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  • Enforcement Consulting Services

Enforcement Advice

Enforcement procedure changes from FISG

Since 1 July 2005, the financial information (annual and consolidated financial statements and management reports) of capital market companies has been subject to enforcement examinations. So far, the enforcement of accounting standards was carried out in two stages by the German Financial Reporting Enforcement Panel (FREP) and the German Federal Financial Supervisory Authority (BaFin).

Due to the German Law on Strengthening Financial Market Integrity Act (“Finanzmarktintegritätsstärkungsgesetz”, FISG), the established two-tiered financial reporting enforcement system will be fundamentally reformed. Beginning on 1 January 2022, BaFin will receive substantially enhanced enforcement rights. BaFin will be solely responsible in a new one-tier system for enforcement examinations not completed by 31 December 2021.

FISG introduces various changes. In particular, BaFin will be given the authority to focus more heavily on preventive action and investigate suspicious cases more swiftly and efficiently as part of financial reporting enforcement. Especially, BaFin

  • is authorized to publish the inspection order in all cases of public interest in the Federal Gazette and on its website;
  • is entitled to summon and question the members of the executive boards and employees of the audited company as well as the auditor, insofar as it is necessary for the performance of BaFin's tasks in examining the financial statements of companies. These powers also extend to business partners or financing banks if there are concrete indications of accounting violations and there is no obvious lack of public interest in clarification;
  • obtains the power of investigation and seizure, which is also extended to third parties;
  • will announce identified error itself, which will accelerate the publication of error findings (on its website, in the Federal Gazette as well as in a supra-regional authorized journal for obligatory announcements or via an electronically operated information system).

BaFin also informs the Auditor Oversight Authority (“Abschlussprüferaufsichtsstelle”, AOB) at the German Federal Office for Economic Affairs and Export Control (“Bundesamtes für Wirtschaft und Ausfuhrkontrolle”, BAFA) of facts that give cause for concrete indications of violations of accounting regulations. BAFA can examine whether this also causes proceedings of the supervision on the statutory audit profession.


Dr. Jens Freiberg„The tightening of the enforcement process established by the FISG will introduce new challenges to companies that should not be underestimated - we are pleased to help you with these challenges.“
(Dr. Jens Freiberg) 
 


 


No second "Wirecard scandal" from the perspective of BaFin and companies subject to audits

The legal changes were caused, among other things, by the Wirecard scandal. The enforcement process is intended to have a preventive effect. It is to be expected that BaFin will shorten the duration of proceedings.

From the perspective of the company examined, pressure is increased. Essentially, companies should comply with accounting requirements and build up an "enforcement-proof" documentation. If enforcement proceedings are commenced, it is advisable for many companies to obtain professional advice.


Anna HoeltersThe enforcement challenges according to FISG regulations will increase. Experience and best practice in dealing with the new process need to be established. Accounting matters are only one of several issues to be considered. We can help you get an overview, provide strategic advice and assist with implementation issues.“
(Dr. Jan Faßhauer)


Our expertise

Our experts in the Capital Markets Department and the Technical Accounting Center of Excellence are regularly involved in accounting issues under German Commercial Code (“HGB”) and international standards (IFRS). We participate in professional committees of the Institute of Public Auditors in Germany (“Institut der Wirtschaftsprüfer in Deutschland”, IDW), the Accounting Standards Committee of Germany (ASCG) and the IFRS Interpretations Committee (IFRS IC). Our experts have long-standing practical experience in the area of enforcement.


Daniel Schubert„The deadlines to respond are often very tight, and companies have to react under enormous time pressure. The questions asked are never trivial, and the documents requested are often very extensive.“
(Daniel Schubert)

 


Our offer

We offer a holistic approach, comprising preparation, support and final discussion of the result.

We already provide advice on potential enforcement risks, key issues and the process of an enforcement examination. We do this either on a company-specific basis or as part of our "update training" for all clients, in which we also address key inspection topics in the enforcement process.

During the examinations, we provide you with our expertise and experience to help you answer the usually very complex questions:

  • Company-specific preparation after receipt of the notification of the initiation of an enforcement proceeding and the "1st round of questions”;
  • Advise on (alternative) response strategies;
  • Advise on the preparation and conduct of interviews with the enforcement panel;
  • Writing professional opinions on material issues on which BaFin questions the company's accounting treatment.

In our experience, several learning areas for future accounting are identified during an enforcement examination, which we will guide you through. You can benefit from our enforcement experience, our expert knowledge, our engagement in technical work and committee works as well as our experience in the practical implementation of the complex regulations and the lessons learned from each examination.


Dr. Niels HenckelIf a disputed, material accounting issue is discussed in your proceeding, we will support you in finding the best line of argumentation in the form of a professional opinion.“ 
(Dr. Niels Henckel)