IDW PS 340 — Early Risk Detection in FX Management

Executive summary

ISA 570 (Revised 2024) governs the auditor's work on going concern. In Germany, the more fundamental duty sits one level deeper: under § 91(2) AktG, the management board of a stock corporation must establish a functioning system for the early detection of risks that threaten the company's continued existence. IDW PS 340 is the auditing standard that defines how the auditor assesses whether that early-warning system is appropriately designed and capable of fulfilling its purpose. While ISA 570 asks whether management's going-concern assessment is appropriate, the prior question is whether such a system exists at all.

The legal basis is § 91(2) AktG, introduced by the KonTraG in 1998. In July 2021, the FISG strengthened the wider governance framework by adding § 91(3) AktG — an explicit requirement for an appropriate and effective internal control and risk management system at listed companies. A culpable breach of these duties can, where it causes damage, give rise to director and officer liability under § 93 AktG. For listed stock corporations, § 317(4) HGB makes the auditor's assessment of the early-warning system a mandatory part of the statutory audit. GmbHs have no automatic audit requirement, but § 1 StaRUG and the § 43 GmbHG duty of care can require an appropriate setup scaled to size, risk profile and crisis exposure — with IDW PS 340 as a useful benchmark.

For many export-oriented SMEs, FX is not a secondary treasury issue — it is the largest market-driven risk to margins, cash flow and earnings, and the area where the gap between operational execution and audit-ready methodology is most visible. Four structural problems recur. A methodological gap: FX management lives in Excel, and a point estimate by the treasurer is not a systematic risk assessment. A documentation gap: volatilities, correlations, data sources and model assumptions reside in individuals' heads rather than in writing. A threshold gap: no quantified level at which an FX loss "threatens continued existence", so nothing triggers an early warning. An aggregation gap: FX is assessed in isolation rather than within the overall risk inventory and against risk-bearing capacity.

An audit-ready FX early-warning system answers five questions auditors, supervisory board members and D&O insurers are increasingly asking: how FX risk affects the overall risk position and risk-bearing capacity; what early-warning indicators are defined and who monitors them; what methodology, volatilities and correlations the measurement relies on and where the data comes from; how FX is aggregated with interest-rate, liquidity, credit and operational risk; and in what format, how often and with what audit trail treasury reports to the board. The standard sets the process requirements — it does not prescribe a specific FX metric or software.

The timing is concrete. IDW PS 340 (new version) is already applicable, and scrutiny is intensifying from three directions at once: supervisory boards (strengthened by the 2021 FISG) demanding more robust documentation; auditors, as ISA 570 (Revised 2024) sharpens going-concern scrutiny from periods beginning on or after 15 December 2026 — so in Germany the same weakness can surface twice; and D&O insurers assessing RMS maturity before renewal. Anyone who wants to be audit-ready for FY2026 and FY2027 must close the FX gaps during 2026: documentation can be reconstructed, but retrospective documentation cannot fully demonstrate that the system operated consistently throughout the period.

This whitepaper is part of the GLORIARMS Audit-Readiness series and complements the paper on ISA 570 (Revised 2024). It distils the standard's requirements into the FX-focused workstreams that matter in practice, and it is an informational reference — not legal or auditing advice for the individual case.