Since June 2016, the rules of the EU auditor reform have been mandatory. This also includes the rules on the external rotation of the auditor of public interest entities (PIEs) and the legal obligation to conduct a selection process. Experience from around 700 tenders is now available - especially from so-called short runners and long runners. What trends could be observed? What was decisive for selection processes to be satisfactory from the perspective of the supervisory board and the company?
Important aspects of the EU audit reform that directly or indirectly influence the selection or tendering process:
- Selection process is the responsibility of the audit committee or supervisory board;
- Monitoring of compliance with the rules on internal and external rotation;
- Non-discriminatory invitation to tender to any auditor;
- Content requirement for tender documents;
- Transparent evaluation of auditors applying on the basis of selection criteria;
- Preparation of a report on the entire selection process, which must be disclosed to the competent authority upon request.
- Reasoned selection recommendation by the audit committee to the supervisory board, with two proposals and preference for one election proposal;
- Supervisory board must justify any deviation from the audit committee's election recommendation;
- Supervisory board proposes an audit firm to the general meeting for election.
Senior Manager, Audit
KPMG AG Wirtschaftsprüfungsgesellschaft
The public interest entity (PIE) is free to design the selection process as long as it is ensured that explicit requirements for the process are followed:
Chart (in German only)
Die Gesamtverantwortung für das Auswahlverfahren liegt beim Prüfungsausschuss bzw. Aufsichtsrat. Sie kann nicht an Dritte weitergegeben werden. Wir können Sie, in der Ausübung Ihrer Verantwortung, auf verschiedenste Art und Weise unterstützen:
KPMG supports them in the tendering process. The extent of the support can be determined individually and depends in particular on the human resources of the PIE:
- KPMG advises the PMO set up by the PIE on setting up the process. Experience from other selection processes is brought to bear in workshops. Documents that still need to be adapted by the PMO are made available.
- KPMG works out company-specific details of the process together with the PMO. KPMG supports the PMO in the preparation of the selection process and its operational implementation.
- KPMG assumes the role of the PMO. Communication between KPMG and the audit committee/supervisory board and the board of directors takes place via a contact person named by the PIE. Preparation and operational implementation are the responsibility of KPMG. Responsibility for the selection process must lie with the audit committee or supervisory board.
The overall responsibility for the selection process lies with the audit committee or supervisory board. It cannot be passed on to third parties. We can support you in the exercise of your responsibility in a variety of ways:
The selection processes of recent months have shown that it is crucial for an efficient and smooth process that issues are addressed at an early stage and solutions to them are developed, which the audit committee releases for further work:
Can the company provide sufficient resources to support the audit committee in the selection process or should the established project group (PMO) be relieved by an external consultant? Departments that are directly or indirectly affected by the selection of the auditor should be involved in the process at an early stage: here, financial statement issues such as deferred taxes, but also issues related to the independence of the auditor are conceivable. The EU rules on tendering refer exclusively to the audit of the PIE. What else should the tender cover, the audit of subsidiaries in Germany and abroad, other assurance services or the like? The timing of the tender and its organisation requires precise planning of all detailed steps in consultation with all parties involved. Selection criteria and their evaluation system should be discussed with all stakeholders and finally approved by the board. How many rounds should the selection process comprise? What are the requirements to be shortlisted for the next round. Once the key points have been defined, they must be incorporated into the tender documents. The documents to be prepared also include internal working papers, such as a questionnaire for the personal presentation on site, prepared resolutions and the preparation of the report on the handling of the tender process.
Our added value
- We have a detailed understanding of the newly introduced rules on the selection process. How can I customise the selection process to comply with EU regulations?
- We have gained a lot of experience in advising you on how to set up and run the tendering process in the past. We are happy to share these best practices with you - anonymously, of course.
- We provide an insight from the "other side" of the tendering process and share our experiences with you as participants in a tender.
- We show ways how the selection processes in corporate groups, in whose group structure there are several public interest entities in different EU countries, can be designed in interaction.
- We relieve the burden on your resources because - with you and for you - we advise, support or even carry out most of the selection process.
- We work efficiently because we have gained experience of what matters in a large number of selection processes.
- We are flexible, we know the regulations on the selection process, your ideas and wishes give us the framework for the design of the process while respecting the regulations.