Ensuring Compliance with GERMANY'S REVISED IDW PS 340 n.F. WITH METRICSTREAM

Organizations today have to operate in an increasingly digitized, volatile, and complex business environment, which exposes them to a plethora of risks. To thrive in this rapidly evolving risk landscape, it is critical to understand the risks individually as well as how they are interconnected—only then will organizations have a holistic and peripheral view of their risk profile and gauge their potential impact. These capabilities, in turn, optimize operational efficiency, drive agility in business decisions and make them more risk-aware and data-driven, while boosting organizational preparedness for future risk events. If implemented properly, such a system can also help build confidence with regulators by providing the necessary documentation and evidence of the efficacy of controls, strong risk data governance, and issue reporting framework with clear lines of accountability. As such, a robust risk management system has become an absolute necessity for organizations today to aid their pursuit of business goals as well as overall enterprise governance and management.

It is against this background that the Institut der Wirtschaftsprüfer in Deutschland or the Institute of Public Auditors in Germany (IDW) revised the IDW PS 340 n.F. on the audit of the early risk detection system. Starting 01 January 2021, the revised standard is mandatory for all listed companies. A Joint Statement by experts states, “The legally required main task of a risk early warning system - as the core of risk management - consists [of] recognizing "developments that could endanger the existence of the company" at an early stage (Section 91 (2) AktG)… The early detection of developments threatening the existence of the company requires the identification of rare extreme risks and, due to the fact that risks cannot be added together, risk aggregation (Monte Carlo simulation).” (Google translated)