For the Dutch version, click here. On Wednesday, November 30, we were once again able to join the Class Theatre for the twenty-first edition of Accounting Insight. Starting at seven in the evening, the doors opened for guests. The guests, whether students, working professionals or professors, were able to meet here while enjoying a cup of coffee, tea or a soft drink. The themes of this evening were: Fraud, Data Analysis and Sustainability. After last year’s edition unfortunately could not take place due to measures, the themes were moved on to this year. Under the motto: ”Improve today to advance tomorrow” we asked our speakers to explain from the different themes how we can improve accountancy now, so that we can advance in the future. This edition was also the first edition of Accounting Insight to be held entirely in English. Fraud After the guests had half an hour to chat, it was time to enter the auditorium. With nearly one hundred guests, the room was quite full. After a word of welcome from the chairman of the committee, Bas Penders, and the introduction by the chairman of the day, Margreeth Kloppenburg, it was time for the first proposition: ”Auditors are not equipped with a critical mindset to detect fraud.” This proposition was explained by two speakers, Marianne van Kimmenade of the NBA and Don Raaijmakers of the AFM. Marianne has thirty years of experience at EY, having also been a partner there. After her brief retirement, she became a policy advisor on fraud at the NBA. Don Raaijmakers himself worked for fourteen years at KPMG, then five years at EY, where he was a college graduate of Marianne. After this, he has been working at the AFM as a team leader for fifteen years. Don and Marianne together came to the conclusion that auditors are sufficiently trained to detect fraud, but that the critical eye of especially young auditors is not used enough when conducting an audit. Therefore, they would like to see auditors take a critical look, and not let their biases be a factor in conducting an audit. Data analysis The second topic of the evening was Data Analysis, with the proposition: ”For a future accountant, it is better to study physics as opposed to business economics.” For this thesis, Theo-Jan Renkema and Ferdy van Beest were the speakers. Theo-Jan Renkema has worked at Rabobank for 24 years, currently as Chief Innovation and Technology Auditor, and is also a professor at Tilburg University. Ferdy van Beest has been working at Nyenrode Business University for seventeen years, where he is currently Associate Professor. He also works at Flynth as Director of Data Propositions and Integrated Reporting. So two experts in the field of Data Analysis. Theo-Jan Renkema argued that auditing uses more and more data and its analysis, so that in the future he indeed sees mathematicians as auditors, instead of business economists. Ferdy responded that yes, data is being used more and more, but that the auditor is a bridge between the audit and the business, requiring the human touch that business economists have. Together, the speakers agreed that business economics still remains important within Audit, but that there is going to be more and more specialization, with a lot of help from mathematicians. After this substantive discussion it was time for and break, during which guests could discuss afterwards while enjoying drinks and snacks Sustainability After the break, it was time for the third and final topic of the evening, Sustainability. The thesis of this theme was, ”The Chief Financial Officer (CFO) of the future is the Chief Value Officer.” Under this theme, Nicolette Loonen and Ferdy van Beest discussed. Ferdy van Beest has already been introduced at the previous theme. Nicolette Loonen worked at KPMG for 15 years, after which she held all different jobs. She is a co-founder of Tribe of Sustainability Change Agents (TOSCA). The discussion began with Nicolette explaining that the CFO needs to change to the CVO, because there is a need to look more at the long term, and then also how to do business responsibly. Ferdy disagreed, because he thinks that the duties of a CFO are going to be different in the future, and this includes a long-term view. He doesn’t think the position should be renamed for this. In the end, the speakers agreed that the CFO should think about the long-term vision of a company, but the disagreement was mainly in the name of the position. Business Market After another great edition of Accounting Insight, the speakers and partners were thanked by the chairman of the committee, and the chairman of the day closed. After this the guests could have a drink at the company market, where KPMG, EY, PwC and ABAB had set up a stand, all our other partners were fortunately also present. While enjoying a beer, soda, and plenty of snacks, the participants were able to get to know each other, or their future employer, for a while. Also inspired by my story and would you like to be the person responsible for Accounting Insight 2023? Then quickly become an active member at Asset | Accounting & Finance. You can sign up via: Info@Asset-AccountingFinance.nl
