EY’s Wirecard audits marred by ‘repeated grave’ violations of duties, says watchdog

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EY made “grave” and “repeated” violations of professional duties in its audits of defunct payments firm Wirecard, Germany’s audit watchdog Apas concluded on Friday.

The Munich-based fintech company Wirecard collapsed into insolvency in June 2020 after reporting that half of its revenue and €1.9bn in corporate cash did not exist. EY, which had been Wirecard’s auditor for close to a decade, had issued unqualified audit opinions.

The summary of the review, published on Friday, marks the official end of a multiyear investigation by Germany’s audit watchdog.

Apas criticised the Big Four firm’s “deficient execution” of its Wirecard audits as well as its “insufficient audit reporting” that resulted in the issuing of “objectively inaccurate audit opinions”.

The watchdog also rebuked EY over the “grave failure” of its internal quality controls, adding that “several key executives” of the firm conducted “multiple violations of professional duties” during the quality control process.

The regulator last year said it planned to fine EY Germany €500,000 over the Wirecard audits and impose a two-year ban on the firm taking on new large, listed companies as audit clients. Apas also said it would fine five current and former employees of the Big Four firm between €23,000 and €300,000, but those fines have yet to be formally finalised, according to people familiar with the matter.

In a brief comment on Apas’s decision published alongside the regulator’s statement, EY said that while it decided not to legally challenge the Apas’s decision, this did not imply that it agreed with the watchdog’s findings and legal assessments.

Wirecard’s administrator and former investors are suing the firm for billions of euros in damages, and Munich prosecutors have launched an investigation against several current and former EY partners over potential criminal misconduct.

Apas did not provide a view on whether EY’s failings on the audits were intentional. People with direct knowledge of the ruling told the Financial Times earlier this week that the watchdog concluded that the audits were “at the very least” negligent, and in some cases grossly negligent, but did not establish criminal intent.

The regulator said EY’s violations of professional duties happened over several years and occurred in seven different areas, including the flawed validation of up to €1.9bn of cash that Wirecard purportedly held on escrow accounts in Asia.

After Wirecard’s collapse, it emerged that EY over several years failed to request crucial account information from a Singapore bank where Wirecard claimed the cash was deposited — a routine audit procedure that could have uncovered the vast fraud at the German payments group.

The watchdog also highlighted EY’s poor handling of red flags that pointed to irregularities.

The Big Four firm was warned in 2016 by one of its own employees that senior managers at Wirecard may have committed fraud and one had attempted to bribe an auditor. In the same year, Wirecard’s purported trustee in Singapore, who was allegedly in charge of the escrow accounts, accidentally disclosed to the auditor that he did not hold any money on the German company’s behalf.