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.