The pressure on the auditing and consulting company EY in the Wirecard affair is growing after the report of the special auditor commissioned by the parliamentary committee of inquiry on the omissions of the auditors responsible for Wirecard has now been published.
The business and financial newspaper “Handelsblatt” decided to take this step in order to create transparency for damaged Wirecard investors.
The document had been classified as secret.
Here are the most important questions and answers about the current state of affairs:
Why is?
Mark Fehr
Editor in business.
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The former DAX group and stock market star Wirecard had to file for bankruptcy in June 2020 after shortly before admitting that 1.9 billion euros were missing.
It turned out that the growth of the payment service provider, which was acclaimed by many investors, was apparently based to a large extent on manipulation of the balance sheet.
That also made the responsible auditor EY look bad, who at the last moment refused to certify the Wirecard annual financial statements for 2019, but had always certified that the company had properly accounted for it in previous years.
The Wirecard insolvency was not an insolvency like any other, but the first of a Dax member, i.e. a company in the top stock exchange league, in which the top corporations of the German economy are gathered.
The scandal even led the Bundestag to set up a parliamentary committee of inquiry to get to the bottom of who was responsible in companies and authorities for the disaster and how such cases can be prevented in the future.
Why is the affair so dangerous for EY?
The Wirecard affair is dangerous for two reasons: On the one hand, the billions in damage to investors probably exceed the funds that are usually available even to a large auditing company such as EY. What is at least as serious as the possible financial burden from court rulings or a settlement with plaintiffs is the damage to reputation. Auditors live from their reputation and the trust that their audit clients and their investors place in the reliability of the certificates. This trust was shaken by the Wirecard scandal. As a result, important employees and clients have already turned their backs on EY. However, EY has rejected the allegations and said that it had worked reliably and that Wirecard had cheated itself.
What are the consequences of the Wirecard scandal so far?
At the moment, the main focus is on the Wirecard auditor EY.
The scandal has already had serious consequences for other parties involved.
The President of the Bafin Financial Supervisory Authority and his deputy were replaced, as was the head of the APAS auditor oversight office.
Wirecard's former CEO Markus Braun is in custody and CFO Jan Marsalek has gone into hiding.
What is in the secret report?
The document now published is the report of the auditor Martin Wambach, whom the parliamentary committee of inquiry of the Bundestag had commissioned to take a professional look at the work of EY as a special investigator. Wambach, who works for EY competitor Rödl & Partner and is a member of the board of the auditing institute IDW, has evaluated the documents and working papers with which EY internally documented the Wirecard audit. A large part of what is in the Wambach report had already become known through the final report of the parliamentary committee of inquiry, which was published in June.
Based on the Wambach report and testimonies, the politicians criticize the work of the EY auditors.
Failures in the examination of foreign trust accounts play a role, on which the missing 1.9 billion euros are said to have been.
This is particularly painful for EY because checking bank balances is one of the most easily performed routine auditors' chores.
After all, bank accounts and their balance can be easily verified, if they exist.
According to the committee's report, it is also questionable why a special audit carried out by EY called “Project Ring” on allegations of fraud and manipulation at Wirecard in India was canceled without a result.