Norwegian Financial Supervisory Authority finds BDO breached auditor requirements in its audit of a deferred tax asset at a public interest entity

The Norwegian Financial Supervisory Authority (Finanstilsynet) published an inspection report on BDO AS’s audit work relating to a public interest entity’s deferred tax asset and a capital requirements note for the 2023 financial year. Finanstilsynet concluded that the audit was not performed with a sufficient degree of professional scepticism and that this breached section 9-4(4) of the Auditor Act. The audited entity recognised a deferred tax asset in full based on accumulated tax loss carryforwards and also reflected it in solvency capital as of 31 December 2023. Although BDO supported its conclusion with an extensive assessment and input from an internal technical function, Finanstilsynet questioned the judgement and the basis for recognising the deferred tax asset at full value, noting that accounting standards require particularly convincing evidence where there have been losses in the recent past (including IAS 12.35). The supervisor also highlighted weaknesses in audit procedures around subsequent events and regulatory communications: an April 2024 Finanstilsynet notice concerning the use of the loss-absorbing capacity of deferred taxes in the solvency calculation was received 12 days before the 2023 accounts were issued but was not communicated to the auditor, and BDO’s documented management inquiries did not specifically address the deferred tax asset, solvency position, or dialogue with Finanstilsynet. BDO later updated its 2024 going concern assessment in December 2024 after meeting the audited entity’s leadership and implementing measures intended to ensure relevant information is provided to the auditor; Finanstilsynet took note of that update.