What happened last quarter? Q2: a recap
For the Dutch version, click here The second quarter of the new academic year is over. This quarter was a busy month, with no less than 3 events, both related to Finance and Accountancy. In this article we look back on these activities, with the chairmen of the relevant committees telling their story. They discuss their personal experience of the course of the activities, from the beginning of the preparations to the final event. AccountantsDay –November 13, 2019 *by Thom van Golde* Our first meeting as a committee took place on September 17. During this meeting the roles were divided and it was made clear that the AccountantsDay would take place in less than two months (November 14). So, there was plenty of work to be done. As a member of the committee, I can say, that we all experienced a certain amount of pressure due to the short period of time in which many things had to be arranged such as (but not limited to) promotional material, for example making the flyers, ordering and distributing them, doing lecture talks, coming up with questions for a quiz and statements and keeping the participating companies (which will be appointed later) informed. Nevertheless, despite the start-up problems (red. Technical flaws), we managed to organize a successful event. Thanks to the great commitment of all committee members and the coordinator, it was a great success and I would like to thank them. A review of the AccountantsDay of course includes a description of the day itself. The event kicked off with a short introduction of the participating companies followed by a quiz where a real gift voucher (!!) could be won. Reason enough to get excited, if you ask me. After the announcement of the quiz winner we continued with the statements in which the room was divided into different groups and the students discussed some accountancy related statements with the offices. For the final activity we went to ‘Bij Maud’ to follow a cooking workshop. This workshop consisted of three (delicious) dishes that we made ourselves and one dessert provided by the staff of ‘Bij Maud’. Because of the diversity in the activities, the students were able to get to know the accountancy firms in all sorts of, but still informal, ways. I look back on the Accountancy with a great feeling. I would like to thank all participating students and the participating companies Van Oers, Joanknecht, ABAB, HLB Nederland, Joore and Wesselman. Finance Expedition – November 13-15, 2019 *by Sjors Seinen* On Wednesday November 13, the time had finally come after 8 months of meetings and preparations: the start of the Finance Expedition 2019. The first day was dedicated to Risk Management, which is why we visited Nationale Nederlanden and PwC. The alarm went off early, as we had to travel to the head office of Nationale Nederlanden, located in Rotterdam. After a somewhat delayed train journey, we were welcomed by the employees of Nationale Nederlanden. By means of a brief introduction, we got to know the company and we then made an interesting case about the application of Risk Management to the balance sheet. After an interactive lunch, it was already time to continue our expedition to Amsterdam, where a company visit at PwC was scheduled. PwC gave a concise, informative introduction about the company, after which we were able to start quickly with a case on the practical application of Risk Management to consulting. Afterwards, we had dinner with everyone and networked at a modern restaurant in the neighborhood. “The Finance Expedition was an absolute success, with a perfect combination of work and fun.” On Thursday, the focus was on Asset Management and we visited a.s.r.’s head office in Utrecht. Again we left the hotel early to catch the train. We were welcomed by a.s.r.’s CFO, Chris Figée, who provided us the perfect opportunity to ask our burning questions. Afterwards, we got an additional introduction form two employees, made a case about Asset Management and concluded with a delicious vegetarian lunch! On Friday, which was also the last day, the focus was on Corporate Finance and we visited Deloitte and Nielen Schuman. The day started at Deloitte. We got an extensive introduction about Deloitte’s M&A activities, worked on a fun case full of puzzles and issues and had the opportunity to network with Deloitte employees while enjoying a sandwich and a drink. Afterwards, we took the subway to Nielen Schuman’s office. A senior manager briefly told us about Nielen Schuman, so we had enough time left for the case. It was extremely interesting and perfectly fitted within the subject Corporate Finance. After presenting our findings, it was time to pack up and leave for the restaurant. After a delicious three-course dinner, the Finance Expedition was officially over and we travelled back to Tilburg. Looking back, as chairman, I am very proud of the committee work done. The Finance Expedition was an absolute success, with a perfect combination of work and fun. Besides broadening our knowledge, the Finance Expedition is the perfect opportunity to get in touch with