In the enforcement procedure for corporate financial statements, a number of persistent issues have emerged for the Federal Financial Supervisory Authority over the years. The „balance sheet police“ working at the financial reporting enforcement directorate, which was set up following the Wirecard scandal, often identify errors in the recognition of assets. Specifically, intangible assets such as goodwill arising from acquisitions are often incorrectly valued in financial statements. According to BaFin, financial assets, such as the valuation of properties or investments, are also prone to inaccuracies.

In recent years, common areas of error have included cash flow statements, the scope of consolidation, disclosures on related party transactions, risk reports and forecasts, segment reporting, and notes on deferred taxes.

For example, in July 2024, Deutsche Bank had to admit, following a BaFin spot check, that its consolidated financial statements for 2019 contained a disclosure error, since deferred tax disclosures in the notes were incomplete.

For its US business, the bank failed to separately disclose 2.1 billion euros in active deferred taxes in the notes. The disclosure was necessary because the bank had reported losses over several years. Moreover, the bank should have specifically explained why it believed it would achieve sufficient future profits. It did not do so, according to the enforcement office.

BaFin's focus areas for 2025 reflect this list of recurring issues, with particular attention being paid to asset valuation. Many listed companies are currently undergoing a significant transformation towards digital and sustainable business models. Additionally, geopolitical and macroeconomic challenges are, according to BaFin, „testing the resilience of numerous companies.“

These developments may impair the value of assets. Moreover, impairment tests involve discretion and estimation uncertainties. In recent years, BaFin’s balance sheet control has regularly identified errors due to omitted, delayed, or insufficient impairments. BaFin's scrutiny of financial statements includes evaluating assumptions used in balance sheet valuations, and reviewing expert opinions.

Regarding impairment tests, BaFin urges companies to closely assess both internal and external indicators of potential impairments, especially for non-financial assets. These reviews should include not only intangible assets with indefinite useful lives, such as goodwill, but also tangible assets and other intangible assets.

And given the current economic climate, BaFin intends to pay particular attention to the collectability of receivables when examining companies’ financial assets.

In its review of financial statements, BaFin also takes into account the key focus areas set by the European Securities and Markets Authority (ESMA) for 2025. These priorities apply to all European enforcement authorities, and primarily emphasise liquidity aspects, disclosures in notes regarding accounting and valuation methods, the use of discretion, and estimation uncertainties.

For the first time, ESMA has included the EU standards for sustainability reporting as a focal point. Originally, German supervisors were also expected to examine new sustainability reports, which large publicly listed companies are required to publish for the fiscal year 2024.

However, since the Corporate Sustainability Reporting Directive (CSRD) was not implemented into German law, due to the collapse of the governing coalition, BaFin currently lacks the legal basis to conduct such reviews. Nonetheless, if companies submit integrated reports, it is not entirely ruled out that BaFin's financial statement oversight team might review these disclosures.

With regard to ESG reporting, BaFin Executive Director Thorsten Pötzsch has tempered expectations, saying in a speech that "BaFin is a financial regulator. We are not an environmental authority. We can check whether reports meet the reporting requirements, but we cannot verify whether the environmental data reported is accurate.“

BaFin reviews the financial statements of listed companies based on a risk-oriented sampling approach. But it also takes action when specific indications of accounting regulation violations come to light – be it through whistleblowers, reports in the business press, or its own supervisory activities.

Since taking over from the private-law entity German Financial Reporting Enforcement Panel (FREP) in early 2022, BaFin has had an expanded toolkit for enforcement, making the audit process more transparent. The Financial Market Integrity Strengthening Act (FISG) fundamentally reformed the audit examination process, placing it entirely under BaFin’s jurisdiction. The reform aimed to restore and strengthen trust in the German financial market following the Wirecard scandal.

Like its predecessor organisation, BaFin emphasises that it is not just acting as a sanctioning body. The focus is on actively identifying suspicious items, and intervening early when signs of incorrect accounting are found. It takes a risk-oriented approach, focusing on issues where it sees the greatest risk potential, and makes its actions transparent.

With regard to companies where there is a specific reason to take a closer look, BaFin informs the public about this, also because its work is intended to have a preventive effect“, Thorsten Pötzsch, Chief Executive Director of BaFin's Securities Supervision/Asset Management division, said in a speech last November.

Since the reform of financial reporting enforcement, BaFin's balance sheet audit department is also allowed to disclose audit orders and any significant procedural steps. Previously, investors were only informed when deficiencies were definitively identified and disclosed by the issuer themselves. This often occurred years after the balance sheet date of the disputed financial statement.

With the expanded authority, BaFin communicated to the markets in November last year that, at the end of October, it had ordered an audit of the 2023 consolidated financial statement of the struggling agricultural trader Baywa. BaFin stated that there were „clear indications that the depiction of the company’s financial situation and the risks associated with its financing, as well as the representation of risk management objectives and methods in the consolidated financial statements and management report, could be incorrect.“