Financial audit

Under auditing refers to the audit of the financial reporting of companies in accordance with applicable accounting standards, particularly in the context of the law for medium and large corporations the annual audit. The term examination of the accounting and the accounting falls. An assessment of the efficiency is carried out only insofar as it is established whether a going concern is likely. In theory at an auditing an actual compared with a desired state and based on the deviation an appropriate audit opinion either with or without qualification is granted or denied. This is to ensure that the financial statements (including investors, suppliers, lenders, employees) can trust the information of the financial statements (information function), a correct earnings are reported ( payment calculation function ) and also indirectly the correct tax burden ( relevance of the trade balance in the tax balance sheet ). Depending on the accounting standard outweigh certain functions, which is reflected by different recognition and measurement criteria.

Auditing may only be the auditor (WPO ) certified public accountants or certified public accountants with the support of additional staff (assistants without examination) perform. Must be distinguished from monitoring by employees of the audited entity, which are then referred to as internal audit or control of the finances of the Association are elected from the membership of auditors ( audit ).

• 4.1 Basics
• 4.2 Examination Techniques
• 4.3 Audit Risk

History

General

Already in ancient Babylonian and Egyptian records notices apply to controls. The Roman Empire had a very sophisticated system of controls for financial officers.

In modern times, often led spectacular corporate crises to changes in testing requirements. Thus, the collapse of Jürgen Schneider in 1994 led to a tightening of credit checking rules for banks in Germany. Speculative losses of companies such as Metallgesellschaft led to the Law on Control and Transparency in Business (KonTraG ). After accounting scandals at Enron and WorldCom, the Sarbanes -Oxley Act was adopted in 2002.

Emergence in Germany

In Germany 's first state audit institution was 1701. The first obligation of audit resulted in Germany in 1870. Company law has been changed and therefore the Board was required to examine the financial statements and to report to the general meeting about it. 1884, the Company Law was revised again. Now let companies had to share their financial statements under certain conditions checked by an external auditor. In 1896 the association was founded in Berlin accountants, which in 1905 the " Association of German accountants " (VDB ) was. This was the first merger of accountants was born. 1929 were 853 auditor member of the VDB.

Current Situation in Germany

Today the Chamber of Public Accountants ( WPK ) has its headquarters in Berlin about 21,700 members ( as of July 1st 2013).

The market for audit and tax consulting companies in Germany

2012 determined the following merchants also instrumental in the German market for auditing and tax:

• * ) Data are partially estimated
• 1), including legal advice and acquisition BrainNet 07 /2012
• 2 ) Total revenue: € 1,219.9 million ( 2012); € 1141.1 million ( 2011) Total employees: 7,389 (2012 );. 6903 (2011)
• 3) short financial year 1 July 2011 to 31 March 2012, turnover was extrapolated to a 12- month period

The inclusion in this ranking is subject to well-defined criteria. More than 60 percent of revenue to be earned with audit, tax, corporate finance and / or legal advice. Of these at least 15 per cent must be accounted for auditing ( audit, no economic audit-related ). Furthermore, only independently organized accounting firms are included ( no network companies). This ensures that only companies that are listed, whose core business is located in the considered market.

The Lünendonk considered continuously since 2006 the auditing and tax consultancy market in Germany. Here, the market research firm does not claim to represent the overall market. It focuses rather on the examination of the leading vendors in a particular market segment. In addition, are included for comparative purposes in the analysis of numerous medium-sized and small accounting and tax consulting companies ( WP). These companies together represent the basic structure of the market and such a high share of sales in the market that inferences for the overall situation and development are possible. Lünendonk analysis of 2013 includes 94 companies (77 accountants and tax consultants, 17 networks ), including the Top 25 The latter are listed according to their domestic sales.

