New Audit Opinion Rules

In order to inc­rease the mea­ning­ful­ness of audit opi­ni­ons, to avoid misun­der­stan­dings about the tasks and con­tent of the audit ("expec­ta­tion gap") and to ensure inter­na­tio­nally uni­form repor­ting, the inter­na­tio­nal stan­dards of the IAASB have been intro­du­ced into Ger­man law.

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The fol­lo­wing key fea­tu­res of future repor­ting should be noted:

• Pre­ce­dence of the audit opi­nion
• More detai­led break­down of the audit opi­nion
• Sup­p­le­men­tary requi­re­ments to the audi­tor's report for capi­tal mar­ket-lis­ted and other so-cal­led PIE com­pa­nies (Key Audit Mat­ters)
• Hier­ar­chy bet­ween the dif­fe­rent stan­dards for the audit opi­nion

Pre­ce­dence of the audit opi­nion

In con­trast to the pre­vious Ger­man rules, the opi­nion on the finan­cial sta­te­ments always comes first in the new audi­tor's reports. Con­trary to the ori­gi­nal drafts of the audit stan­dard IDW PS 400, the IDW is now pro­po­sing to com­bine the opi­nion on the audit of the finan­cial sta­te­ments with the audit of the mana­ge­ment report. This is a devia­tion from the inter­na­tio­nal approach in accor­dance with ISA 700, and is inten­ded to high­light the parti­cu­lar sig­ni­fi­cance of the mana­ge­ment report in Ger­many.

More detai­led break­down of the audit opi­nion

The exten­ded scope of the audit opi­nion com­pa­red with pre­vious practice means that the audi­tor's opi­nion will be furt­her sub­di­vi­ded in the future. The audit opi­ni­ons are fol­lo­wed by sepa­rate sec­ti­ons on the basis of the audit opi­ni­ons, Key Audit Mat­ters, any necessary dis­c­lo­sure of uncer­tain­ties in connec­tion with going-con­cern issues, and the res­pon­si­bi­li­ties for the finan­cial sta­te­ments and the audi­tor's res­pon­si­bi­li­ties, as well as any other app­lica­ble repor­ting obli­ga­ti­ons.

Key Audit Mat­ters

The con­cept of Key Audit Mat­ters is pre­scri­bed by the EU direc­tive for all audits of Pub­lic Inte­rest Enti­ties (PIE), i.e. pub­li­cly tra­ded com­pa­nies and cer­tain banks and insurance com­pa­nies, while the ISAs (ISA 701) pre­scribe the con­cept for all audits of finan­cial sta­te­ments of lis­ted com­pa­nies.

The term Key Audit Mat­ters (KAM) deri­ves from inter­na­tio­nal audi­ting practice and descri­bes the most important facts of an audit, which the audi­tor has also dis­cus­sed with the com­pany's super­vi­sory bodies. Indi­vi­dual jud­ge­ments and amend­ments to requi­red finan­cial sta­te­ment dis­c­lo­su­res are not regar­ded as con­t­ents of Key Audit Mat­ters. Rather, spe­ci­fic infor­ma­tion should be pre­sen­ted on the con­duct of the audit or on parti­cu­lar focal points of the audit.

The deli­mi­ta­tion of Key Audit Mat­ters is not unpro­b­le­matic, since there is no fixed rule indi­ca­ting which infor­ma­tion should be inclu­ded or even not dis­c­lo­sed. This mar­gin of disc­re­tion is also of great import­ance with regard to poten­tial resul­ting lia­bi­lity. Simi­larly, the repe­ti­tion of such Key Audit Mat­ters in for­mu­laic lan­guage from one report to ano­ther could also pose a pro­b­lem, since it could sim­ply turn into boi­ler­plate. To be fair, we will have to wait a while before we can tell whe­ther this assump­tion is true.

The selec­tion of Key Audit Mat­ters should be con­cei­ved as a fil­ter in which the audi­tor selects from the set of topics with the cor­po­rate bodies appo­in­ted to super­vise in a step-by-step pro­cess the infor­ma­tion to be clas­si­fied as being of grea­test import­ance for the audit.

Typi­cal audit areas that could be the sub­ject of Key Audit Mat­ters include deve­lop­ment costs, good­will, defer­red taxes, reve­nue recogni­tion and high indi­vi­dual pro­vi­si­ons, e. g. from liti­ga­tion risks.

Hier­ar­chy of the various stan­dards for the audit opi­nion

In con­trast to pre­vious Ger­man practice, the requi­re­ments for the audit opi­nion will in future be divi­ded into several stan­dards. This neces­si­ta­tes the need to dif­fe­ren­tiate the import­ance of the indi­vi­dual stan­dards. The basic stan­dard (PS 400) is fol­lo­wed by the regu­la­ti­ons on modi­fi­ca­ti­ons of the BestV (res­tric­ti­ons and denials), fol­lo­wed by the audi­tor's sta­te­ments on going-con­cern issues, which in turn are fol­lo­wed by the com­ments on Key Audit Mat­ters and the notes.

Effec­tive date

The adop­tion of the cor­res­pon­ding IDW audi­ting stan­dards is sche­du­led for Decem­ber 2017. At PIE com­pa­nies, repor­ting must already be in a new for­mat for finan­cial years ending after 16 June 2017. For all other com­pa­nies, the first-time app­li­ca­tion is plan­ned for 31 Decem­ber 2018.