What does a risk report mean
The management report embodies a legally and functionally independent accounting instrument of the annual mandatory disclosure of companies in addition to the annual financial statements. It explains the annual financial statements and supplements them with information of a general nature on the course of business, including the business results and the position of the company. It must contain a balanced and comprehensive analysis of the course of business and the situation of the company in accordance with the scope and complexity of the business activity. The management report is primarily characterized by its prognostic orientation. In addition to this information function, the management report also has an accountability function. According to this, the board of directors or the management have to summarize the asset, financial and earnings situation to the overall economic position of the company in the management report and to show how they assess the position and development of the company in comparison to the overall market and its immediate economic environment.
In principle, the legal representatives of corporations, companies, cooperatives, credit institutions and insurance companies that are subject to accounting under the Disclosure Act have to prepare a management report. Small corporations and commercial partnerships subject to disclosure requirements, as well as sole traders, are exempt from this obligation. With the entry into force of the KapCoRiLiG, the provisions for corporations also apply to commercial partnerships (OHG, KG) in which at least one personally liable partner is not directly or indirectly a natural person (Section 264a HGB). Regardless of a legal obligation, it is always possible to prepare a management report on a voluntary basis.
Content and scope
According to § 289 I and III HGB, the course of business including the business results and the position of the corporation are to be presented in the management report in such a way that a picture that reflects the actual circumstances is conveyed. An analysis of the course of business and the situation including the most important financial performance indicators for the business activity (and possibly non-financial performance indicators for corporations within the meaning of Section 267 III HGB) must be carried out (economic report). In this context, the likely development with its opportunities and risks must be assessed and explained. At this point it should be mentioned that the legislature provides for a joint report for this. The announcement of the DRSC on management reporting (DRS 15 “Management reporting”), on the other hand, is divided into a risk report and a forecast report. In the reporting on the course of business, the company management must explain how the company has developed during the reporting period and what causes contributed to this development. The statements on the course of business are therefore time-related and past-oriented. In contrast, the obligation to report on the company's situation is dynamic. Accordingly, the statements on this must also contain future-related information. The legislature specifies further parts of the report in Section 289 II of the German Commercial Code (HGB). Accordingly, the management report should contain a supplementary report in which events of particular importance that occurred after the end of the financial year are dealt with. Further components are the risk report on financial instruments, the research and development report, the branch report, and the remuneration report, which contains the main features of the company's remuneration system for the total remuneration specified in Section 285 No. 9 of the German Commercial Code (HGB), insofar as it is a listed stock corporation.
In addition, stock corporations and limited partnerships based on shares that use an organized market within the meaning of Section 2 VII WpÜG through shares with voting rights issued by them must present takeover matters in a report section in the management report in accordance with Section 289 IV HGB. The BilMoG added further components to the management report. Capital market-oriented companies now have to describe the main features of the internal control and risk management system with regard to the accounting process (Section 289 V HGB). As a result of the newly introduced Section 289a of the German Commercial Code (HGB), listed stock corporations have to include a corporate governance declaration in their management report, which forms a separate section there. Alternatively, the declaration can also be made publicly available on the company's website. The declaration on corporate governance must include 1. the declaration in accordance with Section 161 of the German Stock Corporation Act; 2. Relevant information on corporate governance practices that are applied beyond the legal requirements, together with a reference to where they are publicly available; 3. a description of the working methods of the board of directors and the supervisory board as well as the composition and working methods of their committees.
The content and design of the management report are specified in the statements of the DRSC (DRS 15 “Management Report”, DRS 15a “Information under Takeover Law and Explanations in the Group Management Report”, DRS 5 “Risk Reporting”, DRS 16 “Interim Report” and DRS 17 “Reporting on the remuneration of board members "). With the announcement of the DRS in the Federal Gazette, it is assumed that the DRS are to be assigned to the principles of proper group accounting; its application to the management report is recommended. Due to the vague legal terms of the statutory provisions, the principles of proper management reporting were developed in the literature; these are now partially contained in DRS 15. For example, the principle of completeness requires that the management report contain all information that is necessary for an overall assessment of the course of business, including business results and the economic situation, including future developments and their opportunities and risks. Both the individual information in the management report and the entire management report must match reality (principle of reliability). Furthermore, all information in the management report must be formulated clearly and in a way that is understandable for the addressees of the report (principle of clarity and clarity). DRS 15 also contains the principle of conveying the view of the company management and the principle of concentrating on sustainable value creation. Both principles are an expression of value-oriented corporate reporting. Further concretization aids exist in the professional pronouncements of the IDW (IDW RH HFA 1.005 "Notes according to § 285 sentence 1 No. 18 and 19 HGB as well as management reporting according to § 289 II No. 2 HGB in the version of the Accounting Law Reform Act" and IDW RH HFA 1.007 "Management reporting according to § 289 I and III HGB or § 315 I HGB in the version of the Accounting Law Reform Act ”). The legally stipulated components of the management report are not exhaustive and can be supplemented with additional information that is voluntary.
Examination by the auditor
The management report is part of the statutory audit of the annual financial statements (Section 317 II HGB). The auditor must check whether the management report is consistent with the annual financial statements and with the auditor's findings during the audit and whether the management report as a whole gives an accurate idea of the company's position. It must also be checked whether the opportunities and risks of future development are presented correctly. The information according to § 289a HGB is not part of the audit. Further requirements for the audit of the management report result from the auditor's reporting obligations.
In accordance with Section 321 I of the German Commercial Code (HGB), the auditor has to comment in advance on the assessment of the company's situation by the legal representatives, insofar as the documents examined and the management report permit such an assessment. In doing so, the auditor must particularly deal with the assessment of the continued existence and future development of the company, taking into account the management report. In addition, the auditor must determine in the main part of the audit report whether the management report complies with the statutory provisions and the supplementary provisions of the articles of association or the articles of association (Section 321 II HGB). The auditor gives the public an unqualified opinion that the management report as a whole gives an accurate idea of the company's position and that the opportunities and risks of future development have been correctly presented (Section 322 VI of the German Commercial Code). The auditor must deal separately with risks that could jeopardize the existence of the company in the auditor's report. If there are objections to the management report, the auditor must qualify the auditor's report (Section 322 IV of the German Commercial Code). The IDW has specified the requirements for the review of the management report in IDW PS 350 “Review of the Management Report”.
As part of the negotiations of the supervisory board or the audit committee on the annual / consolidated financial statements, the auditor has to attend these meetings in accordance with Section 171 I S. 2 AktG and report on "significant weaknesses in the internal control and risk management system related to the accounting process".
The regulations applicable to the annual financial statements also apply to the disclosure of the management report.
Special features of the group management report
The provisions for the group management report (Section 315 I, II and IV HGB) correspond to those for the management report, with the restriction that the group management report does not have to deal with existing branches. The presentation of the course of business and the situation of the group is intended to enable an overall assessment of the group as an economic unit. The group management report can therefore not be viewed as a cumulation of the management reports of individual group companies. It is possible to combine the group management report with the parent company's report (Section 315 III HGB). Here, too, it should be noted that the situation of the group and the parent company cannot generally be assumed to be congruent, so that differentiated reporting is required.
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