your future employer! Accounting Insight – November 21, 2019 *by Carlijn de Block* After 10 months of preparation, Accounting Insight took place on November 21, 2019, an interactive symposium in which various accountancy related topics were debated and discussed. With our committee, we worked hard last year to make it another great edition. One of the most important tasks was to find the right speakers. However, the search started with finding a chairman. This year we quickly ended up with Margreeth Kloppenburg, just as last year. In addition, we succeeded in putting together a versatile panel of speakers including Paul Koster, director of VEB, Antoinette Dijkhuizen, founder of 4you Accountancy, Wim Bartels, partner sustainability at KPMG, Anouk Terstegen, partner at Mazars, and Kavita Nandram, PhD researcher Integrated Reporting. The theme of this edition was “accountancy in the loop”: despite all the publicity about the extinction of our profession in the future,
On the role of auditors and data science companies for assessing non-financial risks
The role of an auditor is to help outsiders to develop a true and fair view of a firm’s performance. In a more extended form, the true and fair view of a firm’s performance refers to the true and fair view of a firm’s strategy development and strategy implementation. For decades, the focus of auditors to enable the outsiders’ true and fair view was on the firm’s financial numbers. Such a financial audit happens within the boundaries of a standardized reporting format, implying that every firm, irrespective of its industry and strategy, reports the same financial metrics. As a result, deciding which metrics a firm should disclose to give a true and fair view is a competency that is not trained intensively among auditors during the last decades. The consequence of this evolution is that auditors lost sight of the link between a firm’s strategy and the financial numbers. Admittedly, educational institutions are guilty too! For instance, the link between a firm’s strategy and its management control system is a cornerstone in management accounting courses but is almost nonexistent in financial accounting courses. During the last decade, the increased attention for corporate responsibility has increased the demand from shareholders and stakeholders for more non-financial numbers in order to develop a better view of the firm’s strategy development and implementation, to assess the non-financial risks of the firm and to assess the consequences of a firm’s behavior for society. Importantly, the relevance of non-financial numbers to develop a better insight into the firm’s strategy development and implementation is conditional on the firm’s strategy and is thus difficult to standardize. Stated differently, the demand for more non-financial numbers requires that auditors consider the firm’s strategy when judging the relevance of the non-financial numbers that the firm wants to disclose. Given the auditors’ focus on the standardized reporting format for financial audits, judging whether the disclosed non-financial metrics give a true and fair view is often a struggle for auditors. “I would like to invite you to turn the question upside down and ask yourself what auditors need to do to reinforce their position when it comes to assessing non-financial risks.” Next to the struggle that auditors experience when doing non-financial audits, progress in data science has given data science companies opportunities to exploit the auditors’ struggle. Specifically, data scientists exploit the possibilities of machine learning to develop tools that give a quantified estimate of a firm’s non-financial risks. For instance, Datamaran, which is a business intelligence tool developed by eRevalue, uses information from corporate reports, global regulations, social media, stakeholder surveys and online news to assess a firm’s non-financial risks. An easy conclusion could be that those data science companies will drive audit firms out of the market for assessing non-financial risks. Admittedly, when learning about the tools offered by several data science companies and working with their data, I was quick to make this easy conclusion. At this point, I would like to invite you to turn the question upside down and ask yourself what auditors need to do to reinforce their position when it comes to assessing non-financial risks. A first answer could be that regulation can save the position of the auditor. I am not a big fan of relying on regulation to safeguard a particular competitive position. As an example, regulations have long protected the position of licensed cab-drivers and hotels but regulations have not been able to stop the success of companies like Uber and Airbnb. A second argument is grounded in the observation that the predictive validity of rankings for firms’ environmental, social, and governmental (ESG) activities, such as those developed by data science companies, is lower than usually claimed. For instance, many firms on Fortune’s Change the World List, which is a list of firms that are delivering profit-driven social impact, do not