By John Ikani
Audit firm EY has been hit with a two-year ban on taking up new listed audit clients in Germany following deficiencies in its work for the now-collapsed payments company, Wirecard.
In addition, Germany’s audit watchdog, Apas, has levied a €500,000 fine on EY and imposed penalties of between €23,000 and €300,000 for each of five current and former employees of the Big Four firm.
Without elaborating on the specifics of the violations, Apas stated that it had found EY to have “violated professional duties during the audits of Wirecard and Wirecard Bank from 2016 to 2018”.
The regulator has yet to decide whether EY acted intentionally or negligently in its handling of the matter, a critical consideration in assessing the firm’s criminal and civil liabilities.
Sources familiar with Apas’ thinking disclosed this information.
According to Konrad Duffy, a white-collar crime expert at German consumer advocacy group Finanzwende, “This penalty sends a clear message”.
He further added that the regulator had been too lenient on Wirecard for too long and should now act “more decisively.”
Klaus-Peter Naumann, head of Germany’s Institute of Public Auditors IDW, called the two-year ban a severe penalty, which had not been seen in Germany before.
In response to the scandal, Germany has increased the liabilities of all auditors, increased regulation of the industry, and given Apas and the country’s financial watchdog BaFin greater powers.
The government has also doubled the maximum penalty for professional misconduct to €1mn.
After Wirecard’s demise in 2020, Apas filed a criminal complaint against multiple EY audit partners, alleging that the firm had knowingly issued audit opinions containing false information.
The matter is presently under investigation by prosecutors, who have not yet pressed charges.
The presiding judge in the ongoing criminal case against former Wirecard CEO Markus Braun and two other top executives has criticized EY for failing to act on evidence of fraud at the German payments firm.
Wirecard went bankrupt in June 2020, leading to one of Europe’s biggest accounting scandals since the end of World War II, after it disclosed that half of its income and €1.9bn in corporate funds did not exist.
EY had issued unqualified audits for over ten years.
EY Germany stated that it would scrutinize the Apas decision “carefully”, but it had yet to receive the detailed legal conclusion.
The firm lamented the fact that the fraud at Wirecard had not been uncovered sooner and that it had learned valuable lessons from the debacle.
The company insisted that it had taken significant steps to enhance its audit quality and risk management, appointing a new management team and putting extra controls in place.
“EY Germany is a different organization today,” the company stated, adding that it had cooperated fully with Apas in the investigation.
Hansrudi Lenz, a retired accounting professor at Würzburg University, commended the Apas ban, stating that it would “further significantly impair EY’s reputation.”
He went on to express his belief that the combination of the fine and ban would serve as a warning to improve audit quality in general.
Apas initially targeted 12 current and former EY audit employees, but seven of them resigned from the profession and returned their licenses, meaning that the regulator could not impose sanctions on them.
In the aftermath of the scandal, EY lost several significant audit clients, including Commerzbank, DWS, and KfW, and has not secured any significant new mandates recently.
The Apas decision was first reported by Handelsblatt.
