Consistency and realism required

The supervisory authorities ESMA and BaFin have defined their audit priorities for the 2025 reporting period. These also provide the supervisory board with guidance on what to look out for when auditing the financial statements. The common thread running through all audit priorities is that a consistent, transparent, and realistic presentation of how the current upheavals are affecting companies is expected in all parts of corporate reporting.

In its enforcement review of capital market-oriented companies, the German BaFin takes into account the audit priorities of the European supervisory authority ESMA. With regard to financial reporting, ESMA focuses in particular on segment reporting and the effects of geopolitical risks and uncertainties.

It will be examined whether the business segments presented still reflect the actual internal control structure in view of shifts in the global trade structure. Another focus will be the implementation of the IFRS IC decision of 2024, which requires the disclosure of significant income and expense items in segment reporting. At the same time, a transparent analysis of the financial impact of wars, trade conflicts, and supply chain disruptions is expected across the entire financial reporting process, for example with regard to the recoverability of assets, liquidity risks, or compliance with credit requirements.

In addition to the European requirements, BaFin places a national focus on management reporting. The authority warns against typical sources of error such as overly optimistic forecasts, an insufficient data basis, or inconsistencies between internal control and external reporting. A balanced presentation is expected that does not conceal negative developments.

With regard to the control variables in forecast reporting, BaFin's view goes beyond the requirements of the relevant DRSC standard. While the auditing profession and the specialist literature are of the opinion that, according to DRS 20, only the performance indicators that are most significant from the management's point of view should be forecast in the forecast report, BaFin appears to take the view that it may also be necessary to extend the scope of the forecast to include other relevant situations if these are not covered by the identified most significant performance indicators. However, it leaves open the question of when this is necessary. Discussions on this topic are still ongoing, so it remains to be seen what BaFin's final position will be. Such a requirement could result in significant additional expenses for companies in the short term. The Technical Committee on Corporate Reporting of the Institute of Public Auditors in Germany has spoken out clearly against such an expansion of forecast reporting. The DRSC has not yet made a public statement on this matter.

Sustainability reporting is not yet the subject of enforcement proceedings in Germany. Nevertheless, ESMA's focus on materiality analysis in accordance with the new European Sustainability Reporting Standards (ESRS) is of interest to companies that already report in accordance with CSRD requirements or are preparing to do so. The supervisory authority expects companies to explain in a comprehensible manner how they have identified the sustainability issues relevant to them.

Finally, technical diligence in digital reporting in ESEF format is also addressed. Due to frequently identified errors in the digital tagging of cash flow statements, particular attention is paid to this area.