Hard penalty for test giant EY after Wirecard debacle

NAfter long and extensive investigations, the German auditing authority APAS found serious violations by the auditing company EY of the professional duties applicable to the auditing industry. EY was responsible for examining the annual accounts of the scandalous company Wirecard and is now being severely sanctioned.

As the APAS announced on Monday, the auditing company may not carry out any new assignments for statutory audits of public interest companies for a period of two years. Such companies are listed and capital market-oriented companies as well as larger banks and insurance companies. They are an important customer group for large audit firms like EY.

Although the company can continue to process its existing test orders from the circle of important companies, the decision is a heavy blow. Because the testing business recently contributed around a third to total sales. That being said, the sanction is devastating to EY’s reputation. The fine of 500,000 euros imposed by the APAS hardly matters. After all, after a long nail-biter, it is now clear how the supervisors assess the case.

EY wants to carefully examine the decision

According to a company spokesman, EY intends to carefully review the details of the notifications written by the APAS once they have been finalized and delivered. The spokesman emphasizes that after the Wirecard scandal, EY has now become a different company and has introduced extensive improvements in the quality of the financial statements and risk control. Thanks to new technologies, EY has also improved the assessment and assessment of fraud risks and placed a greater focus on them.

The now completed APAS investigations against EY are just one of several milestones on the way to the political and legal processing of the historic Wirecard scandal from June 2020. The crash and insolvency of the payment service provider, which was formerly listed in the leading index Dax, followed almost three years ago a parliamentary committee of inquiry, which led, among other things, to the replacement of the top management of the financial supervisory authority Bafin.

The investigative committee found serious deficiencies in the work of the auditors and relied on a report commissioned by the auditor Martin Wambach from Rödl & Partner. In addition, a law was passed to strengthen the financial markets, the paragraphs of which tweaked many screws to improve corporate control and prevent accounting scandals.

The law that has been in force since July 2021, known as FISG for short, has, among other things, tightened the liability of auditors for accounting errors. Since December 2022, there has also been a major criminal case against former Wirecard boss Markus Braun, and in March the starting signal was given for a test case for Wirecard victims who are demanding civil damages from EY.

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