International Developments in Accounting and Auditing - Challenges for the Profession - Georg Lanfermann Partner Department of Professional Practice Audit KPMG Berlin, Germany REPARIS Workshop – 15 March 2006

2 Table of content 1.A new era in the regulation of statutory auditing 2.What is the impact of the new audit regulations on the audit firms? 3.Extraterritoriality of national audit regulation 4.Example for a burdensome regulatory technique with extraterritorial impact 5.Conclusions

3 A new era in the regulation of statutory auditing (1/2) In the aftermath of Enron, Worldcom, Ahold and Parmalat new legislation has emerged around the globe: USA (Sarbanes-Oxley Act) France Germany UK Netherlands Italy Japan Switzerland etc. new EU Audit Directive

4 A new era in the regulation of statutory auditing (2/2) In order to address the loss of confidence in the statutory audit function all these legislative measures are focussing on a range of topics including: End of self-regulation of the audit profession Establishment of public oversight systems that are independent from the profession and deal with registration, investigation, sanctioning quality assurance standard setting Stricter principles / rules regarding auditor independence Networks of audit firms become subject to audit regulation (transparency; independence)

5 What is the impact of the new audit regulations on the audit firms? Audit firms recognise the need for change (tone at the top) Degree of actual change depends on the clients they serve (listed / international or local) Those who serve listed / international clients Impacts: additional resources to follow requirements (administrative procedures, documentation) increased transparency more emphasis on quality control / assurance and fraud restrictions in the scope of services to audit clients Severe problem: EXTRATERRITORIALITY OF NATIONAL AUDIT REGULATIONS Those who serve local clients Impacts: rather minor

6 Extraterritoriality of national audit regulation Extraterritoriality may occur in the audit of companies listed abroad group audits Basic principles of the new EU Audit Directive (Art. 33) Member states shall respect home country control (par. 1) For group audits: no additional requirements (par. 2)

7 Example for a burdensome regulatory technique with extraterritorial impact Practical impact: KPMG Germany (and network) audits a German blue chip company with subsidiaries in 200 countries; if all national audit regulators would use the same regulatory technique, KPMG Germany needed to additionally observe 200 different independence rules for the audit of the German parent company Audit firm (D) Audit firm (F) Parent (D) Subsidiary (F) Network Group * * Interference by national regulator (F) * Auditor independence (France, Italy):

8 Conclusions Moratorium on extraterritorial audit regulation is urgently needed Internationally consistent principles / rules should prevail Alternative: administrative overkill for networks of audit firms engaged in transnational audits

9 Presenters contact details: Georg Lanfermann KPMG +49 (30) Die enthaltenen Informationen sind allgemeiner Natur und nicht auf die spezielle Situation einer Einzelperson oder einer juristischen Person ausgerichtet. Obwohl wir uns bemühen, zuverlässige und aktuelle Informationen zu liefern, können wir nicht garantieren, dass diese Informationen so zutreffend sind wie zum Zeitpunkt ihres Eingangs oder dass sie auch in Zukunft so zutreffend sein werden. Niemand sollte auf Grund dieser Informationen handeln ohne geeigneten fachlichen Rat und ohne gründliche Analyse der betreffenden Situation. © 2004 KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, deutsches Mitgliedsunternehmen von KPMG International, einer Genossenschaft schweizerischen Rechts. Alle Rechte vorbehalten. KPMG und das KPMG-Logo sind eingetragene Markenzeichen von KPMG International.