audit committee

Introduction of Mandatory Audit Committees in Listed Companies

By Imke Reich, nbs partners

In June 2020, the German payment service provider Wirecard AG filed for the opening of insolvency proceedings after its auditor, EY, had refused to certify the 2019 annual financial statements on the basis of EUR 1.9 billion on the balance sheet that could not be verified. Consequently, the company, which had been a member of the German Share Index “DAX 30” since September 2018, had to leave the DAX 30 in August 2020.

Among others, the Supervisory Board of Wirecard was criticised as an advisory and controlling body.

The number of Supervisory Board members (six since June 2018) was relatively small in comparison with Wirecard’s rapid growth. Prior to Wirecard, the members had no experience with management board activities or supervisory board mandates in major companies or groups. One person alone chaired the Board from 2008 to 2020. Moreover, Wirecard had not implemented an Audit Committee until 2019.

Principle 14 of the German Corporate Governance Code (GCGC), which contains principles, recommendations, and suggestions for the management and supervision of German listed companies, recommends the formation of an audit committee, responsible for monitoring the financial reporting process, the effectiveness of the internal control system, risk management and internal audit systems, and compliance, as well as the quality of the audit.

Previously, only quantitative criteria, stock exchange turnover, and market capitalisation have been requirements for admission to the DAX 30. These requirements are to be extended by quality criteria, in particular the obligation to establish an audit committee. In comparison, companies listed on the NYSE are already obliged to establish one. The German stock exchange recently decided all index companies must comply with the recommendations of the GCGC relating to the establishment of an audit committee from March 2021 onwards, so that a case like Wirecard will not be repeated.


Imke Reich

Imke Reich

GGI member firm
nbs partners
Auditing & Accounting, Tax, Law Firm Services
Hamburg, Germany
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nbs partners is a multidisciplinary association of certified public accountants, lawyers, and certified tax advisors with a focus on the audit and advisory of small, mid-size and large entities, as well as international groups and high-net-worth individuals.

Imke Reich, Audit Manager, mainly handles annual and consolidated financial statements audits in accordance with IFRS and HGB. She also carries out audits in accordance with other laws (e.g. WpHG, KWG, VermAnlG). Before she became part of nbs partners in 2017 she worked for KPMG in Munich and Hamburg.


Publsihed: Auditing, Reporting & Compliance Newsletter, No. 05, Spring 2021 l Photo: alfa27 - stock.adobe.com

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