15 February 2022

Comment Letter:
EU Consultation on Improving the Quality and Implementation of Company Reporting

On 2 February 2022, the WPK released its comment letter as part of the EU Consultation on Improving the Quality and Implementation of Company Reporting. The consultation covers the five areas outlined below.

Key Points of the WPK Opinion

  1. With respect to the EU regulatory framework, the WPK notes that the exercise of extensive member state voting rights makes a uniform and coherent application of the rules difficult. Notable positive impacts of the auditors’ regulation and directive cannot be seen. The first use rules were sometimes not fully clear and needed interpretation. Furthermore, EU regulations were sometimes not congruent with the requirements of the international standard-setter (IAASB, IESBA), making a coherent application difficult.
  2. With respect to the introduction of indicators for the quality of company reporting and their reliability, the WPK refers to challenges for implementing and measuring and the uncertain benefits.
  3. The WPK is in favour of strong and dependable Corporate Governance, whereby the legal representatives of the company and those responsible for monitoring companies are obliged as a priority. But there should be transparent evidence of any need for action in the area of company reporting. A brief reference by the EU Commission to ESMA studies appears inadequate and short-sighted.
  4. The WPK also points out that company insolvencies cannot be completely avoided, even with a fully developed system of company management and control.
  5. Moreover, WPK expresses concerns that companies are already confronted with enormous challenges from current plans of the European legislator (such as WPK, Taxonomy Regulation, draft CSR directive, etc.). Additional burdens should be imposed on companies only if it is unavoidable.
  6. The WPK notes that company reporting is generally of a high quality and objective. Rare or individual misconduct, in particular management deception in financial reporting, must not be formulated as a general suspicion. No general systemic failure can be seen for these individual cases. However, with respect to the activity of the audit committees, the WPK recommends an intensive engagement with the content of financial reporting and auditing and, in future, also with sustainability reporting. Furthermore, satisfactory staffing must be ensured.
  7. In the field of audits, the WPK notes that the vast majority of statutory audits are carried out without complaints. Otherwise, the WPK points out that the international and national high-quality statements are continuously adapted and need for action is identified. We must prevent the existing great complexity of the regulations affecting the audits being increased further, in particular against the backdrop of insufficient reliable evidence in favour of the measures intended by the EU Commission. Moreover, the WPK identifies the public’s expectations of auditors with the resulting expectation gap as a major problem.
  8. The WPK expressed itself cautiously with respect to the EU Commission’s consideration as to whether joint audits help to increase audit quality. According to what the WPK has seen, there are arguments both for and against joint audits.
  9. The WPK believes the supervision of auditors of public interest entities (PIEs) to be effective, although it sees no advantages in the competent authority supervising audit committees. In the view of the WPK, the EU Commission’s proposal to transfer the tasks of registering and supervising PIE auditors to a European institution is not helpful.
  10. With respect to supervising and implementing company reporting, the WPK rejects increasing the funding, extending the powers of the competent national authorities and strengthening the role of the ESMA in implementing company reporting. Detected errors in accounting are largely due to the complexity and, sometimes, subjectivity of the IFRS. Here, simplification could contribute to a reduction in the error rate.