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Which companies are subject to the enforcement and what is the scope of the audit?

The Financial Reporting Enforcement Act (RL-KG) applies to those capital market-oriented companies whose home country state, according to Section 1 no. 14 BörseG 2018, is Austria and whose securities are admitted to a regulated market (Sections 1 and 2 RL-KG). This means that all issuers whose home country state is Austria and who have issued shares, bonds, warrants, and certificates on the official market of the Vienna Stock Exchange or on regulated markets in other member states are subject to the audit obligations of the RL-KG in Austria. Other forms of securities trading (e.g., the multilateral trading system Vienna MTF operated by the Vienna Stock Exchange) are not covered by these provisions.

The audit covers the annual financial statements, management reports, consolidated financial statements, and consolidated management reports, as well as other information according to Section 1 no. 22 BörseG 2018. An audit only includes the annual financial statement if the company is not required to prepare consolidated financial statements. It covers the most recently determined annual and consolidated financial statements as well as the half-yearly financial reports of the previous and current fiscal year and does not include the auditor's report.

When does the Austrian Financial Reporting Panel (AFREP) become active?

The audit procedures by the AFREP take place with the cooperation of the companies on a voluntary basis. If the company cooperates with the Enforcement Panel, the legal representatives of the company and other persons employed by the legal representatives to assist must provide the enforcers with accurate and comprehensive information and present accurate and comprehensive documentation.

The Enforcement Panel becomes active in the following cases:

  • "Event-driven audit" - in case of concrete indications of a violation of accounting regulations, as required by public interest, if the potential violation is likely to be significant for the accurate information of the capital market.
  • "Random audit" - without specific cause, according to the audit plan.

The chair of the Enforcement Panel initiates the audit procedure and informs the company to be audited. If the company refuses to cooperate, the chair of the Enforcement Panel must inform the Financial Market Authority (FMA). If the company agrees to cooperate, the chair of the Enforcement Panel starts the audit procedure. An audit panel is formed which consists of the chair and the deputy chair of the Enforcement Panel as well as a report reviewer. Another member of the Enforcement Panel is appointed as the audit manager. The audit manager's findings and the report reviewer's opinion are discussed in the audit panel, which determines whether there is faulty accounting.

What are the enforcement priorities?

The enforcement priorities are determined annually by the FMA based on the priorities announced by the European Securities and Markets Authority (ESMA) and proposed by the Enforcement Panel (Section 1 para 2 RL-KG).

Downloads/FMA&ESMA enforcement priorities

What are the consequences of the audit results?

If the audit does not result in any objections, the company is notified in writing. If the audit reveals that the accounting is faulty, the Enforcement Panel must justify its decision and allow the company a reasonable amount of time to respond or acknowledge the outcome.

The Enforcement Panel must report the audit results to the FMA. Additionally, it must indicate the FMA whether the company concurs with the audit results. The FMA may order the publication of the fault finding and significant parts of its justification, which must be promptly posted on the company's homepage, the FMA website, or the regulated market's website according to Section 8 para 3 no. 3 or 4 KMG 2019. At the company's request, the FMA may refrain from ordering publication if it is likely to harm the legitimate interests of the company.

The Enforcement Panel must report to the FMA any evidence that propose a criminal offense associalted with the financial reporting of an issuer. Indication a breach of professional duty violation by the auditor has to be reported to the Chamber of Tax Advisors and Auditors. Any indication of a violation of stock exchange regulations must be taken up by the FMA and reported to the stock exchange company.

When does the FMA take over the enforcement activity?

The FMA must conduct the audit itself if:

  • A company refuses to cooperate with an audit by the Enforcement Panel or disagrees with the audit results; or
  • Significant doubts exist regarding the accuracy of the Enforcement Panel's findings or the proper conduct of the audit by the Enforcement Panel; or
  • Conducting the audit by the FMA is necessary in individual cases considering public interest in the accuracy of financial reporting, in compliance with the principles listed in Section 18 para 1 AVG.

If the FMA audit reveals faulty accounting, the FMA must issue a decision determining the error.

What are the consequences of incorrect or incomplete information provided by companies?

Anyone who intentionally provides incorrect or incomplete information or submits incorrect or incomplete documents to the Enforcement Panel or the FMA commits an administrative offense and can be fined up to €100,000 by the FMA (Section 13 RL-KG).