Independent oversight of German audit
firms has revealed shortcomings in the traditional peer review
system.

The Seventh Reform Act of the German Public
Accountant Act (Wirtschaftsprüferordnung – WPO), implemented in
late 2007, introduced the independent inspection of firms that
audit listed companies or public interest entities (PIEs). German
oversight was previously limited to a peer review system for audit
firms. This peer review still continues.

The German Auditor Oversight Commission
(Abschlussprüferaufsichtskommission – AOC) conducted the first
independent inspections last year, visiting 32 firms.

AOC general secretary Tim Volkmann said the
inspections are the most important part of the WPO and have been
well received by the profession so far. He said the reviews have
already been justified by revealing flaws in the peer review
process.

“In a few cases, a peer review performed just
recently before an inspection had failed to identify any
deficiencies, then the [AOC] inspection revealed considerable
shortcomings of the quality control system [at the firm],” he
said.

“This goes to show we are on the right track
in moving away from additional peer reviews for auditors and audit
firms of PIEs in favour of thorough and objective inspections,
which also cover the scope of the former peer reviews. These
considerations are supported by many professionals who feel
unenthusiastic about having two separate teams of
reviewers/inspectors visit their premises consecutively.”

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

BDO Germany chief executive Christian
Dyckerhoff said the added pressure of the inspection process began
to surface in mid-2008, when the firm’s first AOC inspection
coincided with the ongoing peer reviews.

Both Dyckerhoff and KPMG Germany head of audit
Joachim Schindler said the inspections were carried out
professionally.

“Everything we have seen so far is these are
highly professional people and approach this with a professional
view and background,” Schindler said.

Dyckerhoff added that the inspection system in
place is not perfect. He said it is “very detailed” and noted two
problems.

“One problem was that the inspection process
is still in a start-up phase so the inspectors, who were formally
employed by Big Four firms, looked a little bit at the processes
they were used to from their previous employers,” he said.

The second problem was that BDO had no chance
to prepare for the requirements because sufficient guidelines have
not yet been developed. The AOC inspectors can tell the firms the
newly agreed processes, but these are not based on professional
rules set by any of the nation’s professional bodies.

“The co-operation between the AOC and the
audit firms will improve if we develop rules of how it ought to be
so the audit firm is prepared for an efficient inspection to
optimise its efforts in auditing,” Dyckerhoff said.

The AOC recently reported its findings for the
first time. Shortcomings identified in the audits included a lack
in proper documentation; insufficient professional training or
training that didn’t match the auditor’s major fields of work, such
as IFRS; and a lack of evaluation of objectivity when using the
work of another auditor or expert.

Volkmann says that in a few cases the AOC had
to investigate auditors after professional misconduct was
suspected.