achieve top positions on ESG rankings developed by data science companies but outperform the MSCI World Stock Index by an average of 3.9 percent in the year following the inclusion in the Change the World List. “Of course, the entrance and pressure of data science companies in the market for assessing non-financial risks should still be a wake-up call for audit firms. It is thus crucial that audit firms revitalize the link between a firm’s strategy and its non-financial and financial numbers.” The reason for the lower predictive validity of ESG rankings is quite intuitive. Even though most rankings rely on machine learning, some standardization is needed to make such tools effective and efficient, which implies that the list of non-financial metrics used by machine learning tools requires standardization. As a result, most tools insufficiently capture the idea that assessing non-financial risks preferably happens conditional on the firm’s strategy. Importantly, the point is not that the ESG rankings are completely useless but that the conclusion that data science companies will drive audit firms out of the market for assessing non-financial risks is too far-stretched at the moment. Of course, the entrance and pressure of data science companies in the market for assessing non-financial risks should still be a wake-up call for audit firms. It is thus crucial that audit firms revitalize the link between a firm’s strategy and its non-financial and financial numbers. Relatedly, audit firms could more clearly communicate their judgment regarding the relevance of the non-financial metrics chosen by the firm conditional on the strategy of the firm. Importantly, auditors should be trained in making such judgments, implying that the role of firm strategies should get a more prominent role in (non)-financial accounting courses. In the MSc Accountancy of Tilburg University, which runs in an updated form since the academic year 2019-2020, we are already training future accountants to make judgments regarding the relevance of non-financial metrics by offering a course focused on developing, auditing, reporting, and using non-financial metrics!
IT a threat to the accountancy sector? No way!
The future for the accountancy sector seems very bright, although the World Economic Forum predicts that the profession comes to an end in 2020. The current rapid developments in society, and in particular those of IT, would be to blame. In other words, the accountancy sector must actively respond to the social developments identified by the World Economic Forum, otherwise, the World Economic Forum will indeed be right. Developments in IT are extremely rapid. I refer to the development in robotics, for example Sophia, a robot who recently received civil rights in Saudi Arabia [1]. Sophia is a robot built entirely from the artificial intelligence perspective and can answer all kinds of questions that are not programmed in advance. Or to Molly, a robot that is built by the Maastricht UMC+ and that can independently diagnose and prescribe medications to cardiac patients. And what to think of a supermarket without cash desks and surveillance. So self-learning and independently operating robots it is. Can we use these kinds of robots in the future for the work of an accountant? When I asked an exam candidate what question she would ask if she was confronted with a ‘Sophia’ who had full access to the organization’s automated information system during an audit meeting with an organization’s CFO, she asked another question. ‘Mr. Verkruijsse, you don’t think that I am going to the conversation alone, do you? Of course, I’m bringing my own Sophia with me, who’s name is Patrick by the way and he can chat with Sophia’. This candidate, who graduated without any doubt, left me as examiner speechless for a little while. Singularity is a concept that is often used in connection with rapid developments. Singularity is derived from the Latin word singulus, which means extraordinary or one of a kind. Singularity is used in several branches of science when the ordinary rules are not applicable. Ray Kurzweil, one of the directors of Google, leading futurologist with a track record of many accurate predictions and co-founder of the Singularity University defines singularity in his bestseller ‘’The singularity is near’’[2] as: A future period during which the pace of technological change will be so rapid, its impact so deep, that human life will be irreversibly transformed. The start of the transformation is according to Kurzweil from the moment that computers become smarter than human beings, which he predicts to be in 2029. From that moment on all technological advancement and in particular artificial intelligence will lead to machines that are smarter than human beings. That such developments are currently strongly a topic of interests is evident from recent publications in het Financiële dagblad, ‘De financiële robot komt er, ooit[3], ‘Retailinspiratie Robotisering [4]’, ‘Op blockchainsafari in China[5]’ and ‘Na Jaren is hij er echt; de digitale accountant[6]’. “Accountants are better than anyone in giving