Germany’s APAS drops the hammer on Wirecard's auditor, EY

Wirecard was a German digital payments company that went bankrupt in 2020.

Germany’s APAS drops the hammer on Wirecard's auditor, EY
The logo of Ernst & Young is seen in Zurich, Switzerland November 13, 2020. REUTERS/Arnd Wiegmann

The backstory: Wirecard was a German digital payments company that went bankrupt in 2020 because of a US$2 billion accounting fraud. The fraud went unnoticed by the company's supervisory board, financial watchdogs and its longtime auditor, EY, and was so massive that Wirecard ended up owing creditors almost US$4 billion.

In just one week, the company went from hero to zero after admitting that €1.9 billion (US$2.1 billion) of its cash assets didn't exist. As you can imagine, CEO Markus Braun was in hot water and resigned right away. He was later arrested for allegedly cooking the books and fudging the numbers.

More recently: Braun's fraud trial began in a German court last December. He denied any wrongdoing, saying he wasn't aware of what other people in the company may have been up to. The whole situation raised a lot of concerns among investors who rely on auditors to ensure that a company's financial statements are accurate.

The development: Germany's accounting watchdog APAS just handed down a hefty €500,000 (US$544,000) fine to EY, the auditor of Wirecard, and banned the firm from taking on new audits of public interest companies for two years. APAS also fined five individual auditors at the firm for amounts ranging from €23,000 (US$25,000) to €300,000 (US$326,000). EY can still continue working on its existing mandates, as the ban only applies to new audits. But this isn't a good look for the firm.

Key comments:

“We regret that the collusive fraud at Wirecard was not uncovered earlier and we have learned important lessons from the case,” said a spokesman for EY Germany in an emailed statement. “The important thing is that EY Germany is a different company today,” the statement said, pointing to changes in the firm’s fraud risk assessment and a new management team.

“I have a feeling this is more of a German board reaction, and if they change their auditor they can at least say they did their bit to protect the company and the shareholders,” said Atul Shah, a professor of accounting and finance at City University in London in 2020.

“External reviews by local regulators of EY Germany’s audit work are likely to go on for several months,” said EY chief Carmine di Sibio in a letter seen by Bloomberg in 2020. “We will provide EY Germany whatever they need to continue meeting the deservedly high-quality expectations of our clients and other stakeholders.”