Annual financial statement audits in accordance with the KAGB

The KAGB - in conjunction with the KARBV and KAPrüfbV, which specify accounting and auditing requirements - specifies considerably more stringent statutory annual financial statement audit requirements for asset management companies in comparison to those, for example, that used to be applicable for so-called “emission houses”. These vary as follows, for example, depending on the size of the asset management company:

• The statutory auditor is required to report additionally on the extent to which the asset management company has complied with general and specific legal and contractual provisions (e.g. conduct and organizational obligations, obligations deriving from money laundering legislation, notification and reporting requirements, etc.)
• The KAPrüfbV requires the statutory auditor to assess the manner in which the liquidity management system operates. In this context, the auditor is required to take into account and evaluate stress tests - thereby critically assessing the scenarios used.
• The HGB regulations that are applicable to large-sized corporate entities are to be applied irrespective of the actual size and legal form of the asset management company.

We already carried out annual financial statement audits for asset management companies for the 2013 reporting period and, thus, we are one of the very few audit firms that were active in this sector from the first year in which the KAGB came into effect; we have consequently gained related experience in this field. Our risk-oriented audit approach is aligned to the individual requirements of our clients. In addition, we offer, amongst other advantages, comprehensive industry sector experience, as well as a cross-discipline advisory and audit approach, which provides for the involvement of our legal and taxation experts in order to find solutions for problematical issues.

Performance of internal audit functions for an asset management company

Amongst other requirements, pursuant to Section 28 (1) No. 7 of the KAGB, asset management companies are required, within the context of a proper business organization, to install both an appropriate risk management system and reasonable control procedures. In addition to the internal control system (“ICS”), these procedures include, as a rule, establishing and maintaining an internal audit function, which is independent of the other functions and activities carried out by the asset management company. This internal audit function particularly has the duty to audit and evaluate the adequacy and effectiveness of the asset management company’s systems, internal control mechanisms and precautionary measures and to make related recommendations based on the results of its activities.

If an internal solution is not possible, does not appear to be expedient, or if any possibility of conflicts of interests is to be excluded, then such internal audit functions may be carried out by ourselves as an external audit firm. In general, our audit activities cover all activities and processes of the asset management company on the basis of a risk-oriented audit approach. Our activities are aligned to the standards issued by the German Institute of Internal Auditors (Deutsches Institut für Interne Revision e.V.).

Audit of the internal control system of a company providing outsourcing services in accordance with Section 36 of the KAGB

Pursuant to Section 36 of the KAGB, asset management companies are required at all times to be able to monitor effectively any tasks that are carried out by companies providing outsourcing services. In addition, the outsourced services performed by these companies are to be continually monitored.

In this connection, we particularly audit the effectiveness of the internal control system of the company providing outsourcing services to verify whether the outsourced services have been correctly and completely carried out and to verify compliance with the terms of the outsourcing agreement. Our audit activities fulfil the requirements that are demanded from the internal audit function of an asset management company, so that our audit results can be passed on to the internal audit function of the asset management company. This function can then waive performance of its own corresponding audit procedures.

Audit in accordance with Section 24 of the German Financial Investment Intermediaries Directive (Finanzanlagenvermittlerverordnung  or FinVermV)

From 1 January 2013 onwards, in the case that an asset management company - or a provider of investment opportunities or another trader - acts, for example, as an intermediary to sell shares in investment funds or investment products, it has been necessary to obtain a licence for this purpose. It is also necessary to register as an intermediary for financial investment services in accordance with Section 34f of the German Trade Regulation Act (Gewerbeordnung or GeWo). In addition, there is a statutory audit requirement, pursuant to Section 24 (1), Clause 1 of the FinVermV, whereby the related annual audit report is to be submitted to the responsible supervisory body at the latest by 31 December of the following year.

We conduct such audits on your behalf by complying with IDW auditing standard 840: “Audit of Financial Investment Intermediaries, within the meaning of Section 34f (1), Clause 1 of the GewO”. We take an advisory audit approach for this purpose and are thus able to provide you with support for the implementation of the supervisory body requirements and provide advice to avoid any liability risks that can derive from potentially inadequate documentation of investment intermediary activities and investment advisory services.

Audit of investment performance records and reports

Many asset management companies and providers of asset investments prepare investment performance records or performance reports, particularly to provide an illustration to interested investors of the investment funds that they have offered and managed, and thus demonstrate their past performance.

Particularly in the case of companies that have been active on a long-term basis, such performance records are based, as a rule, on a comprehensive set of data that has been put together by various different employees; in such cases, despite taking the utmost care, it is very difficult to exclude the possibility of errors. In addition, there may be a preference to comply with certain specific standards, such as those covered by the so-called “bsi performance report” issued by the bsi Bundesverband Sachwerte und Investmentvermögen [German Federal Association for Property and Investment Assets].

Within the context of our audit of performance records, in a process that already accompanies the preparation of the data, we check all the figures contained the performance records for mathematical accuracy and their correct derivation from the source documentation, as well as compliance with any applicable standards. Our audit attestation can then be included with the performance records and thus offers significant security both to our client and, for example, to interested investors as regards the correct presentation of data.