What is your opinion on accountants

Who controls the inspectors? : Auditors themselves are only checked laxly

Auditors are something like the TÜV of the market economy. You monitor the accounting of the largest corporations as well as systemically important banks and medium-sized companies. With their attestations, they provide banks, investors and suppliers with indications as to whether the audited companies have provided truthful information about their business. But who actually controls the auditors?

The Auditor Oversight Office (APAS) at the Federal Office of Economics and Export Control is responsible for quality control in the audits of banks, insurance companies and listed companies. In 2018, APAS completed 25 inspections and inspected 78 final exams. Defects were found in 52 percent. The four major auditors alone looked at 735 balance sheets that year.

In the few inspections, each final audit is only reviewed every ten years on average. At KPMG and PricewaterhouseCoopers, which annually review more than 200 balance sheets from bodies of public interest, supervision is even more incomplete. A spokeswoman for the supervisory body says that “the legal requirements for the scope of inspections are fully met. There is no oversight gap ”.

Cum-ex deals were waved through

However, the auditors regularly do poorly. As with the biggest investment scandal: For years, the investment company P&R had sold shipping containers to more than 50,000 investors, which in truth often did not even exist. For years, P & R's books have been certified as correct by auditors. The books of the banks that did cum-ex business were also checked and found to be correct.

The annual financial statements of HSH Nordbank were audited by KPMG and the financial statements of DZ Bank were audited by EY, as research by NDR, WDR and "Süddeutscher Zeitung" shows. All banks that went bankrupt in 2008 received clean audit reports until shortly before they collapsed, as author Richard Brooks points out. Even institutions whose balance sheets contained dubious deals to cover up debts, such as Lehman Brothers and the reinsurer AIG, were certified as having clean balance sheets.

Little transparency in control

Despite the high number of deficiencies, APAS does not publish any information about which auditors found deficiencies. Different from the UK. Most recently, a quarter of the audits of the 350 largest listed companies were inadequate.

The UK regulator publishes control reports and even extra surveys for the largest accounting firms - KPMG, PricewaterhouseCoopers, EY and Deloitte. These Big Four dominate the market. According to British regulators, 35 percent of all final exams from PricewaterhouseCoopers and 25 percent of all exams from KPMG are defective.

Grant Thornton and PriceWaterhouseCoopers were reprimanded for particularly poor performance. The UK regulator also publishes details of sanctions imposed for poor audits. The spokeswoman for the German APAS says that a comparison is not appropriate. The capital market in Great Britain is significantly larger, so there must be more final exams.

EU directive allows publication of sanctions

APAS only publishes the number of reprimands and fines issued against an individual or an accounting firm. This information is of no use to investors and business partners of the companies concerned. In fact, an EU directive from 2014 allows the publication of sanctions "including information on the type of violation and the identity of the natural or legal person against whom the sanction was imposed".

Gerhard Schick, chairman of the citizens' movement Finanzwende, would like “that the supervision of the auditors in the big companies will be more crisp and make their work more transparent for the public. The APAS is too cozy for me ”.

The test center lacks employees

The primary aim of the EU directive to improve the supervision of auditors was to create a supervisory authority independent of the profession. In Germany, two of the three current managers of the supervisory body were employed by KPMG. 24 of the 33 employees who carry out inspections work for one of the major accounting firms. Michael Gschrei from the Association for Medium-sized Auditing criticizes: "The Big Four companies have their former employees themselves monitor the correctness of their work."

The spokeswoman for APAS says: “To ensure the independence of the inspection staff, inspectors are not allowed to inspect their previous employer for at least three years under current European law. In addition, it is a regular practice of the APAS not to use inspectors for inspections at a previous employer. ”The APAS has suffered from a lack of staff for years, and some posts are not filled. If gaps in staff cannot be closed, it is also due to the auditing companies, which secure a large part of the well-trained specialists.

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