Why is the Chartered Accountancy course overrated

Audit industry as a “plaything” for Parliament? Abolition of the restricted revision in installments?

Daniel Bättig / Rico A. Camponovo - The publication of the latest SECO study on the regulatory costs of the restricted revision raises the question of how many additional opting-outs would come to the industry and whether there is a risk of the restricted revision being abolished soon. Significant reductions are also to be feared in the number of audit providers.

According to the SECO study, dispensing with the 20,000 audits would relieve SMEs by CHF 159 million (assuming the BfS figures, it would be CHF 264 million). Whether the savings of around CHF 8,000 (average audit fee in this segment according to the SECO study) are really significant for a company with almost 50 employees is a legitimate question. In addition, it is implicitly suggested that the restricted revision hardly generates any value for the company. In addition to a higher quality of the accounting, the critical view and the wealth of experience of the independent auditor has certainly helped many companies to avoid costly mistakes. Last but not least, the critical observer wonders whether the proposed measure would correctly set the priorities in corporate regulation. In its dispatch (19.043), the Federal Council already pointed out in the summer of 2019 that the auditors play an important role in connection with bankruptcies and that the opting-out should actually be abolished (it recognizes, however, that this would not have a political majority ). According to a recently published article in Current Legal Practice (AJP, 11/2020, p. 1396 ff.), Prof. Dr. Franco Lorandi assumes that bankruptcies will result in annual creditor losses (including many SMEs) of up to CHF 11 billion. In view of this, the annual savings of CHF 159 million seem to be almost negligible - especially since, ironically, the auditors may also be able to contribute to the prevention of bankruptcies. While it is to be welcomed that politicians want to be SME-friendly, it is important to consider the measures in the overall context and not to single-out individual aspects and market them in a media-effective manner.


SECO commissioned the Institute for Financial Management (IFI) of the Zurich University of Applied Sciences (ZHAW) to examine measures to reduce the costs of the limited audit. The following objectives were pursued with the study:

  • Description and analysis of the current situation
  • Identification of suitable proposed measures based on the analysis of the current situation
  • Assessment and prioritization of the identified proposed measures against the background of the reduction in regulatory costs and benefits

The most important findings in connection with the current situation are as follows: The limited revision causes regulatory costs of CHF 380 million annually for the audited companies. The SME companies surveyed perceive the benefit-cost ratio as appropriate on average. Therefore, 85% of the SME companies surveyed and six of the seven industry associations surveyed reject the abolition of the restricted audit.

Based on the analysis of the current situation, the authors of the study developed the following three recommendations for action:

  • Recommended action 1: Increase in the size criterion full-time equivalent (employees) for an opting-out from 10 today to 50 (with an in-depth clarification of the associated loss of benefit for the external stakeholders)
  • Recommended action 2: Anchoring the deeper level of assurance of the limited revision in the law
  • Recommended action 3: Anchoring the reduced documentation requirements in company law

EXPERTsuisse, the Association of Experts for Auditing, Taxes and Trustees, sees recommendations for action 2 and 3 merely as more precise details of the current status quo, while recommendation 1 for action would amount to a complete departure from the previous audit system in Switzerland and, in the medium term, the abolition of the restricted audit. This would be regrettable, since the economic damage of a missing auditor, especially in the SME sector, is much greater than the additional audit costs.

It is regrettable once again that the auditors' fees are viewed as costs that should be reduced at will without carrying out a serious analysis of the benefits for all stakeholders (!).

Bianca Höffer (KPMG) - The idea of ​​having a final exam with a simple analytics tool on a USB stick couldn't be further from reality. Data science is hard science, not magic. The decisive part of the effort in the data-based final audit is even completely independent of technology. Because long before the actual analysis of data can begin, the right question must first be found depending on the available data. The question and the selection of the appropriate model or tool decide whether the data analyzes lead to relevant results. This in no way diminishes the potential of data analytics for auditing. On the contrary, the use of data analytics increases the quality, transparency and efficiency of the test itself. At the same time, the use of data analytics often enables further optimization options and fields of action to be identified - the benefits therefore go far beyond the mere audit procedure.

The central question when using data analytics in annual financial statements is, for example: Can the existence of sales revenues be traced back to the database in terms of both amount and accuracy? In order to remain transparent and to be able to guarantee completeness, it is essential to analyze all invoice-relevant data. Leaving parts of the data out of consideration should not be a solution for the data-based final audit, even with comparatively uniform data. Because security and trust can only be created through complete transparency. Samples of receipts are not only a thing of the past - thanks to the complete check, we know what the respective sources of error are. In other words, this means that data gaps are detected and the data quality is checked. Information on process optimization can be derived directly from the preparation and validation of the data. The concept of the final examination can thus be expanded to include essential features. Risks can be identified with data analytics as well as trends that make it necessary to adapt the business model. The new challenge that the audit will face in the future does not only consist in the design of tools for the audit area, but also in the development of data-based use cases that offer operational or strategic added value.

