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German watchdog bans EY over Wirecard scandal

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In a landmark decision, audit watchdog Apas has banned EY from taking on new listed companies as audit clients in Germany for two years after it failed to halt one of Europe’s largest financial scandals.

4th Apr 2023
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Germany’s audit watchdog Apas has made the decision to bar EY from adding any new German listed companies as clients to its audit books for the next two years. The Big Four firm’s audit failures over the collapsed company Wirecard during 2016–2018 have been described as the worst case of financial misconduct in the country since the end of the Second World War.

Apas has also slapped the German arm of the auditing giant with a €500,000 fine, as well as between €23,000 and €300,000 for each of five current and former employees of the scandal-hit firm.

Announcing the verdict on Monday afternoon, the German regulator came to the conclusion that EY had committed “considered violations of professional duties during the audits of Wirecard and Wirecard Bank from 2016 to 2018 as proven”. However, a decision regarding the auditor’s civil and criminal liabilities are yet to be decided.

According to the Financial Times, EY’s global managing partner Andy Baldwin sent an announcement to partners, noting the severity of the penalties, adding: “This has been a deeply challenging chapter for our organisation, and for EY Germany in particular.”

Industry figures in Germany, however, welcomed the ban, with many hoping that the verdict will act as a significant deterrent for auditors.

“It will further significantly impair EY’s reputation,” retired accounting professor at Würzburg university, Hansrudi Lenz, said in response to the news, adding that a combined fine and ban would act as a warning as well as improving German audit standards.

A significant blow

Wirecard, a company with a peak valuation of £28bn before its collapse in 2020 had moved from a payment-processing company for porn and online gambling in 1999, to one of Germany’s great tech success stories.

However, with the company’s bankruptcy in 2020, news quickly surfaced of allegations of widespread malfeasance, including a missing £2bn and nearly half its revenue off the company’s balance sheet. This news sent shockwaves across the European financial sector. EY Germany, which had previously been warned of the Wirecard’s wrongdoing back in 2016 made no attempt to inspect the allegations further until it was too late.

The decision is yet another significant blow to the embattled Big Four firm. The company has only recently made the decision to slash its German workforce in a bid to untangle itself from the scandal in the face of multiple lawsuits, with the Big Four member sacking 40 partners and around 380 members of staff to improve profitability. It has also lost several high-profile auditing clients, including Commerzbank, DWS and KfW, and has not won any significant new mandates recently.

Commenting on the verdict, EY Germany said in a statement that they “regret that the collusive fraud at Wirecard was not discovered sooner, and we have learned important lessons from this matter.” The firm added that it had taken “significant action” to improve its audit quality and risk management since Wirecard’s collapse.

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By Hugo Fair
04th Apr 2023 23:06

“.. we have learned important lessons from this matter” - oh please not that phrase again!

They might just as well say "We are sorry, and most surprised, to have been found out - but will try to hide our transgressions more effectively in future".

If 'learning lessons' has such little impact on changing behaviour, it's not clear why they bother.

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