To date, July 1, 2013 2,793 accounting firms were in the Chamber of Auditors ( WPK ), Berlin, represented. The chamber counted 14,594 accountants and 3,304 certified public accountants to their members. The large number of companies indicates a strong atomized market. The acting in Germany market participants can be divided into four groups:

• The major international players (Big Four: PwC, KPMG, Ernst & Young, Deloitte)
• The international networks
• Medium-sized audit firms (including Next Ten)
• Small audit firms and " lone wolf ".

In terms of market volume hardly valid and consistent data are available in the literature. This may on the one hand based on different calculation methods, on the other hand, different definitions of " audit market." Many accounting firms offer beyond their original field of activity test addition to other services such as tax, legal and financial consulting. Also, management and IT consulting competencies were isolated and expanded. Since 2008, the average of the surveyed companies achieved more sales with tax than auditing. Depending on which services are included, the different figures emerge.

The Lünendonk estimates the audit market in 2012 to around 11.5 billion euros. Pure tax consulting and legal services are not included herein. As every year, rose Lünendonk in 2013 as part of a written survey figures, data and facts from operating in Germany auditing and tax consulting companies and networks.

For the overall market an average growth rate of 3.3 per cent was forecast for 2013. The median ( middle value ) of 3.0 per cent confirmed this value. Thus, this prediction is constant compared to the estimates from the years 2012 and 2011. The midpoint of market growth forecast for the period 2013 to 2018 pa also is 3.3 percent ( median: 3.0%). In comparison to the predictions of recent years is to be noted that the expectations again develop positively (2012-2017: 3.0% pa, 2011-2016: 3.0% pa, 2010-2015: 3.1% pa, 2009 -2014: 3.9% pa). The long-term forecast (2018-2020 pa) designed more optimistic with a mean of 3.0 percent. It is striking that the medium-term forecasts prove to be more optimistic than the short-term. Normally, the fall out of the more conservative assumptions, the further they are away from home. In this case, the study participants expect medium - and long-term dynamic development of the market volume in Germany.

The 77 analyzed independent auditing and tax consulting companies grew in 2012 compared to the previous year by an average of 4.6 percent. That's two percentage points less than in the previous year (2011: 6.6% 2010: 2.2%, 2009: 4.6%; 2008: 9.0%; 2007: 8.2%). However, the players, this trend had predicted in the previous study: they expected 2012 growth of 4.8 percent. The financial market and economic crisis seem to have the auditing companies overcome in Germany though. However, the major providers are grown much faster than the medium-sized and small businesses. From the average market growth therefore do not benefit all audit firms. On the contrary: The gain of one is often done at the expense of other market participants. Therefore the participants stopped again back at the sales forecast for 2013: They say they want to grow by 5.0 percent in the current fiscal year on average. In the long term go the WP- companies again from a slightly higher growth. In the years 2013 to 2108 should be 5.3 percent annual growth.

The analyzed audit firms generated 45.0 percent of its sales in 2012 with tax (2011: 44.9 %) and 37.6 percent with Auditing ( 2011: 37.8 %). Even otherwise, no specific changes have occurred. 8.2 percent were reacted again with the advisory. The proportions of legal services (6.2%) and "other " services (3.0 %) is similar to last year.

On average, 711 people were employed per enterprise in 2012 (2011: 691 ).

The higher growth rates of the top 25 companies - but also medium-sized firms - are not only based on organic growth. So took in fiscal year 2012, the mergers and acquisitions significantly. This not only management consulting firms were integrated - which usually led to reports in the financial media - but also other accounting firms, tax advice, tax or legal advisor also specialized IT software houses respectively.

Interesting here is particularly the strong expansion of advisory and consulting services in the past few years. PwC enhanced inter alia with PRTM, campus and 50 percent of the shares of the Intes Academy; KPMG BrainNet, Dr. Geke & Associates Consulting and TellSell; EY with J & M. And the auditing firm Deloitte, which in contrast to the other Big Four members separated at the beginning of this millennium, not of its consulting division, expanding the already strong consulting expertise including through the acquisition of the Monitor Group as well as the integration of the long-term Raupach & Wollert right consulting partner Elmendorf. In October 2013, PwC announced the adoption of international strategy and management consulting firm Booz & Company - subject to the approval of the U.S. anti-trust authority, this should be completed in March 2014.

