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Audit of the balance sheet.
The annual audit is an audit of the annual financial statements to be prepared at the end of the financial year by an auditor. In the case of a voluntary annual audit, the structure of the audit essentially depends on the audit assignment. In the case of mandatory audits, the respective statutory provisions are decisive. The most important audit obligation arises from §§ 316 ff. HGB, according to which the annual financial statements and, if applicable, the management report including the bookkeeping are to be audited for certain companies. Further testing requirements may arise due to other provisions. First and foremost, the annual audit is a comprehensive review of the correctness of the accounting.
Statutory regulations for the audit of the annual financial statements are essentially based on the legal form, size and sector of the company.
1. Legal form and size-dependent audit obligations for individual financial statements: The obligation to audit the annual financial statements is regulated separately for corporations and non-corporations depending on size. It results from the Commercial Code or from the Act on Accounting for Certain Companies and Groups (Section 6 PublG). According to this, an examination is mandatory if two of three criteria are met for a certain period of time:
(1) For Non-corporations In the sense of Section 3 I PublG, these criteria in accordance with Section 1 I PublG are: total assets greater than EUR 65 million, sales in the twelve months prior to the reporting date greater than EUR 130 million, average number of employees in the twelve months prior to the reporting date greater than 5000.
(2) For Corporations and limited partnerships According to Section 267 I HGB: total assets greater than EUR 4.015 million after deducting a deficit shown on the assets side (Section 268 III HGB), sales in the last 12 months prior to the reporting date greater than EUR 8.030 million, annual average number of employees greater As the 50th stock corporations are subject to review regardless of their size when they are listed (§ 267 III 2 HGB).
2. In particular, audit obligations for individual financial statements: In addition to the audit regulations for the annual financial statements according to HGB and PublG, which are based on size and legal form, there are other special audit regulations, especially for cooperatives (§§ 53-60 GenG; mandatory cooperative audit), insurance companies (§ 341k HGB, §§ 57-60, 64 VAG; insurance company) and credit and financial services institutions (Section 340k HGB, Sections 28, 29 KWG; bank balance sheet). Insurance companies and credit institutions are required to be audited regardless of their size.
3. Audit obligations for groups:Group audit.
4. The annual audits public companies are partly regulated by state law regulations (§ 263 HGB).
In the case of a statutory audit of the annual financial statements for individual financial statements in accordance with the HGB and PublG, the annual financial statements (balance sheet, profit and loss account, if applicable, appendix) and the bookkeeping in accordance with Section 317 I 1, 2 HGB must be checked to determine whether the statutory provisions and the supplementary provisions of the articles of association or the statutes have been observed. Section 317 II of the German Commercial Code (HGB) requires the management report to be examined to determine whether it is consistent with the annual financial statements and the auditor's findings during the audit, and whether it does not give rise to a misconception of the company's situation. It must also be checked whether the risks and opportunities of future development are presented correctly. According to Section 317 IV of the German Commercial Code (HGB), the functionality of the internal monitoring system to be set up in accordance with Section 91 II of the German Stock Corporation Act (AktG) to detect risks that could jeopardize the continued existence of the company must also be checked as part of the audit of the annual financial statements of listed companies.
Typical examination focuses
1. Bookkeeping: Essentially, reconciliation checks, transfer checks, arithmetic checks and document checks are to be carried out. The systematic examination of the bookkeeping is usually carried out in random samples (sample examination). The focus is on checking the accounts of payment transactions, the accounts of goods transactions and personal accounts. Results are recorded in the working papers and in the audit report.
2. Balance: It is necessary to check the existence and completeness of the items and compliance with the accounting, valuation and classification regulations. The securities manual provides detailed explanations on the examination of fixed and current assets as well as liabilities.
3. Income statement (P&L): It must be checked whether all expenses and income have been reported in full and in the correct period under the correct names. The test mostly serves to supplement the balance sheet test. Because of the close relationship between balance sheet items and items in the income statement, an intensive review is hardly necessary here. However, it is important to examine other expenses and income that cannot be adequately captured by the audit of the balance sheet.
