Which companies is BaFin currently examining and what are your enforcement priorities for the examinations?

Becker: BaFin's financial reporting enforcement covers all publicly traded companies. Put simply, these are the companies whose shares and bonds are traded on the regulated market. They are almost 500 companies in total, from DAX heavyweights to smaller companies that have just gone public, and they are all subject to the same rule: if you want to take advantage of the capital market, you have to provide prospective and current investors with sufficient, accurate information about your company.

Schierhorn: The enforcement priorities in our examinations can vary significantly. If necessary, we also scrutinise companies with a focus on highly individual aspects. Our financial reporting enforcement work is fundamentally risk-oriented, so we take a very close look at what we consider to be critical topics. Our work is also guided by general enforcement priorities, which usually apply for one year. These enforcement priorities might address trends or irregularities from previous examinations. Some are defined by the European Securities and Markets Authority (ESMA) and apply throughout Europe. Other enforcement priorities pertain only to the German market. These are set by BaFin. For 2025, for example, we have decided to focus on the recoverability of financial and non-financial assets.

What options and tools are at your disposal during an examination?

Becker: Firstly, the German Act to Strengthen Financial Market Integrity (Finanzmarktintegritätsstärkungsgesetz – FISG) allows us to ensure greater transparency than before. The law has been in force since the beginning of 2022. In our everyday work, we differentiate between random sampling examinations and ad hoc examinations. We order ad hoc examinations if we have concrete evidence that a company has violated the accounting requirements. And we also publish these orders, because we want to inform the capital market when we have reason to take a closer look at certain companies’ reporting. In addition, we announce when we find significant accounting errors in all of our examinations.

With the FISG, lawmakers also expanded our toolbox with some pretty sharp implements. In addition to administrative measures such as requests for information, we can now also order interrogations, searches and seizures.

Schierhorn: We also work closely with the Auditor Oversight Body (AOB). And if a criminal offence is suspected, we of course contact the competent public prosecutor's office to coordinate the next steps.

Ralf Becker, Director-General of BaFin’s Financial Reporting Enforcement Directorate, and Regina Schierhorn, a head of division in Financial Reporting Enforcement © BaFin

Why do you publish announcements regarding examination orders and error findings?

Becker: Our main concern is the integrity of the capital market, which is a vital asset. With our announcements, we aim to create transparency and strengthen confidence in the capital market. Examination procedures are sometimes quite lengthy. Lawmakers did not want capital market participants to be informed of such procedures only once they have concluded. The market should know right away when we order ad hoc examinations. One aspect is important here: when we publish an examination order, this does not mean that we have already found accounting errors or that we expect to find accounting errors. The law also calls for the market to be informed of important interim steps. Our publications can resonate in the media, influence investment decisions and, of course, cause share prices to fluctuate. The market is thus able to price in the information.

What are some typical errors that you uncover in examinations?

Schierhorn: We often encounter incorrect valuations of financial and non-financial assets such as land, investments or goodwill – intangible assets obtained through the acquisition of other companies, for example. We also frequently see errors in connection with revenue realisation or cash flows that are incorrectly allocated in the cash flow statement. We find them time and again in management reports as well, for example in the presentation of business performance or in the risk reports and forecasts.

Starting next year, you will also be reviewing companies' sustainability reporting in accordance with the EU Corporate Sustainability Reporting Directive (CSRD). Where do you see the biggest hurdles in this area?

Becker: There is no blueprint for a project of this size and complexity. Conventional financial reporting has evolved over decades. We are now facing an additional set of rules with a similar scope and complexity.

Sustainability reporting has a massive impact on the actions of companies, auditing firms and supervisory authorities. Many companies have been sorting through the highly complex requirements for months. In doing so, they have to deal with many undefined legal terms – just like us. With this in mind, we want to avoid conducting comprehensive examinations with a heavy hand right off the bat. However, we will certainly be using every tool at our disposal with regard to the new regulations from day one if we realise that a company is trying to pull the wool over our eyes.