducts assurance engagements or equivalent engagements, and which spends more than 10% of its annual revenue and more than 10 % of its annual hours to these engagements with regard to the majority of voting rights with regard to determining day-to-day policy no no has no accountants that are shareholders;^17 and conducts assurance engagements or equivalent engagements, and which spends less than 10% of its annual revenue and less than 10% of its annual hours to these engagements; and has ensured that the accountants have authority over NVKS engagements.^18 with regard to the majority of voting rights with regard to determining day-to-day policy yes no only conducts related services engagements or equivalent engagements^19 no preconditions pertaining to voting rights or day-to-day policy n/a (^16) Shown abbreviated and simplified. For the exact requirements, see Article 5, fourth paragraph, part a, of the NVKS. (^17) See footnote 16. (^18) See footnote 16. (^19) And any engagements other than assurance engagements, as well as related services engagements or equivalent engagements.
DRAFT Other preconditions The following other preconditions that are relevant before a quality control decision maker accepts his function apply to all accountants units: The accountants unit; has formulated a quality ambition; promotes an internal culture in which quality is an essential element; only accepts clients for whom it has been determined that no available information would support the conclusion that the client has no integrity; and ensures that complaints and accusations can be raised without endangering the legal status of those raising them. 3.6 Cooperation with administration firms that are part of the network The NBA is charged with ensuring the proper conduct of the profession by accountants. This duty explicitly takes the legal protection of the title of ‘accountant’ into consideration. In that light, requirements have been established on the involvement of accountants and other professionals in the conduct of NVKS engagements. For example, the policy of the NBA is that within accountants units, accountants should be involved in engagements where entrepreneurs are supported in preparing their annual reports. To that end, Standard 4410 of the NV COS has been made compulsory when compiling BW2 annual reports and financial statements. Standard 4410 holds ultimately responsible professional accountants responsible in the context of quality review and disciplinary law. In order to promote the proper conduct of the profession, it is not desirable that a different organizational structure can make it possible to avoid compliance with these principles. The NVKS therefore establish requirements on cooperation between accountants organizations and other organizations in the network (such as administration firms). Alignment has been sought with the term ‘network’, a term defined at the conceptual level in the regulations.^20 If within the accountants unit’s network, engagements that actually qualify as NVKS engagements are conducted by persons other than ultimately responsible professional accountants, and were therefore not conducted in accordance with the quality standards applicable to accountants, then this will reflect negatively on the accountants unit within the network. These regulations are based on the legal protection of the accountants profession, as well as the importance of clear communications with the public. It is virtually impossible to set all-encompassing limits between what is permitted and what is prohibited. For that reason, the decision has been made to establish preconditions on the cooperation. These preconditions apply to the individual accountant, as the NBA cannot impose rules to accountants firm s. Based on Article 8, second paragraph, beginning and part b, accountants are not permitted to be involved in the operations of an accountants firm, if a part of the firm’s network conducts engagements which actually qualify as NVKS engagements by persons other than ultimately responsible professional accountants or ultimately responsible professionals. For example, if an accountant is involved in any way with the operations of an administration firm from which assurance engagements and related services engagements are conducted, then this will quickly give the impression of dealing with an accountants firm. The public may expect him to be involved in the conduct of the engagement as well, subject to the regulations of professional conduct for accountants in a work environment in which quality is ensured and the quality management system is reviewed. 4 Quality management system content The quality management system within an accountants firm is also aimed towards quality control for NVKS engagements conducted by ultimately responsible professionals, where applicable. For the sake of readability, this paragraph is limited to NVKS engagements conducted by ultimately (^20) The definition of ‘network’ in the meaning of the NV COS Glossary of Terms: “A larger structure: a. which focuses on cooperation; and b. which is clearly focused on sharing profits or costs, or sharing common ownership, control or management, common policies and procedures for quality control, a common business strategy, the use of a common brand name, or a significant share of the company resources.”
