The constant and short-term changes to laws and regulations pose an increasing risk for companies. This is because they can hardly keep track of the constant innovations. Consistent monitoring of relevant changes should therefore definitely be integrated into operational risk management.
At Baker Tilly, we advise many listed companies and groups and have observed how complex it is for them to adapt to the constantly changing legal requirements. Numerous laws and regulations for companies are now changing every year.
As at 2 February 2022, 1,773 laws with 50,738 individual standards were in force in Germany. At the same time, 2,795 ordinances with 42,590 individual standards were in force on the same date. In comparison: on 1 January 2010, 1,668 laws with 43,085 individual standards and 2,655 ordinances with 36,850 individual standards were in force. The German government lists these figures in an answer (20/721) to a minor question from a parliamentary group (20/567).
Centralisation minimises risk
It is risky for companies to leave the responsibility for monitoring these changes to individual departments. Changes to laws and regulations occur far too frequently for this, and are becoming increasingly complex.
As our experience shows, the risk in monitoring often lies in the differing understanding of those involved. Firstly, not every department focusses on the changes to laws and regulations. Secondly, there can be coordination problems and it is difficult to determine who is responsible for which changes or areas. Such a fragmented approach can lead to relevant changes being overlooked or inadequately taken into account.
It is therefore advisable to introduce a centralised monitoring system for changes to laws and regulations. This central monitoring system can take on the task of identifying all relevant changes and informing the responsible departments concerned. This ensures that everyone in the company is always informed about current legal requirements and that implementation or adaptation is coordinated. This helps to minimise risks and ensure compliance.
Avoid fines and penalties
In any case, risk management and risk analysis in companies today are much more far-reaching than in the past, which is partly due to the significant increase in fines and penalties for non-compliance with legal regulations.in an increasingly complex and constantly changing legal landscape, companies should always be informed about current changes to laws and regulations for this reason alone. In this sense, monitoring changes to laws and regulations helps to avoid compliance violations.
A comprehensive risk assessment and risk management strategy must therefore not only take into account traditional business risks, but also legal risks that may arise from changing regulations.
Protecting reputation and ensuring success
With the help of effective monitoring of legal changes, companies are able to react to new requirements at an early stage, adapt their processes and recognise and avert potential risks in good time. This not only enables them to avoid financial losses due to fines and penalties, but also to protect their reputation and ensure long-term success.
In addition to financial and legal risks, monitoring changes to laws and regulations is essential, especially from the perspective of the internal control system (ICS). The ICS serves to ensure the effectiveness and efficiency of business processes, the reliability of financial reporting and compliance with applicable laws and regulations.
As the legal requirements are constantly changing, companies must ensure that their ICS is continuously updated to take account of the constant changes that occur. Consistent monitoring of legislative changes enables companies to adapt their ICS accordingly and thus ensure that all relevant legal requirements are met. Potential risks can be recognised at an early stage and addressed appropriately. By integrating the monitoring of changes to laws and regulations into the ICS, compliance is improved overall and the organisation is better equipped to avoid the potential negative effects of breaches of the law.
Authors:
Matthias Winkler, tax consultant, specialist consultant for international tax law, partner in the Regensburg office of the tax consultancy firm Baker Tilly
https://www.bakertilly.de/mitarbeiter/matthias-winkler.html
Yuliya Merget, auditor, tax consultant, director at Baker Tilly in Munich
https://www.bakertilly.de/mitarbeiter/yuliya-merget.html