EY is banned from providing audit services in Germany for the next 2 years
On April 2, APAS (auditing chamber in Germany) issued a decision to prohibit EY from auditing any public and some private companies in connection with the bankruptcy of Wirecard. APAS also fined the firm 500,000 Euros and five of its audit partners personally — 23–300,000 Euros.
Klaus-Peter Naumann, chair of Germany’s Institute of Public Auditors IDW, commented to the Financial Times that the 2-year ban was the severest punishment he had seen.
Wirecard
The firm started in 1999 as a payment operator for gambling and pornography but has grown into a top publicly traded financial company, the pride of German fintech.
In 2019, Financial Times journalists published several investigations into the Wirecard fraud, which caused quite a scandal. They sued the newspaper. After these scandals, EY refused to sign the financial statements for 2019 because it could not confirm 1.9 billion of assets. All this ended with the bankruptcy of the company in 2020 and losses for shareholders in the amount of about 4 billion.
There is a great documentary about Wirecard on Netflix, I highly recommend watching it tonight. Or here is the timeline on Reuters of how they fell.
EY
According to Statista, EY is in third place in the world by turnover for 2022 among the Big Four companies with $45.2 billion. PwC has $50.3 billion, and Deloitte has $59.3 billion. Close behind is KPMG, with a turnover of $34.6 billion.
The firm was preparing for this decision of the regulator and, according to the FT, announced layoffs back in February with 40 partners and more than 300 consultants in Germany. What’s more, not only auditors are being fired, but also administrative staff, managers, hrs, and lawyers, obviously (legal support for audit, all matters).
EY has already lost several top audit clients — Kommerzbank and DWS Group (a division of Deutsche Bank, which deals with asset management).
Auditors are not investigators; they cannot obtain documents on their own but check only what the client gives them. And the disclaimer to the auditor’s report has been honed by time and scandals like Enron. Therefore, it is not easy to get hold of the auditors. Therefore, in the decision of APAS, judging by the publications, the intent is not proven, but it is only about negligence.
Perhaps something will come out of Wirecard shareholders’ lawsuits for damages against EY. But this is also unlikely because all parties to this dispute should be interested in an out-of-court settlement, so it is unlikely that the process will come to an end.
I think the legal wing will also suffer a lot, especially given the economic downturn.
But we don’t really care; it’s just a little nice to know that someone else also has some problems.
✍️ Dima Gadomsky