There are currently two major challenges that need to be addressed when using data analytics for final audits. On the one hand, there are currently no auditing standards or regulations that explicitly regulate data and analytics. This affects both sides more and more: Because on the side of the auditor, too, virtual company values ​​and digital business models are increasing, so that the question arises as to which standards apply in which case. Beyond the still inadequate regulatory regulations and standards, there are currently further challenges. In the non-accounting-relevant area, the data structure in particular often represents a major hurdle for data analytics applications. In many companies, the IT landscape is very heterogeneous. There are usually historical reasons for this: adjustments to the infrastructure are made as required. As a result, a conglomerate of different systems and technologies emerges over time. Only those who have mastered these can offer promising analyzes. This is a challenge for the test because the implementation does not ensure that all elements of the systems are compatible with each other. The data transfer is therefore a source of errors that can have far-reaching effects in the data-based check. Especially because it is a system-related error.

This can be illustrated with a simple example. The format of order data is directly dependent on the software used. If this data is transferred from one system to another, information and links, for example to invoices and delivery notes, can be lost. On the one hand, this means that data preparation is associated with a great deal of effort. On the other hand, it must be ensured during processing that the solution is also accepted by the regulatory authorities. When using data analytics for the final audit, the general question arises: What can we do with the data? The answer is as shown here: Much more than just a secure, transparent and effective data-based final audit. The potential and advantages that data analytics can offer companies first and foremost require openness to new technologies and methodologies.

Pure quick (WPg) - In the aftermath of the accounting scandal at Wirecard, numerous reform proposals were put up for discussion, including the ban on providing non-audit services for audit clients. This measure could strengthen the auditor's independence, but would result in a loss of additional information about the client resulting from these services. The net effect on exam quality remains unclear. The majority of empirical research shows that it is not the actual quality of the exam that is impaired, but the quality perception of stakeholders. However, these perceptions of quality vary depending on the type of non-examination performance, so that in view of the scientific findings, a general prohibition does not appear necessary.

Against the background of international and national research findings, there is no reason for a general ban on advice, which is in line with the IDW's view mentioned at the beginning. The findings indicate that the provision of non-examination performances does not lead to a reduced actual examination quality.
However, the negative quality perceptions that this triggers are problematic. In this respect, there is a gap in expectations.
There are two basic approaches to closing such an expectation gap:
The defensive approach is about eliminating misperceptions by the public through educational measures. However, the discussion about the compatibility of examination and counseling has been going on for decades and counseling bans are repeatedly brought up for discussion. In this respect, the profession has either failed to inform the public about the lack of negative effects of the simultaneous performance of examination and non-examination services, or this educational work has remained fruitless.
The constructive approach, on the other hand, tries to adapt the standards on which the final audit is based to the expectations of the public. However, this is linked to the problem that the expectations of the stakeholders are heterogeneous, so that the question arises as to which expectations the standard-maker should orientate himself on. It should also be taken into account that empirical research has come to the conclusion that not all non-examination results lead to negative expectations, which speaks against a general ban on counseling. Tax advisory services in particular are often perceived positively. Finally, it should be pointed out that adapting the standards to (in this case incorrect) expectations of the addressees of the test result would have the disadvantage that the potential benefit of a combination of testing and advice in terms of the described knowledge spillovers would be lost.
Finally, it should be noted that the fees for non-audit services shown in the notes to the consolidated financial statements of Wirecard AG for the 2018 financial year amounted to just under 15 percent of the fees for audit services. This proportion is far below the limits that the EU or science regards as an indicator of economic dependency.

Annette G. Koehler (WPg) - On the basis of a survey of audit committee chairmen of German public interest entities, the measures of the so-called audit reform, which has been in effect since June 2016, are analyzed with regard to their benefit-cost effects. The results show that the regulations, which also expand the responsibilities of audit committees, are generally perceived as justified, even if they only partially contribute to the increase in audit quality intended by the legislator. The extent to which a further tightening of these regulations is appropriate in response to the Wirecard scandal must be analyzed in a differentiated manner and cannot be conclusively assessed on the basis of the currently available data. It should be noted, however, that tightening can only make a subordinate contribution to the avoidance of future cases of balance sheet manipulation on a large scale and that these are overrated until there is no more detailed information about possible breaches of professional duty by the auditor in question and about possible violations of official duties by the representatives of the competent authority are present.
The case of Wirecard AG quickly led to the inadequacies of the regulatory framework for ensuring proper financial reporting being the focus of discussions. In view of the scope of the case and the associated, hitherto unimaginable damage for investors, but also for the reputation of Germany as a financial center, this discussion seems more than appropriate.
The assessments of selected measures of the audit reform on the basis of the assessments of the chairmen of the audit committees of German public interest entities confirm, with some restrictions, a positive cost-benefit ratio, whereby the regulatory-related additional work for audit committee chairmen is sometimes considerable.
The audit reform measures described did not have any recognizable limiting effect on Wirecard AG. Against this background, the current call for complete separation of auditing and advice, the limitation of the auditor's mandate (not only for banks and insurance companies) to ten years and the obligation to conduct joint audits must be assessed in a differentiated manner.
The required tightening can only make a subordinate contribution to avoiding future cases of large-scale balance sheet manipulation. This is overrated until there is no more detailed information about possible breaches of professional duty by the auditor in question and about possible violations of official duties by the representatives of the competent authority.

