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Internal Control Systems as a Point of Differentiation
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Internal Control Systems as a Point of Differentiation

Current situation and optimization approaches



Although the 8th Company Law Directive of the EU poses new challenges for European companies, it also opens up great opportunities. The study “ICS – Internal Control Systems as a Point of Differentiation” provides an overview of the objectives of the new regulations. It analyzes the degree of implementation in Germany and Austria and describes concrete points for beginning optimization. Companies can find tips here for improving their internal control system (ICS) as a way to set themselves apart proactively from the competition.

Extensive balance sheet fraud and spectacular collapses of ­major companies such as Enron, Worldcom, or Lehman ­Brothers have repeatedly brought the topic of internal control systems to the forefront of discussions in recent years.

In 2002, the Sarbanes-Oxley Act was passed in the USA; it focuses in particular on the systematic uncovering and monitoring of risks in accounting processes. Now, more than four years after the passage of this act, the European Union has issued comprehensive corporate governance and compliance rules in the 8th EU Directive and the 4th and 7th EU Directives. These new legal regulations are generally expected to provide stricter monitoring and effectiveness of internal control, auditing, and risk management systems. The implementation of the directives in national law has begun in the various countries. The Company Law Amendment Act (URÄG) went into effect in Austria on 01/01/2009; application of the Balance Sheet Law Modernization Act (BilMoG) became mandatory for all companies in Germany for the first time on 01/01/2010.

However, the implementation of the new regulations in corporations gives rise to gray areas. For example, the law requires the definition of “important features” of the company’s ICS and risk management system with respect to the accounting process. But lawmakers did not explain in greater detail what they meant by the term “important features”. So a continued lack of clarity in the legal requirements for the ICS creates uncertainty in companies regarding the scope of the necessary measures.

This study was conducted by Detecon (Schweiz) AG. It briefly describes the current status of ICS implementation in Germany and Austria and provides insights into the degree of implementation of the requirements of the new directives. Moreover, it reveals potential for increasing efficiency and effectiveness within internal control systems and develops recommendations for further action. An effective and efficient design of the ICS and the related strengthening of corporate governance raises the competitiveness of companies, contributing to differentiation from competitors.

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