Germany’s audit watchdog has postponed a long-awaited ruling on potential misconduct by EY during its work for collapsed payments group Wirecard, pushing the landmark case into next year.
The ruling by Apas, the auditing regulator, was originally scheduled for October, but after discussing 3,000 pages of a draft document, the five officials in charge of the investigation concluded they need more time, people familiar with the matter told the Financial Times.
The final decision has now been scheduled for mid-January and will be crucial for the Big Four firm’s future in Germany, the people added. Apas declined to comment about the investigation, which is not public under German law.
Once high-flying Wirecard crashed into insolvency in June 2020 after disclosing that half of its revenue and €1.9bn in corporate cash did not exist. EY had given Wirecard’s accounts a clean bill of health for close to a decade.
Apas has been investigating EY Germany over its Wirecard audits since before the payment firm’s insolvency. Twelve current and former EY employees and the firm itself are in its crosshairs over the audits of both Wirecard AG and its banking subsidiary Wirecard Bank from 2015 onwards.
Fines of up to €500,000 per person and per annual audit can add up to millions of euros should the watchdog conclude that the firm’s misconduct stretched over years. EY Germany can also be barred from audits of listed companies in Germany for up to three years, or from taking on new audit clients.
Moreover, the Big Four firm’s position in civil lawsuits with Wirecard shareholders suing for damages could worsen dramatically should the watchdog conclude that EY acted with intent rather than perhaps just negligence, according to lawyers familiar with the case.
Apas first filed a criminal complaint two years ago against EY partners who were in charge of the Wirecard audits, flagging to public prosecutors that they might have repeatedly violated their professional duties. A separate probe by auditor Rödl & Partner on behalf of a parliamentary inquiry committee last year flagged a number of serious shortcomings in EY’s Wirecard audits.
“It’s just unacceptable that the investigation is taking so long,” said Marc Liebscher, a Berlin-based litigation lawyer and board member of shareholder rights lobby group SdK. “How is it possible that Rödl & Partner’s investigation was concluded within six weeks, but Apas does not have a result after two and a half years?”
Matthias Hauer, a member of parliament for the conservative CDU who sat on the inquiry committee, said that Apas “has been pushed to the limit of its capability” in the Wirecard saga, adding that such important cases ought to be processed swiftly.
Hauer urged the government to make sure that the watchdog has all the resources it needs and is an attractive employer for experienced auditors. Almost 30 per cent of the job positions at Apas, which has a budget of €9.1mn, are currently vacant.
Another reason for the delay, which was first reported by German newspaper Frankfurter Allgemeine Zeitung, is that Apas itself has been shaken by the Wirecard scandal, according to people familiar with the matter.
The watchdog was briefed by EY about potential issues at the payments firm in early 2019 but did not intervene. A year later, Apas boss Ralf Bose bought and sold shares in Wirecard after the watchdog had started a case against EY. He was fired when this was made public during the parliamentary inquiry last year.
Bose’s successor Michael Sell is a former senior finance ministry official with no previous links to the audit industry. In his previous career as head of the finance ministry’s tax department, he earned a reputation for taking uncompromising and independent decisions.
Apas is one of two accounting watchdogs in Germany. While it looks at auditors and their actions, an arm of BaFin, the financial regulator, examines specific annual audits.
Germany’s economic ministry, which oversees Apas, pointed to the complexity of the EY case and the fact that any verdict must be legally watertight. “All affected individuals are represented by lawyers, who were repeatedly granted the legal right to access all documents and filed comprehensive statements,” the ministry said in a statement, adding that any Apas ruling might be challenged in court later.
“A thorough decision is more important than a fast one,” said one official familiar with the matter.
“The timing of the professional oversight proceedings is a matter of Apas. EY Germany has fully co-operated with Apas from the beginning of their investigation,” said EY in a statement.