International Tax Panorama

Big-4 accounting firm EY has been banned from auditing companies of public interest in Germany for two years over its failures as the auditor of Wirecard in the years before the digital payments company’s staggering collapse.

The ban forbids the auditor from participating in tenders for audits of certain companies for two years. This includes all listed companies as well as the majority of the financial sector consisting of banks and insurance companies.

The auditing ban applies to new rather than existing auditing mandates.

Why the ban was imposed?

Germany’s auditor supervisory authority APAS had imposed sanctions on the auditor of Wirecard over “breaches of professional duty” between 2016 and 2018, without naming EY. EY had audited Wirecard for more than a decade before refusing to sign off on its final results for 2019, precipitating the company’s downfall.

The supervisory body also fined the Wirecard auditor €500,000 ($544,000) and issued smaller fines — between €23,000 ($25,000) and €300,000 ($326,000) — to five individual auditors at the firm. 

What was the Wirecard scandal?

The company Wirecard, founded in 1999, began by processing payments for gambling and pornography websites before becoming a fintech star and a member of Germany’s blue chip DAX index.

Germany’s Wirecard filed for insolvency in 2020 following the discovery of a $2 billion accounting fraud that regulators, the company’s supervisory board and its longtime auditor failed to spot. Investors rely on auditors for assurance that a company’s accounts provide a true reflection of its earnings.

Journalists, whistleblowers and skeptical investors had all questioned Wirecard’s accounting for years, but Germany’s banking regulator pushed back forcefully against investigative reporters and critical hedge funds.

In the end, Wirecard admitted that roughly a quarter of its assets — €1.9 billion ($2.1 billion) in cash — probably never existed. CEO Markus Braun resigned and was arrested on suspicion of artificially inflating the company’s balance sheet and sales through fake transactions.

Braun went on trial for fraud in a German court in December, Reuters has reported. Braun has denied wrongdoing.