DRAFT With regard to engagement quality control review, the most important provision is that the accountants unit should regulate which NVKS engagements require an engagement quality control review. The manner in which an engagement quality control review is conducted is determined by the accountants unit itself, at least with regard to related services engagements and equivalent engagements (for assurance engagements, see paragraph 4.2). This sufficiently ensures the quality of related services engagements and equivalent engagements. 4.2 Additional requirements for assurance engagements Additional requirements apply to assurance engagements or equivalent engagements, as in assurance engagements an accountant provides assurance to third parties. This means that the public can establish greater trust in an assurance engagement than in other engagements. The additional requirements pertain to independence, personnel policy and engagement quality control review (hereafter abbreviated as: EQCR).
DRAFT With regard to the EQCR for assurance engagements and equivalent engagements, minimum requirements have been established on the manner in which they are conducted. These requirements are in addition to the provision that an accountants unit should regulate which engagements are subject to an EQCR (see paragraph 4.1). The NVKS require an engagement quality control review for all audit engagements for financial statements at public interest entities, such as voluntary audits, audits of grant statements, and audits of statements of insured interest.^21 This is in accordance with ISQC1. 5 Quality control The quality management system within an accountants firm is also aimed towards quality control for NVKS engagements conducted by ultimately responsible professionasl, where applicable. For the sake of readability, this paragraph is limited to NVKS engagements conducted by ultimately responsible professional accountants. In rare cases, engagements by ultimately responsible professionals are mentioned explicitly in order to avoid uncertainty as to this point. 5.1 General As illustrated in the figure in paragraph 3.1 under ‘quality management system’, monitoring compliance and effectiveness of the quality management system is an essential element of this system. This is because the design and implementation of the system may be properly arranged, but if the requirements are not complied with or updated, then the system does not sufficiently ensure the quality of the work performed. The NVKS therefore contain the following requirements regarding quality control once the system has been established: (^21) With the exception of statutory audits, which fall outside the scope of the NVKS. An engagement quality control review should also be conducted for statutory audits at a public interest entity. This is regulated in the EU regulation.
DRAFT Article-by-article explanatory notes for the NVKS For the sake of readability of the regulation and the article-by-article explanatory notes, the articles in paragraphs 4 to 6 largely focus on the conduct of an engagement by an ultimately responsible professional accountant. The quality management system for an accountants firm, however, includes NVKS engagements that are conducted by an ultimately responsible professional, and complies with the same requirements, unless otherwise specified. The quality control decision maker applies mutatis mutandis the relevant standards targeted towards him. In that case, the articles for ‘ultimately responsible professional accountant’ should be read as ‘ultimately responsible professional’, and ‘professional accountants report’ should be read as report based on the conduct of an NVKS engagement subject to regulations other than the NV COS (see provisions Articles 16, 21 and 26). Certain sections of the regulations and the article-by-article explanatory notes explicitly mention the conduct of the engagement by the ultimately responsible professionals, in order to prevent uncertainty. The term ‘conduct of an engagement by an ultimately responsible professional accountant or ultimately responsible professional means that an NVKS engagement is conducted under his ultimate responsibility. The ultimately responsible professional accountant or ultimately responsible professional is often supported by an engagement team.
Paragraph 1 General Provisions
Article 1 Where possible, the definition of terms aligns with definitions from other laws and regulations. If it is not possible to copy a definition, then the term ‘applied in a similar manner’ is used. Accountants department An accountants department is characterised by an accountant conducting an NVKS engagement on behalf of the organization of which the accountants unit is a part. This may be either in the function of an ultimately responsible professional accountant or as another member of an engagement team. This definition is not determined by the party for whom the engagement is being conducted. This means that the engagement can be conducted for the organization itself, as well as for a specified group of users, as defined in Article 1 of the ViO.^22 Accountants firm An accountants firm is characterised by an accountant conducting an NVKS engagement on behalf of an external client. An accountants firm already exists if at least one NVKS engagement is conducted on behalf of an external client (by an accountant). If in addition other NVKS engagements are conducted for parties other than an external client, then there are no consequences for the qualification of accountants firm. One example is an engagement for consolidation purposes obtained from a group accountant. An accountant may conduct NVKS engagements either in the function of an ultimately responsible professional accountant as in the function of another member of an engagement team. Accountants practice An accountants practice can consist of both an accountants organization and an accountants firm. As soon as an accountant conducts a statutory audit, the requirements for accountants organizations stipulated in the Wta, the Bta, the VAO, and the EU regulation, if the statutory audits are conducted for public interest entities, should be complied with. NVKS engagements that are not statutory audits should comply with the requirements of the NVKS. As both types of regulations require a system of quality control, this could result in two systems being applied within a single accountants practice, which may be an undesirable situation. Professional accountants report Since the amendment of the NV COS as of 15 December 2010, which is aligned with the Dutch translations of the ISAs for the Netherlands and Belgium, the term ‘professional accountants report’ is no longer limited to an audit engagement. The term professional accountants report includes all statements and reports issued by an accountant as part of an assurance engagement or a related (^22) Specified group of users: persons who are considered to be the restricted user group by the engaging party, the responsible party and the engagement partner, or the accountants unit, prior to the assurance engagement.
