Board members and chief executive officers in general and managing directors in the sense of the German Banking Act (KWG) in particular are obliged to set up a monitoring system which allows the measures necessary for business continuity to be identified. One of the essential pillars of such a monitoring system is an effective internal control system. Internal control systems consist of the rules for governing the company's activities (internal governance system) and the rules for monitoring compliance with these rules (internal monitoring system). The internal monitoring system includes process-integrated (organisational safeguards, controls) and process-independent monitoring measures (such as the internal audit). The importance of this commitment was highlighted most recently by the German Accounting Law Modernization Act (BilMoG), in which the Supervisory Board or a Committee of the Supervisory Board was tasked with investigating the effectiveness of the internal controlling system and the internal auditing system.
In addition to monitoring by the Supervisory Board, the functional capability of the internal audit is also a standard component of the annual accounts and the focus of the regulatory review. The control activities of the various stakeholders must be aligned with MaRisk as enacted by BaFin for credit and financial services institutions, as well as the analogous InvMaRisk for capital management companies and investment funds. One challenge here is dealing with the principle of proportionality, which may lead to a different conclusion on the effectiveness of the internal audit system depending on the business model and stakeholders.
BDO has successfully established its market position in recent years as an independent auditing company for supporting the internal audit of credit and financial services institutions, as well as capital management companies and investment funds. Small institutions and companies have completely outsourced the audit function to BDO (Outsourcing), other, typically larger, companies seek support in selected areas which require special expertise (Co-sourcing).
In addition, we have for several years observed an increasing demand of the part of the institutions and their supervisory bodies for quality inspections of the internal audit.