Delayed or denied audit opinion - The beginning of a downward spiral


Delayed or denied audit opinion - The beginning of a downward spiral

  • 14 September 2023
  • Author: FinHub
  • Number of views: 634
Delayed or denied audit opinion - The beginning of a downward spiral

Role of an auditor

Auditors are publicly appointed and have the professional task of carrying out business audits and issuing audit opinions on the performance and result of such audits, in particular audits of annual financial statements of economic enterprises. This is regulated in Section 2 (1) of the Act on the Professional Code of Conduct for Auditors. Furthermore, there is the legal obligation for companies to have their business figures certified by an auditor - the so-called auditor's certificate.

Since the Wirecard case, auditors have been subjected to increased criticism. At that time, it was criticized that proof of trust funds in Asia was not demanded and sufficiently verified. Auditors, on the other hand, replied that, unlike tax investigators or prosecutors, they were dependent on the cooperation of the audited company, and that incorrect or incomplete information was difficult to verify. The most recent example of the explosive nature of a refusal to issue an attestation is the troubled real estate investor Adler, for which the audited balance sheet is urgently required as a prerequisite for the billion-dollar loans that the company has taken out.

Auditors have a wealth of experience. In most cases, standardized and proven information request lists are used. In particular, reports from external consultants or lawyers are used to make the information base as solid as possible.


Late or denied attestation: the beginning of a downward spiral

Many stakeholders request up-to-date annual financial statements. For banks or insurance companies, audited annual financial statements are an essential prerequisite for lending or entering into a contract. If a company is denied an audit opinion for the annual financial statements, the need for action quickly arises or a downward spiral begins. Such a result of the audit of the annual financial statements means it was not possible for the auditor to issue a positive overall statement about the annual financial statements and the management report to be audited, since significant deficiencies and objections to the legality and regularity of the annual financial statements and the accounting were found by the auditor.


"A denied attestation" does not immediately mean "uneconomical"

It is possible for an economically sound and future-proof company to receive a qualified audit opinion or, in the worst case, even an adverse or a disclaimer of opinion due to deficiencies in the annual financial statements or accounts, while on the other hand a company showing financial uncertainties receives an unqualified audit opinion. Contrary to popular belief, refusing to certify is not the same as saying that a company is uneconomical or unviable, but the loss of confidence damages its reputation with lenders and regulators. Particularly for companies that are under the supervision of BaFin, the audited annual financial statements are a basic requirement for the continuation of business operations.

The reason for a possible better rating of an economically weak company is that the board of directors or the management have adhered to the rules of the process and have also reported "difficult" topics in full and of their own free will to the auditors.


Grounds for refusal of attestation

An attestation is not denied lightly. A refusal is one of four "grades" of the audit opinion that an auditor can choose as a result.

These are:

• unqualified audit opinion,

• qualified auditor's opinion,

• adverse opinion due to objections,

• disclaimer opinion due to examination obstacles,

However, if unpleasant topics are concealed, this inevitably awakens the skepticism of auditors. Such topics can, for example, refer to facts that have a criminal relevance and possibly leave (executive) employees in a worse light than the management wants or can admit. Another example is the possibility of allegations of corruption circulating in a company and no real clarification and investigation having taken place.


Declaration of completeness and liability of auditors

With regard to the liability of auditors who, for example, certify incorrect balance sheets in the course of a statutory audit, their liability is limited by Section 323 (1) of the German Commercial Code (HGB) to liability towards the corporation audited and a group company affiliated with it. If the audit is not (also) carried out in the interest of specific individual investors, the shareholders can only consider tort liability. If an auditor intentionally or negligently violates one of the legal interests mentioned in Section 823 (1) of the German Civil Code (BGB), such auditor is generally obliged to compensate for the causal damage. As a rule, at the end of an audit, auditors require a declaration of completeness from the company audited. The declaration of completeness is not a substitute for audit procedures, but should be seen as a supplement to them. It is an assurance by the audited entity that the annual financial statements contain all assets, provisions and liabilities and that the information and evidence provided to the auditor is complete. If completeness is confirmed intentionally, i.e. against better knowledge, such confirmation inevitably has criminal consequences for those responsible and the courts have to examine whether and to what extent the auditor was in a position to rely on the completeness check.


Transparency and cooperation are the be-all and end-all

Negative examples such as Wirecard and Adler must be taken seriously by decision-makers and auditors alike. If auditors have to laboriously obtain the information on questionable facts or determine them independently, they quickly become skeptical and ask "cui bono" – who benefits and thus has an advantage of cover-ups and concealing facts.

If an auditor’s concerns are serious and inquiries remain unanswered or documents are not submitted, a refusal will inevitably be the result. If no other auditing firm can be found at the first attempt to issue the desired certificate, one will be appointed through the court. This merely buys time for those responsible. In particular, a court-appointed auditor will not issue a courtesy attestation. As a rule, the refusal of an attestation will lead to criminal consequences for those responsible and can, if the owners of such company do not inject new capital, lead to insolvency. If annual financial statements are not audited on time, banks can make their loans due and a further irreversible escalation in the downward spiral takes its course, in view of drastically reduced chances of debt restructuring.

Benjamin Hasan is a Board-certified specialist lawyer for banking law and capital markets law and partner in the Frankfurt office of international law firm Michael Kyprianou. In his more than ten years of experience as a lawyer, he looks back on and draws from his experience as Chief Compliance Officer and member of the supervisory boards of various banks.

The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Benjamin Hasan, Partner at the Frankfurt office, via telephone at +49 69 247 428 444 or by email at

Author: Benjamin Hasan, Partner at the Frankfurt office | T:+ 49 69 247 428 444 | E:


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