the requested certainty. At first it was only providing certainty regarding financial data, nowadays certainty is given for many more things, including automated systems.” Based on the above I state the following description of the concept singularity: Singularity is the future period in which the current laws and regulations are insufficient both in terms of objectives and applicability because of social and technological developments. The demand for reliability of information and data is increasing. The question is if it is realistic to use the information and data retrieved from automatization in decision-making processes without further research. Accountants are better than anyone in giving the requested certainty. At first it was only providing certainty regarding financial data, nowadays certainty is given for many more things including automated systems by the issue of the IFAC Standard 3402 statements and their involvement in issuing certification marks form the ‘Stichting Zeker Online’[7]. These certificates have a bigger future-oriented certainty than the Standard 3402 statements that only look at the past periods. Due to the rapid IT developments, it becomes easier to exchange data between systems. This clears the way for a paradigm shift, namely from document exchange to data exchange. If all data is easily exchanged between systems then there can be built from that data to the required information for example in decision making. But then, the data must have an equal level of certainty. This implies that there will be a shift from the statements of accountants from the so-called image statement to a data-level assurance statement. The statements that the auditor will issue are only on the individual data and can, therefore, cover the correctness aspect of reliability. Because of the rapid development in technology and the expectations that this speed of development will only accelerate further, it is possible to realize a ‘Framework of Continuous Control’[8]. The work of the internal audit function will be substantially expanded at the expense of that of the external audit function. This means that there is a revolutionary turn in the thinking of managers, stakeholders, regulators and auditors. With this, the singularity point is bypassed, but at every singularity point there is a revolutionary turn. After all, in the period that follows the singularity point, the laws and regulations are absolutely not the same as the laws and regulations that applied in the period before the singularity point. This rapid development is recognized by the government, as evidenced by the recently presented Digitization Strategy[9], with which the government responds to the speed of digitization and its impact on society. Altogether, I conclude that the future of the accountancy sector is bright, at least if that sector goes along with the rapid developments in IT. The accountancy sector is reminiscent of the deity Janus, the Roman God of the beginning and end depicted with two faces each looking the other way. If the accountancy sector only continues to look at the period behind us, The World Economic Forum will be right. If she looks ahead and seizes IT developments to also go in the direction of data level assurance, then a bright future lies ahead. [1] https://youtu.be/Io6xuGmS5pM [2] Kurzweil, R. (2006), The singularity is
Interview with Daan and Roel – Post-Master Accountancy
To gain a better understanding of life after the Accountancy master’s program, we spoke with two Post-Master students who are at the beginning of their Accountancy career. Daan and Roel, both living in Tilburg. Daan is 24 years old and currently works at KPMG in Breda. Daan obtained his bachelor’s degree in Wageningen and he went to Utrecht for an Accountancy minor. He completed the Accountancy master in Tilburg, where he is now a student of the Post-Master. Roel is 25 years old and currently works at PwC in Eindhoven. Roel obtained his bachelor’s degree in Den Bosch and he finished the pre-master and master Accountancy at Tilburg University. Just like Daan, Roel is now a Post-Master student at Tilburg University. Work Daan and Roel are both second-year students of the Post-Master Chartered Accountant and therefore already have been working for a while as an accountant. We asked them how their activities currently look like. They both agree that every day is different. “I spend a lot of time working at the location of the client, way more than working at the office,” says Daan. “Most of the activities are done at the location of the client to shorten communication lines. This is more practical than working at the office,” confirms Roel. There is also quite some variation in the teams you work with. Roel: “Currently I have eight different clients and therefore I work with eight different teams, with quite some variation in the size of the teams. When you are part of a team consisting of five persons you see each other a lot, which is definitely not the case when you are part of a team consisting of thirty persons.” Daan prefers to work in smaller teams and therefore chose to work at Breda