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German profession keen to tackle EU audit reform implementation

Reiner Veidt, WPK
Source: The Accountant; pictures: IDW and WPK

Interviewed for The Accountant's World Survey, Reiner Veidt, executive director of the German Chamber of Public Accountants or Wirtschaftsprüferkammer (WPK), shares with Carlos Martin Tornero his views on global accountancy issues from a German perspective


World Survey 2014: The quest for transparency


The Accountant (TA): How would you describe the past year for the profession on a global level and what have been the biggest topics and trends affecting the global profession?

Reiner Veidt (RV): On the one hand the aftermaths of the financial crisis were still perceptible on national, European and international markets, whereas German enterprises experienced a constant upward trend in most economic sectors.

On the other hand the global profession had to face new challenges:
One issue of increasing importance auditors had to cope with relates to information and technology (IT), comprising the assessment of reliability and security of such systems.

Another issue of crucial importance has been the deliberations on the new formulation of the auditor's report.
Also worth noticing is that the Public Company Accounting Oversight Board (PCAOB), a worldwide respected regulator, has issued professional announcements relating to auditing and accounting which could in some cases be in conflict with ISAs and the Code of Ethics. This could go against the harmonisation of accounting and auditing standards worldwide.

TA: You mention the auditor's report, what is WPK's position on this topic?

RV: WPK supports the suggestions made by the International Auditing and Assurance Standard Board (IAASB). We have expressed our support by issuing a statement towards the IAASB and we have met with the IAASB chair Arnold Schilder at the beginning of 2014 in Brussels. Some of the proposed additional reporting elements have already proved to be successful in Germany where they have been used for several years now.

The German Prüfungsbericht [loosely translated: long form Audit Report] includes, for example, remarks on the going concern assumption, the description on the way the audit is planned and performed and a statement on the auditors' independence.

However, we have raised our concerns about the appropriate and proportionate implementation of "key audit matters" in order to avoid creating a new expectation gap and extending bureaucratic and professional burdens.

TA: What are your thoughts on the recently approved audit reform in the EU?*

RV: We are pleased that the approved audit reform has taken into consideration major recommendations from WPK.

First, the definition of public interest entity, on the recommendation of WPK, has not been extended in the audit reform, thereby avoiding bureaucratic burdens especially for small and medium practices (SMPs).

Second, it is of utmost importance that the originally planned unrestricted participation of commercial investors in audit firms has not become a reality since that would have been counterproductive to all endeavours of reinforcing the independence of auditors.

Finally, we are pleased that the introduction of an independent authority exclusively and compulsorily in charge of the oversight for all auditors has been rejected. This means that the German legislator can retain the German oversight system that has proven to be efficient and effective with WPK as the competent authority.

The major challenge in the months to come will be the transposition of the EU audit reform. It remains to be seen how the German but also other national legislators will respond to the results in terms of transposition activities. As far as Germany is concerned, WPK intends to play a pro-active role with regard to the issuance of corresponding proposals to the Federal Ministry of Economics and Energy if and as far as this is desired by the Ministry.

TA: What are your views on the agreement between the PCAOB and the German Auditor Oversight Commission (AOC); is it working?

RV: The agreement between the PCAOB and the AOC has proven to be a useful mean to enable the PCAOB to perform joint inspections on German territory. For this reason, and also to reflect the second Adequacy Decision of the European Commission regarding the PCAOB, the AOC has decided to prolong the agreement until 2016.

While the AOC is happy with the cooperation, it still hopes to reach a certain degree of reliance in the long term, meaning that the PCAOB would abstain partially or fully from performing its own inspections of German audit firms, and instead rely on the work done by the AOC.

TA: Has there been any change in legislation allowing the AOC to publish the findings of its oversight activities? Would support more transparency in that respect?

RV: There is no new legislation that would allow the AOC to publish any findings and results of its oversight activities apart from the high-level annual report which it issues. However, the AOC and WPK are of the opinion that auditors work in the public interest and therefore the public has a right to be informed about significant audit failures and measures taken by regulators in that respect.

The AOC has pointed out in the past that the strict confidentiality requirement in the current law may clash with its role as an independent public oversight regulator.
There were instances in the past where the AOC had to turn down requests from interested third parties to give its opinion regarding a publicly discussed case.

The AOC therefore feels it lacks visibility in situations where the public and the stakeholders would rightfully expect it to take a stand. The AOC and WPK are therefore supportive of any initiative that would allow the AOC to use its equitable discretion to decide when and when not to comment on individual findings or cases. And WPK appreciates that the EU audit reform enables greater transparency in that respect.

TA: What are your expectations for the year ahead?

RV: As already mentioned the approved EU audit reform implies quite a number of major challenges for the whole profession in Europe in the near future. Therefore we are keenly awaiting the transposition into national law while remaining aware that this will take some time. Subsequent to this transposition we are confident that a longer period without significant changes would be of benefit to the profession. This would open the opportunity to demonstrate the effectiveness of the recent measures.


*Reiner Veidt answered TA's questions before the European Parliament voted in favour of the EU audit reform on 3 April






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