4. Attachment: It must be checked whether the explanations required by commercial law on the balance sheet and income statement, e.g. on the accounting and valuation methods used or the principles of currency conversion, have been made. In addition, it must be checked whether the further disclosure requirements of the HGB and any relevant special laws, such as AktG and GmbHG, have been met.
5. Management report: It is necessary to check whether the management report presents the course of business and the company's situation, including the risk situation, in such a way that a true and fair view is conveyed, and whether it relates to events of particular importance that occurred after the end of the financial year and the expected development of the company and the area of research and development as well as any existing branch offices.
The WP manual contains detailed explanations of the audit procedures within the framework of the annual audit.
Report on the annual audit
The audit report contains a detailed written description of the type and scope as well as the result of the audit (§ 321 I 1 HGB).
The report must be signed by the auditor and submitted to the legal representatives; if the supervisory board has given the order, the management board must be given the opportunity to comment before it is forwarded to it (Section 321 V HGB).
Details of the audit report are regulated by the IDW PS 450 audit standard.
1. Term: The auditor's working papers consist of the auditor's written records that were created in the course of his audit and all documents obtained on the audit object.
2. Purposes: According to IDW PS 460, the working papers serve to support the planning, implementation and monitoring of the annual financial statement audit, as an aid in answering queries and in the preparation of follow-up audits, for documenting audit procedures and results, for securing evidence in cases of recourse and as a basis for the Audit report and for quality assurance measures in auditing practice (quality assurance in auditing). PS 460 was revised on April 14, 2007. Further details can be found in IDW EPS 460 new version.
Planning the annual audit
1. Necessity and concept: Annual audits are often so complex that planning is essential. The audit planning consists in developing a general strategy as well as detailed audit steps in terms of type, timing and scope in order to be able to proceed efficiently and on time. The conceptual draft of a certain order, according to which the execution of a certain examination should be carried out in terms of factual, personnel and time, is required.
An important peculiarity compared to the planning of many other types of audits is that the annual audit is not a full investigation of the entire relevant material for reasons of deadline and economic efficiency, but rather takes place primarily on the basis of selections (random sampling). Nonetheless, Section 317 I of the German Commercial Code (HGB) requires that the audit be designed in such a way that accounting inaccuracies and violations, which can have a significant impact on the company's asset, financial and earnings position, can be recognized if the job is carried out conscientiously. This requirement implies that the test procedure should be further shaped by the findings obtained in each case. Planning is therefore not a step that strictly precedes the execution of the test; rather, both steps are intertwined.
2. Factual planning: a) Exit planning: The initial planning phase serves to critically classify the company to be audited; In this phase, information about the economic framework conditions of the company, its business activities, its internal control system and its accounting are collected and analyzed. The primary goal of this phase is to identify areas of risk of possible inaccuracies and violations, albeit only for guidance and in many cases preliminary.
b) Test program development: The audit objects are to be specified, i.e. audit fields and audit field groups are formed and the audit procedures to be carried out are determined.
The initial planning and the development of the test program are prerequisites for performing the test.
3. Personnel, sequence and time planning: In terms of personnel, auditors are to be selected taking into account their availability, skills and knowledge, and assigned to the test fields and test field groups. In terms of time, the start and end date of the annual audit and the sequence of the audit procedures including the respective time specifications are to be planned.
4. Planning aids: In practice, the auditing companies use forms to facilitate planning. In the scientific literature, mathematical methods for solving personnel, sequence and time planning problems have also been developed. In practice, however, these procedures have not caught on mainly because they are either based on very restrictive assumptions or are mathematically difficult to understand and therefore difficult to apply. In addition, even methodologically advanced, extensive and elegantly formulated models only incompletely depict the examination process and usually do not address the objective examination planning, or at least not extensively.
The IDW PS 240 audit standard contains further details on audit planning.
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