BaFin uncovers errors in the annual financial statements of Deutsche Konsum REIT-AG: valuation deficiencies and missing information
Table of Contents
Table of Contents
In a comprehensive audit, the Federal Financial Supervisory Authority (BaFin) classified the individual financial statements of Deutsche Konsum REIT-AG as of September 30, 2021 as incorrect. The annual financial statements, which were prepared in accordance with the International Financial Reporting Standards (IFRS), contain several inconsistencies that must now be corrected.
Two key errors were identified: Firstly, Deutsche Konsum REIT-AG used an unsuitable valuation method to determine the fair value of the loans listed in the balance sheet. As a result, the market interest rate environment at the balance sheet date was not correctly taken into account, which led to an incorrect presentation of the assets.
Secondly, the company failed to indicate in the notes that a loan to the parent company was not secured by collateral. This means that the users of the financial statements could not see that the parent company’s insolvency would have threatened a complete default on the loan. This lack of transparency represented a significant risk that potentially misled the capital market.
BaFin: Supervision of capital market-oriented companies
Since January 1, 2022, BaFin has been solely responsible for monitoring the balance sheets of capital market-oriented companies. The legal basis for this is the Securities Trading Act (WpHG). The publication of the errors identified in accordance with Section 109 (2) WpHG is intended to inform the capital market about the violations in accounting and protect the trust of investors.
BaFin stressed that such publications are important to strengthen the transparency and reliability of the financial reports of capital market-oriented companies and to protect the capital market from possible misinformation.
BaFin fines
BaFin Unveils Flaws in Deutsche Konsum REIT-AG’s Annual Financial Statements: A Call for Enhanced Transparency and Compliance
The Federal Financial Supervisory Authority (BaFin) has recently conducted a comprehensive audit of Deutsche Konsum REIT-AG’s individual financial statements as of September 30, 2021, and has identified significant errors that necessitate immediate correction. The annual financial statements, prepared in accordance with the International Financial Reporting Standards (IFRS), contain material inconsistencies that undermine the reliability and transparency of the financial information presented.
Incorrect Valuation Methodology
One of the key errors identified by BaFin relates to the company’s use of an unsuitable valuation method to determine the fair value of loans listed in the balance sheet. This approach failed to take into account the market interest rate environment at the balance sheet date, resulting in an incorrect presentation of assets. This egregious error has significant implications for investors, analysts, and other stakeholders who rely on accurate financial information to make informed decisions.
Lack of Transparency and Missing Information
Furthermore, BaFin has highlighted the company’s failure to disclose essential information in the financial statement notes. Specifically, the lack of transparency regarding a loan to the parent company, which was not secured by collateral, poses a significant risk to investors. The omission of this critical information could have misled the capital market, as users of the financial statements were unable to assess the potential impact of the parent company’s insolvency on the loan.
BaFin’s Audit Priorities and Supervision
BaFin’s oversight of capital market-oriented companies like Deutsche Konsum REIT-AG is crucial to ensuring the integrity and transparency of financial markets. The authority’s audit priorities for 2024 [2] emphasize the importance of robust financial reporting, internal controls, and risk management practices. BaFin’s supervisory role extends beyond mere compliance monitoring, as it works to identify and address potential risks that could compromise the stability of the financial system.
Special Inspections and Reporting Requirements
In addition to its regular audit activities, BaFin conducts special inspections <a href="https://www.bafin.de/EN/Aufsicht/BankenFinanzdienstleister/Massnahmen/Sonderpruefung/sonderpruefungnodeen.html”>[3] to address specific concerns or risks. These targeted inspections help to ensure that companies comply with regulatory requirements and maintain adequate internal controls. The reporting period for audits, typically the financial year ending on the date of the audit <a href="https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Aufsichtsrecht/Verordnung/WpIPruefbVen.html”>[1], underscores the importance of timely and accurate financial reporting.
Conclusion
BaFin’s findings in the Deutsche Konsum REIT-AG case serve as a stark reminder of the consequences of non-compliance and the importance of robust financial reporting and transparency. As the German financial regulatory authority, BaFin plays a critical role in maintaining the integrity of the financial system and protecting the interests of investors and the broader market. Companies operating in the capital market must prioritize compliance with regulatory requirements and maintain adequate internal controls to ensure the accuracy and reliability of their financial statements.
References:
[1] Regulation governing the auditing of the annual accounts (WpIPruefbVen.html)
[2] BaFin audit priorities 2024 (kpmg.com/de/en/home/insights/2023/12/bafin-announces-audit-focal-points-for-group-financial-statements-2023.html)
[3] Special inspections (bafin.de/EN/Aufsicht/BankenFinanzdienstleister/Massnahmen/Sonderpruefung/sonderpruefungnodeen.html)
BaFin fines
BaFin Uncovers Errors in the Annual Financial Statements of Deutsche Konsum REIT-AG: Valuation Deficiencies and Missing Information
The Federal Financial Supervisory Authority (BaFin) has recently conducted a comprehensive audit of Deutsche Konsum REIT-AG’s individual financial statements as of September 30, 2021, and has identified significant errors that must be corrected. The annual financial statements, which were prepared in accordance with the International Financial Reporting Standards (IFRS), contain several inconsistencies that may have misled the capital market.
Valuation Deficiencies
One of the key errors identified by BaFin is the use of an unsuitable valuation method to determine the fair value of the loans listed in the balance sheet [1[1]. This method failed to correctly take into account the market interest rate environment at the balance sheet date, leading to an incorrect presentation of the assets. As a result, the financial statements did not accurately reflect the company’s financial position, which could have led to misinformation in the capital market.
Missing Information
Another significant error identified by BaFin is the failure to indicate in the notes that a loan to the parent company was not secured by collateral <a href="https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Massnahmen/40cneu124WpHG/meldung20240912DeutscheKonsumREITAG.html?cms_expanded=true”>[2[2]. This lack of transparency represented a significant risk that potentially misled the capital market, as users of the financial statements could not see that the parent company’s insolvency would have threatened a complete default on the loan.
BaFin’s Role in Supervising Capital Market-Oriented Companies
Since January 1, 2022, BaFin has been solely responsible for monitoring the balance sheets of capital market-oriented companies, including Deutsche Konsum REIT-AG. The legal basis for this is the Securities Trading Act (WpHG). The publication of the errors identified in accordance with Section 109 (2) WpHG is intended to inform the capital market about the violations in accounting and protect the trust of investors.
Importance of Transparency and Compliance
BaFin stressed that such publications are important to strengthen the transparency and reliability of the financial reports of capital market-oriented companies and to protect the capital market from possible misinformation [3[3]. By identifying and addressing these errors, BaFin aims to promote enhanced transparency and compliance among capital market-oriented companies, ultimately protecting the interests of investors and maintaining trust in the capital market.
BaFin’s discovery of errors in Deutsche Konsum REIT-AG’s annual financial statements highlights the importance of transparency and compliance in financial reporting. It is essential that capital market-oriented companies ensure the accuracy and reliability of their financial statements to maintain trust in the capital market and protect the interests of investors.