DRAFT services engagement. These include audit reports, review reports, compilation reports, assurance reports or reports of factual findings. The term ‘written’ is intended to clarify the differentiation from verbal statements. A written statement can be consulted, dated and identified and its authenticity can be ensured. The term ‘written’ is also understood to include electronic recording. Ultimately responsible professional accountant: this is the same person as the ultimately responsible professional accountant specified in the ViO^23. Ultimately responsible professional: see paragraph 2.2 of the general section of the explanatory notes. Quality: see paragraph 3.2 of the general section of the explanatory notes. Quality ambition: see paragraph 3.3 of the general section of the explanatory notes. Quality policy The policy includes the quantifiable objectives for the accountants unit as a whole, and for the various elements of the accountants unit. Quality control decision maker: see paragraph 3.4 of the general section of the explanatory notes. Quality manager: see paragraph 5.2 of the general section of the explanatory notes. Quality management system: see paragraphs 3 up to and including 6 of the general section of the explanatory notes. NVKS engagement: see paragraph 2.3 of the general section of the explanatory notes. Engagement quality control reviewer The definition in the NV COS glossary of terms is as follows: “A partner, other person within the firm, a sufficiently qualified external person or a team composed of such individuals, which are not members of the engagement team, and who have sufficient and appropriate experience and authority to objectively evaluate the significant judgments of the engagement team and the conclusions reached in formulating the professional accountants report.” In the NV COS, this term focuses on the engagement quality control review for audit engagements of financial statements. However, the NVKS use this term to apply to all NVKS engagements, with the exception of statutory audits. Engagement quality control review The definition in the NV COS glossary of terms is as follows: “A process designed to provide an objective evaluation of the significant judgments of the engagement team and the conclusions reached in formulating the professional accountants report prior to the date of the professional accountants report. The process of engagement quality control review only applies to audits of financial statements of public interest entities, and any other audit engagements for which the firm has determined that an engagement quality control review is required.” In the NV COS, this term focuses on the engagement quality control review for audit engagements of financial statements. However, the NVKS use this term to apply to all NVKS engagements, with the exception of statutory audits. Engagement team; The definition in the NV COS glossary of terms is as follows: “All partners and staff conducting the engagement, as well as all persons engaged by the firm or a firm belonging to the network for the conduct of the engagement. This excludes external experts engaged by the firm or a firm belonging to the network.” In the NV COS, this term focuses on the conduct of an engagement within an accountants firm. However, the NVKS use this term in relation to the conduct of an engagement within accountants units, which includes accountants firms and accountants departments. The members of the engagement team also include persons who are involved in the conduct of an accountants unit’s (^23) However, the ViO states that this person is responsible for the engagemen t , although the intended meaning is ultimately responsible. This also seems to imply the ‘ultimately responsible’ person in the definition of ‘key engagement partner’ in Directive 2006/43/EU of the European Parliament and of the Council of 17 May 2006, on statutory audits of annual accounts and consolidated accounts and to amend Directives 78/660/EEC and 83/349/EEC of the Council, and revoking Directive 84/253/EEC of the Council.