Written By It’s a case that has sent shockwaves through the financial world: the collapse of German payment processing company Wirecard, following revelations of a multi-billion euro accounting scandal. Now, Germany’s corporate watchdog is taking action against one of the key players in this debacle – global auditing firm EY. In this blog post, we’ll explore what went wrong with Wirecard and why EY is now facing serious consequences for failing to uncover the fraud. Get ready to delve into a gripping tale of financial intrigue and regulatory oversight!
EY’s Involvement with Wirecard
EY was Wirecard’s auditor for many years, and during that time, they failed to uncover any evidence of fraud. This is despite the fact that there were red flags all over the place, including:
-Wirecard was using “factoring” to inflate its sales numbers
-There were discrepancies between what Wirecard reported to investors and what it reported to regulators
-Several employees raised concerns about possible fraud, but these concerns were ignored or downplayed by EY
As a result of EY’s negligence, Wirecard was able to defraud investors out of billions of euros. Only after the scandal broke did EY take any action, and even then, it was only to try and cover up its own involvement.
The Alleged Fraud
The German financial watchdog, Bafin, has taken action against EY for its failure to uncover the fraud at Wirecard. EY was the auditor of Wirecard for many years and only raised concerns about the company’s accounting practices in 2019, after Wirecard had already collapsed.
Bafin has fined EY €5 million for breaching professional standards. This is the first time that a Big Four firm has been fined by a regulator for failing to detect fraud.
EY has said that it will appeal the fine.
EY’s Response
EY, one of the world’s largest accounting firms, is facing scrutiny from German authorities for its role in the collapse of Wirecard.
Wirecard, once a darling of the German tech scene, filed for insolvency in June after uncovering a massive fraud scandal. The company’s auditor, EY, is now being investigated for its failure to detect the fraudulent activities.
This is not the first time EY has come under fire for its auditing practices. In 2015, the firm was fined $10 million by U.S. regulators for failing to properly audit Lehman Brothers’ finances before the investment bank’s collapse during the financial crisis.
EY has issued a statement saying that it “vigorously denies” any wrongdoing in the Wirecard case and that it will “vigorously defend” itself against any charges that may be brought forth by authorities.
The German Watchdog’s Decision
The German financial watchdog, BaFin, has taken action against EY for its failure to uncover the Wirecard fraud. This is a significant development, as it is the first time that a regulator has taken action against one of the Big Four accounting firms for their role in a major corporate scandal.
BaFin has fined EY €5 million for violating professional standards in its audit of Wirecard. EY has also been banned from auditing any listed companies in Germany for six months. This ban could potentially cost EY millions of euros in lost revenue, as it is one of the top audit firms in Germany.
This decision by BaFin is likely to have far-reaching implications, as it could set a precedent for other regulators to take action against the Big Four accounting firms. This could lead to more scrutiny of their audits and could potentially result in more fines or bans being imposed.
What This Means for EY
In response to the news that German regulators are taking action against EY for failing to uncover the Wirecard fraud, the accounting firm has issued a statement saying that it is “cooperating fully” with authorities.
This news will no doubt come as a blow to EY, which has been embroiled in the scandal surrounding the now-insolvent payments company Wirecard. EY was Wirecard’s auditor for many years, and it has come under fire for its role in the scandal.
The German Financial Supervisory Authority (BaFin) announced on Tuesday that it was taking action against EY over its audit of Wirecard. BaFin said that it had “serious doubts” about EY’s ability to properly audit Wirecard and that it would be imposing “significant restrictions” on the firm’s activities in Germany.
This is not the first time that EY has come under scrutiny for its auditing work. The firm was also criticized for its audits of Lehman Brothers and Enron, two companies that collapsed in spectacular fashion in the early 2000s.
It remains to be seen how this latest development will impact EY’s business in Germany and elsewhere. For now, the firm says that it is cooperating with authorities and is committed to “restoring trust” in its work.
Conclusion
The Wirecard scandal has been an eye-opening example of the potential consequences of inadequate audit oversight. In this instance, EY failed to detect years of financial wrongdoing and was ultimately unable to act in time to prevent losses for investors. We can only hope that regulatory authorities will increase their efforts in monitoring auditors more closely and that companies will be held accountable for any misdeeds or oversights going forward.