since this office is smaller compared to the one in Eindhoven. He enjoys working with smaller and less formal clients. He says that the work at these clients is somewhat broader, but less deeply. Daan: “Currently I have eleven clients and therefore I work in eleven different teams with most of my clients located near Tilburg.” Daan and Roel both agree that their work is very social since the place of the location where you have to work differs almost every week and therefore you are working with a lot of different colleagues. The combination of work and study At first it seems nice: still being a ‘student’, but also working and earning money. But is this even to combine? We asked Daan and Roel about their experiences. Currently, they both work 4 days a week and they have classes on Fridays at Tilburg University. “It is doable, but it’s still quite intense”, says Roel. “Self-study takes about six hours a week and this has to be done in the evening hours or during the weekend. Besides the classes on Friday, you have deadlines every week. If I am having a busy weekend, I have to do most of the self-study during the evening hours.” Daan continues. “Of course your employer understands that it can be quite hectic combining work and your study. They will give you some space if needed, especially during the first six months. If you mention that you need some extra time in advance, this will be taken into account in the planning.” Roel agrees. “You get the time off of work as long as you mention it in advance. The company then takes it into account. What a big advantage of the accountancy profession is, is that you get a lot of vacation. You get about thirty vacation days. “This is mainly because the company can usually miss some accountants during the summer,” Daan says. “It is a nice reward for all the hard-working during spring.” “If you raise the alarm in advance, there are always people at our large offices who are willing to help you.” They are both satisfied with the amount of free time they have left. “In the business season at the accounting firms, you do not have lectures from January till March,” says Daan. “The University then takes into account that it is already busy enough. Busy season, therefore, feels more like you have some extra free time. You do work more hours per day, but you have less on your mind. You don’t have to focus on your study, so you can purely focus on work.” Furthermore, there is also enough room for other, informal activities at both companies. Daan and Roel, for example, mention ski trips with colleagues, staff parties, sports tournaments, and gala events. From master to Post-Master Most students who have obtained the master’s’ degree of Accountancy continue their studies with a Post-Master’s degree. But is this entirely complementary? We asked Daan and Roel about their experiences. “The connection between the masters is not very good.” They both agree. “During the master program, you only get theoretical subjects, but not really the reasoning behind it and tasks you are going to do. You only learn this during the post-Master or during work,” says Roel. “In the post-Master, everything falls into place and there you learn courses that you can immediately apply into practice. That makes it a lot more fun,” Daan continues. Workload It is no secret that people think that junior accountants are often being thrown into the deep. The idea of working more than 60 hours a week prevails over the Big Four in particular. To get a definite answer about this, we asked Daan and Roel for their opinion about the workload at their company. “Yes, the workload of accounting firms is high,” Daan starts. “However, you can control this by yourself. If you raise the alarm in advance, there are always people at our large offices who are willing to help you.” Daan also indicates that, as mentioned earlier in this article, they are not or are not yet able to perform all the work activities, which means that the workload is especially high
Dutch Auditors and Brexit
1. Introduction Obviously, Brexit could have a variety of non-client related effects for Dutch auditors. For instance, the auditor labor market in the United Kingdom (hereafter: UK) might be affected significantly, thereby changing supply of audit labor in the Netherlands. Or after Brexit, UK audit firms might not be able to operate in the Netherlands and vice versa (article 3A of the Audit Directive). This might affect competition in the Dutch audit market. Also, some audit firms could be jointly owned with UK owners. Dependent on the type of arrangement between the EU and the UK these ownership structures need to change. As these non-client engagements effects are broad, difficult to quantify, and depend on the terms under which the UK leaves the EU, I use the framework of an audit engagement to discuss some effects of Brexit for Dutch auditors. In paragraph 2.1, I start with a discussion the potential overall magnitude of Brexit. In paragraph 2.2 I turn to Brexit related audit risks. Paragraph 3 concludes. 