Thomas Straubhaar (WORLD) - Examinations and attestations cost German companies billions. However, it is not just the Wirecard scandal that makes it clear that annual reports and seals of approval are often not even worth the paper on which they are printed. Failure isn't just about fraud, it's more about the principle.

Criminal machinations, cheating and trickery are certainly responsible for the failure of the test procedures in the special case of Wirecard. The fact that Wirecard's business model was innovative and complex may also have played a role. Inevitably, such new transactions lacked examination and supervision, experience and comparison.

What was checked is checked. But it would be useful to see what will happen. In earlier times, a look back may have been helpful for the onward journey. But when the future becomes so different from the past - as it is the case today - nobody can really use a rear-view mirror to determine how liquid, solvent and thus how viable companies will actually be - not even auditors.

We are in the middle of the fastest transformation the global economy has ever experienced. The coronavirus (COVID-19) pandemic has resulted in billions of people not being allowed to work and having to stay at home. Millions of people face unemployment, and governments are working day and night to provide financial and medical support. It's also an incredibly testing time for the functioning of organizations.

Employees at companies around the world are still trying to be productive and perform their jobs from remote locations. Employers are concerned about the health and safety of their staff, but also whether their organizations will survive. In this context, companies must resist the temptation to sacrifice their controls, systems, governance and appropriate culture in adjusting to the new realities of COVID-19.

Fraud risk factors increase at a time of crisis because companies and individuals face more financial pressures, the opportunity for fraud increases if key internal controls weaken, and people find it easier to rationalize their actions.All fraud requires these three elements - opportunity, pressure and rationalization - to be present (known as the Fraud Triangle). COVID-19 offers all three and more.

The pandemic has potentially compromised the ability to undertake effective compliance monitoring, supervision and oversight, creating an opening for criminal and unethical behavior. The danger is that multiple layers of governance processes, previously effective controls and oversight of employee and management conduct are all relaxed - possibly in the name of business continuity. At the same time, the organization’s against integrity culture comes under threat - the end is used to justify the means.


Exchange supervisory authorities are also confronted with the uncertainty caused by the virus and have taken several measures to defuse any problems. The United States' Securities and Exchange Commission (SEC) has announced that it will exonerate listed companies affected by the virus under certain conditions. Affected companies that meet the criteria are given an additional period of 45 days in which to comply with their publication obligations. According to Audit Analytics, 26 companies have already decided to take advantage of this facility.

The European Securities and Markets Authority (ESMA) has recommended, among other things, that issuers should assess the actual and potential effects of the coronavirus on the basis of both a qualitative and a quantitative assessment of their business activities, their financial situation and their economic performance in their annual / Group reports 2019 should present.

The effects of the coronavirus are diverse. In view of the illnesses of many employees and executives, the Financial Reporting Council (FRC) in Great Britain has published guidelines in which, among other things, it is proposed that general meetings be postponed, adjourned or held in a modified form.

It can also be observed that in view of the current uncertainty, many companies have taken measures to stabilize their financial situation. For example, companies forego share buybacks, exhaust their credit lines, cut dividends, reduce investments and even cut executive salaries.


Source: Audit Analytics



The economy has become more complex and vulnerable due to globalization, digitization and networking. Associated with this is an increase in uncertainty and unpredictability. In various contexts, the question arises to what extent the required information can be trusted. Due to their knowledge, auditors are predestined to provide certainty about the process of creation, but also about the information itself. The so-called "assurance services", which include audit, assurance and advisory, aim to increase security and transparency and to guarantee the basis for trust among business entities.

The trust services combine concepts of the digitized data world and artificial and human intelligence. At the same time, the auditor's entire range of services enables the services and obligations of new services to be conveyed more transparently. This is particularly against the background that the demand for such services goes beyond traditional auditing, e.g. by requiring security (assurance) for processes or non-financial information.

Auditing and consulting companies create robust facts and enable responsible decisions and effective implementation.


Contribution by Dr. Marius Klauser, published in the Handelszeitung Spezial zu Wirtschaftsprüfung on February 6, 2020.




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