Outside of the Big Four also build other large audit firms from among the "Next Ten" - ie the ten positions of the Lünendonk list by the Big Four - the consultancy work from. So they are trying to position itself as an alternative to the Big Four. In addition to an integrated portfolio a certain sales volume is part of this growth target. In fact, the pressure on the medium-sized audit and tax consultant is greater Firstly ask customers increasingly integrated, partially cross-border services to. On the other hand encounter large audit firms before into the middle class. This so-called "Stuck -in-the -middle" position holds the future challenges.

Chairs of examination at German universities

This list is not exhaustive, but gives only the information again, who provided the universities for the study guide " auditing " the Chamber of Auditors ( WPK ). Accordingly, on the following German universities professorships are established for the subject of auditing:

Completion of a test

Basics

Accountants practice a liberal profession who receives a legal framework through a variety of legal rules, including the Auditors' Code and the Commercial Code. In addition, professional rules of ethics which, although formally no laws, but for the auditors have outstanding importance.

These are the principles of proper auditing, (IDW ) are formulated as issued by the Institute of Public Auditors in Germany V.. In particular, the Auditing Standards give the auditor before in great detail how to take orders, plan, carry out and must be documented.

The audit standards is thereby been quasi- legislative rank to, as that the profession of accountant is almost always of the opinion that the non-application of the standards without proper documentation is a professional breach of duty. The violation of professional obligations may be sanctioned by the Chamber of Auditors.

Examination techniques

A test is usually done by sampling. Here, in areas of high risk, a comparatively high number of samples used. The auditor shall determine before the start of the actual audit procedures, the criteria errors are to be regarded as insignificant and when they as significant errors influence the auditor's report. These criteria are established for both the whole area as well as for individual audit areas.

The test techniques can be used in the

• System testing (eg testing of the internal control system or payroll accounting system ) with Construction inspection and
• Functional testing as well as the

• Analytical procedures and
• Individual assessment

Be divided.

Audit risk

Audit risk in the annual audit is the risk that the auditor the audit report is issued, although significant errors contained in the financial statements. These errors can lead to about the exhibited by the audit firm comfort letter the tested company liability is incurred.

In the audit risk, a distinction

• The risk of error with the inherent risk: this is the probability that any error in the financial statements are included,
• The control risk: probability that there are errors, which, for example, the Internal Audit are detected by internal control mechanisms and

Types of tests

The main area of ​​activity of accountants is the annual audit. In addition, interim financial statements are audited, such as corporate divestitures, conversions or other structural changes. Rarely, but particularly labor intensive are special tests to detect suspected irregularities.

Criticism

From the standpoints of science and practice, criticism of the design of the audit is always practiced as an auditor puts in each test in the conflict, on the one hand carefully - his or her sponsor critically - to examine and then again to get the audit for the next year. However i.d.R. is be the principal interested in making economic decisions on the basis of the calculator which reflects the company's position correctly. The market of auditing is controlled mostly by four large companies, the so-called Big Four, and is characterized by intense competition. In the past, audits were often used to come to more lucrative jobs in the consulting firm; which has partly led to legislative changes.

The German legislator has, among others, § 319a HGB newly introduced with the Accounting Law Reform Act, which constituted special reasons for exclusion for the auditor. There are, inter alia, the prohibition to perform certain audit and consulting services for the same client. In fact, limitations of the audit opinion are rare - as measured by the Total audited annual and consolidated financial statements. Also in Germany there was despite a developed system of corporate audit provides a number of major accounting scandals and corporate failures in which the auditors had written no limitation in the auditor's report, such as the scandal surrounding the collapse of the Bank of Berlin.

On the other hand, the auditors' report points out that the result of the test can only be determined with " reasonable certainty ." A protection against fraudulent behavior is not guaranteed by the audit opinion.