The FISG as a panacea against accounting scandals?
It goes without saying that it is difficult to critically examine what one has previously helped to create. The famous Sarbanes-Oxley Act expressed nothing else as early as 2002, when the U.S. Senate and House of Representatives, in response to accounting scandals involving companies such as Enron or WorldCom, also legally regulated the incompatibility of auditing and consulting. In Germany, a similar principle already existed prior to the FISG in Section 319 (1). 3 HGB. The FISG now merely specifies this by means of an explicit blacklist of services that are prohibited for auditors of public interest entities (PIEs). However, globally active auditing firms in particular have already taken this to heart and implemented it in the past.
It is true that the principle of “a new broom sweeps clean” also applies in the area of annual audits. However, this is particularly double-edged in the case of the group of public interest entities to be audited in the context of the FISG. So you can only audit companies responsibly if you understand them through and through. This often requires a degree of specialization and expertise that is not easy to find in the market. The principle that “everyone is replaceable” does not apply here. If the FISG now requires a maximum limit of ten years for external rotation with regard to audits of PIEs and a maximum of five years for internal rotation at the audit firm, this will have a significant impact on the audit market in Germany. In many cases, the same auditor has been working for companies listed on the German capital market for well over ten years.
First of all, the question arises as to what purpose the FISG actually pursues and how this changes the legal situation in Germany. In Section 323 of the German Commercial Code (HGB), the legislator has formulated a clear message to the effect that the audit opinion of an auditing company is there exclusively for the company to be audited and does not grant any third-party protection. The FISG has not changed this situation. Third parties, namely the capital market, do not receive any direct claims against the auditor. If — as in many accounting scandals — the auditor was just as much the victim of criminal machinations as the capital market, the FISG does not provide for any direct claims by the share purchasers against the auditor.
Real changes have only taken place in the legal relationship between the company being audited and the auditor. Here, the liability amounts were increased or caps were abolished altogether. However, many voices, including those from the Bundesrat, fear that the legal changes will lead to a further concentration of the market in favor of the already powerful participants, who are in a position to bear such liability risks and to maintain appropriate liability insurance cover.
It would also have been possible to set upper liability limits in a certain ratio to the balance sheet total of the company to be audited; a maximum liability limit depending on the financial ratios of the audit firm itself would also have been possible. From the perspective of liability insurers, quantifying the increase in risk due to the FISG in any case represents a particular calculatory challenge; an increase in premium adjusted to the increased risk will be the inevitable consequence. Whether the tightening of liability through the FISG will help to avoid scandal cases, on the other hand, can only be judged in the course of decades.