The System of Auditor Oversight in Germany

The elements of auditor oversight

With the help of the Auditor Oversight Commission a new element of public oversight has been integrated in the existing auditor oversight regime in Germany. The Chamber of Public Accountants (WPK) has always been subject to state supervision conducted by the Federal Ministry of Economics and Technology over WPK. The competencies of the AOC go beyond state supervision: Following its public oversight function, the AOC has the ultimate responsibility in all areas supervised.

This kind of independent public oversight in relation to a professional chamber governed by public law is in its way unique in Germany.

In the area of disciplinary oversight on auditors, a further element of public oversight has to be mentioned. According to the Public Accountants Act, disciplinary oversight of the audit profession in Germany is organised into a two-tier system.
Minor violations of professional rules are investigated and sanctioned by WPK under public oversight of the AOC. Severe violations of professional rules are sanctioned by special divisions of criminal courts. The charge is brought to court by the chief public prosecutor's office at the Berlin District Court after its own investigations. At the first instance a division of the Berlin District Court is responsible for all cases in Germany. For appeals against verdicts, a panel of the Higher Regional Court of Berlin is responsible. Further appeals will be decided by a panel of the Federal High Court in Leipzig.

The interaction of the individual elements of the auditor oversight in Germany is shown in the following chart. Click on the image to view the full-size chart (popup window).

 
Auditor Oversight and Enforcement of Accounting Rules

The system of auditor oversight has to be distinguished from the oversight in accounting matters. The auditor oversight only refers to the compliance with rights and duties of the statutory auditors. The oversight on accounting matters refers to preparers of financial statements, hence the companies and their compliance with relevant accounting standards. In Germany, two separate oversight regimes have been established for auditors and accounting matters. However, there may be interactions between the two systems. Any indications for breaches of the auditor’s duties found by the accounting enforcement authorities have to be reported to the auditor oversight for further investigations.

According to the Accounting Enforcement Act from 2004 (Bilanzkontrollgesetz) a two-tiered system was established. Financial statements of public interest companies are reviewed regularly and based on random tests at the first level by the Financial Reporting Enforcement Panel and, if necessary, at a second level by the Federal Financial Supervisory Authority.