Germany Country Report

Business Opportunities
December 1, 2021

This article is a contribution to the International Accounting Bulletin (IAB) Germany survey by PrimeGlobal member firm RGT Treuhand Revisionsgesellschaft mbH Wirtschaftsprüfungsgesellschaft (RGT), and it was published in IAB's November 2021 newsletter. 

Please read the full article below and reach out to Frank Jockers, Managing Partner at RGT, regarding any questions in relation to the article and doing business in Germany. 

Have there been any significant regulatory developments in Germany over the last 12 months?

Yes, the German government has enacted the Financial Market Integrity Strengthening Act (Finanzmarktintegritätsstärkungsgesetz, “FISG”) with effect of July 1 2021 due to the insolvency of Wirecard AG in 2020. The legislation implements measures to restore and permanently strengthen confidence in the German financial market.

The bill aims at a fundamental reform of the financial statement control procedure for capital market-oriented companies in favor of a procedure that is more strongly influenced by state sovereignty. It is expected that these reforms will have indirect effect on non-market-oriented companies as well.

Up to now, the legality of company financial statements has been checked by way of a two-stage procedure. This procedure has been changed and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”) is entitled to immediately perform its own audit if there are concrete indications of a violation of accounting regulations.

BaFin employees must not trade with certain financial instruments to strengthen the independency of this oversight body.

In addition, sections 331a et seq. HGB (German Commercial Code) provide for adjustments to the law on financial statement offences. According to these amendments, a corporate officer who provides an incorrect affidavit concerning a financial statement and an auditor who issues an incorrect audit certificate each face imprisonment of up to five years (on proposition) or up to two years or a fine (slight negligence). The bill also imposes the release of professional supervision from confidentiality for auditors in cases of public interest, a fine as a professional regulatory measure of up to EUR 1m and the naming of the auditor or auditing firm in the public. Public interest entity (PIE) auditors must now rotate every ten years (previously every 20 years or 24 years (joint audit)) and internal rotation of responsible partners must take place every five years (previously every seven years). For cases of slight negligence, the auditor's liability has been raised: from EUR 4m of listed companies to EUR 16m, from EUR 1m to EUR 4m for non-listed public interest entities (PIE) and from EUR 1m to EUR 1.5m for all other companies.

How would you describe the health of the accounting industry in Germany in terms of customer demand, fee pressure, and staff recruitment and retention?

According to the Lünendonk-list and –study in 2020 of leading accounting and tax firms in Germany, the 25 largest German auditing firms increased in terms of revenue by an average of 6.5 percent in the 2019 financial year, although their performance varied considerably. For example, a 30.5 percent increase in revenue at Warth & Klein Grant Thornton (WKGT) contrasts with a 10.4 percent decline at PKF Fasselt Schlage. Market consolidation also increased in the past fiscal year, with the Big Four firms increasing their German sales by an average of 9.1 percent.

The fee pressure remains high and staff recruitment and retention is key, especially for the medium and small sized accounting and tax firms in Germany.

Are there any services areas where demand has grown over the last 12 months?
Has there been any significant consolidation or merger activity in the accounting profession?

Warth & Klein Grant Thornton grew by 30.5 percent in the past fiscal year 2019. Organic growth contributed around 12 percent to this development. Furthermore, the merger with the Berlin-based accounting firm Trinavis made an important contribution to growth. In addition, the development of sales was positively influenced by full-year effects from the investments in Advisory and Legal.

RSM continues to work its way up and takes eleventh place in the current ranking. In 2019, the Düsseldorf-based accounting firm generated €77.9 million in revenue (+29.0%). The strong growth is partly due to the acquisition of the Frankfurt office of PKF Fasselt Schlage at the beginning of 2019.

What are your expectations for the next 12 months - are there any potentially significant developments in the pipeline?

"Compared to other industrialized countries, the dominance of the Big Four is not as pronounced in Germany," says Hossenfelder. "This is due on the one hand to the economic structure with its strong German small and medium sized companies, and on the other hand to professional, ambitious accounting firms that are set up nationwide or regionally, belong to an international network or have their own foreign subsidiaries."