Germany’s audit watchdog, the Financial Reporting Enforcement Panel (FREP), has banned Ernst & Young (EY), one of the world’s largest accounting firms, over its work for Wirecard. This is a significant move by the regulator as it marks the first time a company of such prominence has been banned from working as an auditor in Germany. The ban comes after months of scrutiny into EY’s role in the accounting scandal that led to the collapse of Wirecard, a German fintech company once valued at $28 billion. This article will explore the implications of the ban and what it means for EY and the wider auditing industry.
According to sources, Germany’s audit watchdog Apas has issued a historic ruling banning EY from taking on new audit clients that are listed companies for two years as punishment for flawed work on disgraced payments firm Wirecard. EY and five current and former employees have also been fined up to €500,000 each. The regulator did not determine whether the accounting firm acted with intent or negligence, dodging a contentious question over potential criminal and civil liabilities. Wirecard collapsed in June 2020 in one of Europe’s largest postwar accounting scandals after it emerged that half of its revenue and €1.9bn in corporate cash did not exist. EY has lost several large audit clients following the scandal, and Apas and the German economic ministry had no immediate comment on the ruling. EY said it would only comment once Apas had issued an official statement, highlighting that it had cooperated fully with the watchdog during the investigation and had learned important lessons from the case.
The decision by the German audit watchdog to ban EY over its Wirecard work sends a strong message to the accounting industry that lapses in due diligence will not be taken lightly. It also puts the spotlight on the need for greater accountability and transparency from accounting firms who are tasked with ensuring financial stability and integrity. As the Wirecard scandal continues to unravel, it’s clear that more needs to be done to prevent similar incidents from occurring in the future. The fallout from this case will undoubtedly lead to greater scrutiny and reforms within the accounting profession, ultimately benefiting both investors and the wider public.
