The European Union had passed its audit reform in 2014 in order to create greater transparency, to enhance public trust in the auditing profession and to promote a competitive audit market. The audit reform affects in particular public interest entities (PIEs). PIEs include listed companies, credit institutes and insurance companies.
Changes at the EU level: one Regulation, one Directive
EU Regulation No 537/2014 of the European Parliament and of the Council on “specific requirements regarding statutory audit of public-interest entities” will immediately enter into force in all EU Member States on 17 June 2016,i.e. without any further transposition into national law (with the exception of the Member State options). Directive 2014/56/EU amends the previous Directive on the auditing of annual financial statements and consolidated financial statements. The new Directive and the Member State options contained in the EU Regulation have to be transposed into national law in all EU Member States by the same date.
The audit reform at the national level
The German Federal Government has transposed the EU reform into law with two separate acts:
- Audit Reform Act (AReG)
The EU audit reform is to be implemented through changes to the German Commercial Code (HGB) by 17 June 2016 through the AReG. The Federal Ministry of Justice and Consumer Protection published a government draft of the planned AReG on 16 December 2015. One significant change for PIEs (with exception of credit institutes and insurance companies) is the mandatory rotation of external auditors every ten years with an extension to a maximum of 20 years if a competitive and open tender is performed or to 24 years if the PIE switches to a joint audit engagement.
A detailed description of the benefits of joint audits will be provided in our brochure “Joint audits – an important alternative for German companies”, which will be published soon.
Additional changes stipulated by the EU reform are a list of prohibited non-audit services performed by the auditor (including exceptions to that list), new requirements for reports in the auditor’s report and audit report as well as the establishment of an audit committee.
- Audit Oversight Reform Act (APAReG)
The adoption of the APAReG effects a restructuring of audit oversight and changes to the laws governing the auditing profession. In addition to the changes to the Public Accountant Act (WPO), the APAReG also calls for the creation of a new Audit Oversight Authority (APAS) with the Federal Office of Economics and Export Control. The German Auditor Oversight Commission (APAK) responsible since 2005 will be disbanded and the employees will be transferred to the new Audit Oversight Authority. The APAReG will enter into force on 17 June 2016.
According to the German Chamber of Public Accountants (WPK), this is the largest reform of the oversight of auditors and chartered accountants in Germany in decades.
Audit Oversight Reform Act