2. Brexit and audit engagements 2.1 What is the potential overall magnitude of Brexit? When assessing the potential audit risks the auditor needs to understand the client and its environment (ISA 315 para 11). To understand the potential effect of Brexit, I first turn to a broader understanding of the total potential magnitude of Brexit on Dutch firms. At first glance, the scope of Brexit effects appears relatively clear. The UK is (after Germany and Belgium) the third biggest trade partner of the Netherlands. The Netherlands exports 40 billion euros to the UK and imports 20 billion euros (CBS 2018).(1) This is 8.0% of total export and 3.4% of total import. It goes without saying that to a varying degree, Brexit likely affects many firms commercially and operationally. Table 1 presents a top-5 of industries that have the most export to and import from the UK in value and percent of output. From table 1 can be concluded that industries affected in terms of value are different industries then the firms affected in relative terms. Moreover, the relative impact to industries is more homogenous then the value impact as indicated by the coefficient of variation for all the industries (not tabulated). This implies that to a certain extent each industry is affected. Also, firms that do not export to or import from the UK could be affected. For instance, a significant drop in export could lead to more domestic competition and accompanying margin pressures. To sum up, the product market for certain industries in the Netherlands will be severely affected by Brexit. “The scope to which Brexit can affect financial markets in a direct and indirect way is currently not clear.” However, the interconnectedness of the UK and the Netherlands is broader than product markets.(2) Firstly, services could be particularly affected by a no-deal Brexit. For instance, airlines and the hospitality sector where margins are small and volume drives profits (i.e. tight cash flow businesses) are directly threatened in both the short and long-term. Secondly, less is known about the impact of Brexit on financial markets. I give some examples. In the top-100 of investments of ABP (the Dutch pension fund for Civil Servants) the fourth largest investment are fixed-income investments in the UK, the second biggest currency risk is the British pound.(3) It is not clear what the effect of Brexit will be for pension funds. Similar exposures are expected with banks and insurance companies. Another example. London is the global leading financial center for over-the-counter derivatives.(4) OTC transactions (such as credit-default swaps, interest-rate swaps and currency-swaps) with a UK counterpart are probably affected by Brexit. This could be due to a lower creditworthiness of the UK counterpart or the value of UK-linked collateral. However, the scope is much larger than one initially would expect. As a vast majority of OTC contracts are governed by English law, resolution is subject to English courts. It is likely that even OTC contracts without a UK counterpart is therefore affected by Brexit. The big issue is that OTC contracts vary significantly, and it is difficult to renegotiate these contracts as the terms of the Brexit agreement, if any, is not clear. Taken together, the scope to which Brexit can affect financial markets in a direct and indirect way and it is currently not clear. Table 1 presents the top-5 import and export industries (2-digit SIC code) to the United Kingdom for 2018. More information at opendata.cbs.nl. The value of output is the total value of export to and import from the United Kingdom. Percent of output is the total value of export to and import from the United Kingdom relative to total value of that 2-digit SIC industry. 2.2 Brexit-related audit risks Auditing services are highly regulated to ensure a non-zero audit effort by auditors.(5) Therefore it obvious to analyse potential effects for auditors based on this regulation. ISA 315 requires auditors to understand the business of the audit client.(6) A client business risk reflects the possibility that an organization will experience adverse outcomes as a result of economic conditions, events, circumstances or management action/inaction (Knechel and Salterio, pp. 67).(7) Business risks are important to auditors as they inform the auditor on the effectiveness of the client risk management and the impact on financial statements. Brexit to a varying degree likely affects the economic, regulatory and business environment of audit clients.(8) Auditors need to assess whether clients have appropriately assessed, concluded and, disclosed relevant risks and uncertainties on Brexit. In table 2, I provide some examples of Brexit-related audit risks that are subsequently discussed below. “I believe it is key for auditors and audit firms to develop a consistent audit approach in response to Brexit.” I believe the first order economic effects of Brexit to firms is an increase in transaction costs and impaired market access. Firstly, a clear and direct impact of Brexit on import and export activity is an increase in transaction cost. Increases in tariffs, duties and a higher administrative burden are expected. In turn this
