External quality control

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As external quality control method in the field is auditing referred that the review of the quality assurance systems used by audit firms. A characteristic of external quality control is that it is not carried out by an employee of the practice to be audited, but by an outside third party - i.e. externally . This is also the essential delimitation criterion for internal review .

Background and purpose

International context

The current structure of the system of external quality control in Germany is largely shaped by international and European legal requirements. In an international context, the standards of the International Federation of Accountants (IFAC), the worldwide professional association of the auditing professions, should be mentioned in particular . At the European level, the EU Commission specifies in the modernized 8th  EU Directive (so-called Auditor Directive ) which minimum requirements the quality control systems in the member states of the European Union must meet.

The national legislators can meet the requirements of the 8th EU Directive with two fundamentally different design alternatives for a system of external quality control: On the one hand, quality control can be carried out by an authority or a state-commissioned body; one then speaks of a monitoring process. Such a situation is e.g. B. in Great Britain , the Netherlands or Italy . Alternatively, a member of the auditing profession can be commissioned with external quality control ; Such a procedure is referred to as peer review . Peer review systems are e.g. B. established in France , Denmark or Austria . The monitoring procedure is also used outside the European Union (e.g. in the USA , where there has been a complete abandonment of peer reviews).

The German system was originally designed as a peer review process, but has been further developed through several legislative amendments. In the meantime, a “peer review with monitoring elements” is often spoken of, since since the Auditor Oversight Act (APAG) came into force in 2004, the final instance of external quality control lies with the independent auditor oversight commission (APAK). The term expresses that the German system is now a mixture of these two pure forms.

Importance of the quality of auditing services

For the auditing profession, it is of particular importance that the public trust its work. To be able to perform particular reference to the reservation task of auditors, statutory audits, this is clear: the auditor's report of the auditor is responsible for the decisions of the stakeholders of the audited companies is crucial. So take z. B. (Potential) shareholders base their investment decisions primarily on the accounting information published by a company . However, this information only becomes reliable after it has been checked by an auditor. If the investors cannot assume that the auditor is auditing independently, his judgment loses its value.

Against this background, the declared aim of external quality control is to ensure high quality professional practice by the auditors and thus to strengthen the functionality of the capital markets.

Standardization and scope

The introduction of external quality control in the auditing profession goes back to the Auditor Ordinance Amendment Act (WPOÄG) from 2000 . Every auditor who wanted to continue to carry out statutory audits was forced by this law to undergo external quality control. As far as he audited publicly listed companies, he had to do so by the end of 2002 at the latest . For members of the profession who only carried out final examinations for non-listed companies, the deadline only ended at the end of 2005 . After the first quality control, this had to be repeated at least every three years. With the entry into force of the Professional Supervision Reform Act (BARefG) on September 6, 2007 , this cycle for auditors who do not carry out audits of companies in the public interest i. S. d. Implement Section 319a of the Commercial Code (HGB), extended to six years.

Organization of the quality control process

Various bodies are involved in the handling of external quality controls in Germany.

Quality Control Inspector (PfQK)

Only registered PfQKs are allowed to carry out external quality controls. PfQK can be auditors, auditing companies, sworn accountants and auditing companies. As PfQK, the latter two are, however, limited to the performance of quality controls at sworn accountants and auditing companies.

The registration of the PfQK is carried out by the WPK and there specifically by the Commission for Quality Control (KfQK, see below). In order to be registered as a PfQK, a professional must meet the following four requirements in accordance with Section 57a, Paragraph 3, Clause 2-4 of the WPO:

  • He must have been appointed as an auditor or sworn auditor for at least three years and have been active in the field of auditing. This includes all activities related to the execution of final exams, e.g. B. also technical work or the implementation of order-related quality assurance as part of internal quality assurance .
  • He must demonstrate knowledge of internal quality assurance in auditing practices. This requirement can be met by attending a training course comprising at least 16 teaching units.
  • In the five years before his application for registration as a PfQK, he must not have been convicted of a breach of professional duty by a professional court (see also professional supervision ).
  • He must already have successfully subjected himself to an external quality control.

Auditing firms and auditing firms are registered as PfQK if the above requirements are met by at least one member of the board, a managing director, a personally liable partner or a partner of the company. The obligation to have successfully subjected oneself to an external quality control then applies to the professional society instead of the individual. Even after its registration, the PfQK has to undergo regular training through special quality assurance training.

The tasks of the PfQK are:

  • The implementation of external quality controls;
  • after completing a quality control, the preparation of a quality control report, which must also contain an audit opinion;
  • the immediate sending of the quality control report to KfQK.

Quality Control Commission (KfQK)

Basically, the task of operating an external quality control system is the responsibility of the WPK. Against this background, the KfQK was set up as an independent body of the WPK to process all tasks related to quality controls. The KfQK has at least nine members who must be registered as PfQK themselves. They are also not allowed to belong to the board of directors or the advisory board of the WPK and are independent and not bound by instructions.

