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EY committed “serious” and “repeated” breaches of professional duties in its reviews of defunct payments firm Wirecard, German watchdog Apas concluded on Friday.
Munich-based fintech company Wirecard collapsed in June 2020 after reporting that half of its revenue and €1.9 billion in corporate cash did not exist. EY, which has been Wirecard’s auditor for nearly a decade, had issued unqualified audit opinions.
The summary of the review, published on Friday, marks the official end of a multi-year investigation by the German watchdog.
Apas criticized the Big Four company’s “poor execution” of Wirecard audits, as well as its “insufficient audit reports” which led to the issuing of “objectively inaccurate audit opinions”.
The watchdog also reprimanded EY for the “serious failure” of its internal quality controls, adding that “several key executives” at the company committed “multiple breaches of professional duties” during the quality control process.
The regulator last year said it planned to fine EY Germany 500,000 euros over Wirecard audits and impose a two-year ban on the company from 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 euros, but those fines have yet to be formally finalized, according to people familiar with the matter.
In a brief comment on the Apas decision published alongside the regulator’s statement, EY said that, although it has decided not to legally challenge the Apas decision, this does not mean that it agrees with the conclusions and conclusions legal assessments by the supervisory authority.
Wirecard’s administrator and former investors are suing the company for billions of euros in damages, and Munich prosecutors have launched an investigation into several current and former EY partners for potential criminal conduct.
Apas did not provide an opinion on whether EY’s errors in the audits were intentional. People with direct knowledge of the ruling told the Financial Times earlier this week that the watchdog concluded the audits were “at a minimum” negligent, and in some cases grossly negligent, but did not demonstrate criminal intent.
The regulator said the breaches of professional duties by EY occurred over several years and occurred in seven different areas, including the incorrect validation of up to €1.9 billion of cash which Wirecard allegedly held in escrow accounts in Asia.
After Wirecard’s collapse, it emerged that EY for several years failed to request crucial account information from a Singapore bank where Wirecard claimed the money was deposited – a routine audit procedure that could have uncovered the massive fraud of the German payments group.
The watchdog also highlighted EY’s poor handling of red flags indicating irregularities.
The Big Four firm was warned in 2016 by one of its own employees that senior Wirecard executives may have committed fraud and one of them had attempted to bribe an auditor. That same year, Wirecard’s alleged trustee in Singapore, supposedly responsible for the escrow accounts, accidentally disclosed to the auditor that he was not holding any money on behalf of the German company.