X - European Parliament

Report
Public Hearing: Improving audit quality across the European Union
Brussels, 27.03.2012
„Enhancing the role of the audit committee and the
chair of the audit committee“
Theo Siegert
Deutsche Bank AG
– Member audit committee
Henkel AG & Co. KGaA
– Member audit committee
E.ON AG
– Chair audit committee
Merck KGaA
– Chair audit committee
Theo Siegert
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
1
Agenda
Public Hearing: Improving audit quality across the European Union
1. The problem to be addressed
The origin
2. How does an Audit Committee (AC) work ?
Typical time table
3. What is the content of an AC work ?
Typical rolling agenda
4. The DAX 30 audit chair recommendations
5. Conclusion
Theo Siegert
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
2
1. The problem to be addressed:
The financial crisis:
The origin
Long list of the culprits:
•
•
•
Central banks
Housing agencies
Governments
•
•
•
The financial system
Mortgage backed securities
Greedy bankers
(loose money)
(loose underwriting standards)
(encouragement of house-ownership
beyond means)
(de-regulation)
(slicing / intransparent risk-ownership)
(inadequate incentive systems)
•
Corporate Governance
(in general)
Subsegment: auditing standards/
expectation gap
Improving audit quality
The market for „credence goods“:
„trust goods“
•
High reputational capital at risk
Market concentration:
Theo Siegert
Rating agencies
Hospitals (high frequency surgery)
Quality assurance companies
Auditors
Brand recognition (the winner takes it all)
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
3
1. The problem to be addressed : improving audit quality
•
Auditors should work closer with AC (“muppets of management ?”)
•
AC: Conduction of the auditor – appointment process
Tendering process vs. enforced rotation
•
Authorization of non-audit work by AC
10% threshold too low
(Quarterly audits are considered in the non-audit services category)
How does an AC actually work ?
Theo Siegert
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
4
2. How does an AC work ? : Typical time table
(Auditors & AC : muppets of management) ?
Quarter I
Checking Calls
Month
Chairman of
the
Supervisory
Board
Chairman
of the AC
AC
Auditor
December
January
X
X
Preparation of ACMeeting
January
X
X
Setting the Agenda
March
X
X
- Independence
declaration auditor
- Proposal to AGM :
auditor selection
- Authorization of
auditor’s Budget
March
AC – Meeting
March
Supervisory Board
Meeting
March
AGM:
- Appointment of
the auditor
April
Mai
X
X
Chief
Executive
Officer
Chief
Financial
Officer
Supervisory
board
Shareholders
AGM
X
X
X
X
X
X
X
X
X
X
X
X
X
Theo Siegert
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
5
3. How does an AC work ? : Typical rolling agenda
Issue
February/
March
Year-end
Financial Reporting
Annual
General
Meeting
May
August
November
X
QI
X
Q II
X
Q III
X
Q IV
Quarterly
Financial Reporting
Auditors Independence Review
X
Proposal for the
Appointment of auditors
X
Risk Management
X
X
X
X
Internal Audit
X
X
X
X
Internal Control Systems (IKS)
X
X
X
X
Legal / Compliance
X
X
X
X
Tax / Insurance
X
X
X
etc. misc.
Theo Siegert
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
6
4. The DAX 30 audit chair recommendations (I)
“Enhancing the role of the AC”
1. Strengthening the relationship between audit committee and statutory auditor
to increase the independence of the auditor
2. Preference of tendering the audit engagement on a regular basis
(instead of a general limitation of the duration of the audit engagement)
3. Do not limit the authority of the AC to only 10% provision of non-audit-services
Theo Siegert
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
7
4. The DAX 30 audit chair recommendations (II)
Regulation of the European Parliament and
of the Council
Appraisement of the DAX 30
audit committee chairman
Art. 32, 2: The audit committee shall submit a
recommendation to the administrative or supervisory
board of the audited entity for the appointment of
statutory auditors or audit firms. The audit committee
shall justify the recommendation made.
Art. 9, 2: When the statutory auditor or audit firm
provides to the audited entity related financial audit
services, as referred to in Article 10 (2), the fees for
such services shall be limited to no more than 10 % of
the fees paid by the audited entity for the statutory
audit.
Theo Siegert
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
8
4. The DAX 30 audit chair recommendations (III)
Regulation of the European Parliament and
of the Council
Appraisement of the DAX 30
audit committee chairman
Art. 10, 3: A statutory auditor or an audit firm carrying
out statutory audit of public-interest entities shall not
directly or indirectly provide to the audited entity, to
its parent undertaking and to its controlled undertakings non-audit services.
Art. 10, 3 b) i) – ii): Services which may entail conflict
of interest: (i) human resources services, including
recrui-ting senior management; (ii) providing comfort
letters for investors in the context of the issuance of an
un-dertaking's securities;
By derogation from the first and second subparagraphs, the services mentioned in point (b)(i) and (ii)
may be provided by the statutory auditor or the audit
firm, subject to prior approval by the audit committee
as referred to in Article 31 of this Regulation.
Art. 33, 1: The public-interest entity shall appoint a
statutory auditor or audit firm for an initial engagement that shall not be shorter than two years. […] The
maximum duration of the combined two engagements
shall not exceed 6 years.
Theo Siegert
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
9
4. The DAX 30 audit chair recommendations (IV)
Regulation of the European Parliament and
of the Council
Appraisement of the DAX 30
audit committee chairman
Art. 33, 1: Where throughout a continuous engagement of 6 years two statutory auditors or audit firms
have been appointed, the maximum duration of the
engagement of each statutory auditor or audit firm
shall not exceed 9 years.
Art. 20: Use of international standards on auditing
Art. 31, 1: Each public-interest entity shall have an
audit committee. The audit committee shall be composed of non-executive members of the administrative body and/or members of the supervisory body
of the audited entity and/or members appointed by
the general meeting of shareholders of the audited
entity or, for entities without shareholders, by an
equivalent body. At least one member of the audit
committee shall have competence in auditing and
another member in accounting and/or auditing. The
committee members as a whole shall have competence relevant to the sector in which the audited entity
is operating.
Theo Siegert
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
10
5. Conclusion
Enhancing the quality and independence of the auditing process
1. The DAX 30 audit chair recommendations : enhance the role of the AC
2. Reducing the expectation gap:
strengthen the EU-quality review for auditors
3. Professional scepticism and regulation
Regulations
& unintended consequences
Missions achieved:
Turgot & the potatoes
Bidding process
&
Professional scepticism
US Military : The Quality advice
Theo Siegert
– de Haen-Carstanjen & Söhne, Düsseldorf HR A1
E-Mail: [email protected]
11

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