According to Section 57e Paragraph 1 WPO, the KfQK's area of ​​responsibility includes:

  • The registration of the PfQK;
  • the receipt and evaluation of the quality control reports prepared by the PfQK;
  • the issuing and revocation of certificates of attendance in auditing practices on successful completion of an external quality control;
  • the imposing of conditions and sanctions if deficiencies in the internal quality assurance system of the audited practice were found in the course of an external quality control;
  • handling of appeals against decisions related to quality control;
  • the granting of temporary exemptions that exempt auditing practices from participating in the quality control process in order to avoid cases of hardship.

The KfQK draws up an annual report in which it publishes the results of the quality controls carried out in anonymised form.

Auditor Oversight Commission (APAK)

See main article : Auditor Oversight Commission

The APAK carries out a public, subject-related supervision of the WPK and thus also of the external quality control system. In addition, the legislator has assigned the APAK in § 57f WPO the task of submitting an annual assessment of the appropriateness and functionality of the quality control procedure operated by the profession as well as recommendations for its further development and improvement.

execution

Since the external quality control is a business audit i. S. d. Section 2 (1) WPO, in addition to the special regulations for the implementation of external quality controls, general technical rules for order planning, order execution, documentation and reporting also apply.

Selection of the PfQK

The legislature has provided a special procedure for the selection of the PfQK. An auditing practice that would like to undergo an external quality control must submit up to three suggestions for possible PfQK to the KfQK. A confirmation of independence from the PfQK must be enclosed with each of the proposals, the content of which is specified in more detail in Section 19 of the Statutes for Quality Control (SfQK). The KfQK has the option of rejecting individual or all of the submitted proposals, whereby a lack of independence of a proposed examiner in particular will lead to a rejection. If the KfQK rejects all suggested examiners, the practice to be examined can submit up to three new suggestions. If at least one examiner is not rejected, the practice to be examined can commission one of the non-rejected examiners to carry out the external quality control. In the course of the Auditor Oversight Reform Act (APAReG), which came into force on June 17, 2016, the KfQK can also determine a PfQK if no suitable PfQK can be determined even after multiple proposals have been submitted.

The PfQK may only accept this order if there are no grounds for exclusion such as B. lack of independence, concern about bias or insufficient technical knowledge or experience. Section 57a, Paragraph 7, Clause 1 of the WPO permits the termination of an order once accepted to carry out an external quality control only for an important reason. Such is particularly the case if circumstances arise after acceptance of the order which, if known before acceptance of the order, would have meant that the order should have been rejected.

Examination subject

The subject of external quality control is the examination of the appropriateness and effectiveness of the internal quality assurance system of an auditing practice. The establishment and documentation of such is required by law for all auditors in Germany in Section 55b WPO. The content requirements for the internal quality assurance system - and thus the target object of the external quality control - are standardized. In addition to some other provisions of the WPO and the HGB, the professional charter for auditors / sworn accountants (BS WP / vBP) and the joint management board statement of the WPK and the Institut der Wirtschaftsprüfer in Deutschland e. V. (IDW) "Requirements for quality assurance in the auditing practice" (VO 1/2006) with the design of the quality assurance system.

According to VO 1/2006, the internal quality assurance system of an auditing practice consists of three pillars:

  • General practice organization : When organizing an auditing practice, special precautions must be taken in various areas to ensure a high level of audit quality. Regulation 1/2006 specifies measures for compliance with general professional obligations, clear regulations as to when audit assignments may be accepted and continued or when early termination is required, a structured program for training and further education of employees, the overall planning of all assignments and Regulations for dealing with complaints and allegations.
  • Processing of audit assignments : Are business audits i. S. d. Section 2 (1) WPO carried out, in addition to the regulations on general practice organization, other special regulations must be observed. For this purpose, the internal quality assurance system must have regulations for the organization of the order processing, specifications for the auditor responsible for the mandate to guide his audit team, instructions for a structured gathering of any necessary professional advice (so-called consultation), regulations for the ongoing monitoring of the order processing and for the final review of the order results, Provide regulations for the implementation of order-related quality assurance (consisting of report criticism and quality assurance accompanying the order), specifications for resolving disagreements, and regulations for documenting order processing and archiving working papers.
  • Internal review : The internal review extends over the two aforementioned areas. The subject of the audit is essentially identical to that of the external quality control, only the person carrying out the work is not an external auditor, but an employee of the auditing practice itself. For reasons of independence, only those employees may be used to carry out the review of an order processing were not involved. Small auditing practices are given the opportunity to review the order processing as part of a self-assurance. The auditor looks through the order documentation again with a certain time interval before the audit is carried out and ensures that all quality assurance regulations have been complied with. The prerequisite for this form of inspection is that it is not an order to examine a company in the public interest i. S. d. § 319a HGB acts.

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