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After the Wirecard scandal: EY's audit mandates start to falter

2020-09-02T11:06:15.799Z


It is slowly becoming apparent what devastating economic consequences the Wirecard scandal could have for the auditor EY: The Supervisory Board of Commerzbank is apparently considering a change of auditor, the Deutsche Bank subsidiary DWS has already decided against EY.


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EY location in Berlin: In addition to the loss of reputation, there are probably also considerable economic consequences

Photo: HAYOUNG JEON / EPA-EFE / Shutterstock

After the Wirecard scandal, EY's auditors have increasingly had to worry about their mandates.

According to information from the "Süddeutsche Zeitung", the Supervisory Board of Commerzbank will deal today, Wednesday, with the question of whether the bank will continue to have the group figures audited by EY or whether it would be better to recommend a change of auditor to the general meeting.

A decision has not yet been made.

However, the supervisory board is concerned that the Wirecard scandal will get EY into trouble and that this could affect Commerzbank's review, an insider told the newspaper.

Neither Commerzbank nor EY wanted to comment on the report.

The fact that Commerzbank is even discussing the issue on the Supervisory Board is a warning signal for the auditors.

After all, it is time-consuming and legally difficult to change providers unexpectedly.

Companies need the approval of the general meeting and a good reason for this.

EY had checked Wirecard's balance sheets for a decade, but only discovered a 1.9 billion euro hole in the books of the now insolvent payment processor in June of this year.

The reputation of EY has suffered serious damage as a result, the auditing authority Apas determined.

After all, auditors in Germany are only liable to the company that hires them and not to third parties.

In the past, lawsuits from shareholders were therefore rarely successful.

So it is unlikely that EY will have to pay high damages.

Deutsche Bank subsidiary DWS decides against EY

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On Tuesday the Deutsche Bank subsidiary DWS decided to have its balance sheets checked by EY competitor KPMG.

Contrary to its previous preference, the DWS supervisory board decided not to propose EY as auditor for the 2020 financial year, the fund company announced in its invitation to the annual general meeting on November 18.

The Deutsche Bank, however, wants to hold on to EY as auditor so far.

"This decision was made as a precautionary measure, by mutual agreement and with careful consideration, in order to avoid possible future conflicts that could arise from EY's role as the auditor of Wirecard AG," said a DWS spokesman.

The fund company is examining legal steps against Wirecard and other parties involved.

DWS was one of the largest Wirecard shareholders for a while and had invested a lot of money from its investors in the payment processor.

EY regretted the DWS decision.

"We would of course have wished for a different result, but would like to emphasize that we are still in good and constructive dialogue with DWS," said a spokesman.

The audit mandate for EY was considered to be as good as certain until a few months ago.

The DWS spokesman said that the review of the 2020 half-year financial statements was already in their hands.

Unlike the fund company, the shareholders of Deutsche Bank have already appointed EY as auditor for 2020.

The general meeting took place in May.

The institute therefore does not want to change the decision.

"Deutsche Bank is not considering a change of auditor for 2020," said a spokesman.

"Our shareholders duly appointed EY at the 2020 Annual General Meeting. We will closely monitor all further developments and analyze their effects on the bank." 

KfW is also critical of the EY mandate

The members of the board of directors of the state development bank KfW, however, seem to have a different opinion.

According to a report by the "Handelsblatt", they have "stomach ache" when considering EY if a change of examiner is due there soon.

As with DWS and Commerzbank, the fact that they as lenders lost a lot of money with Wirecard should play a role: KfW probably almost 100 million euros, Commerzbank around 175 million euros.

Along with Deloitte, KPMG and PricewaterhouseCoopers (PwC), EY is one of the four largest accounting firms in the world.

The auditors are currently examining the balance sheets of eight of the 30 Dax companies.

Should several of its clients decide to withdraw their mandate, the company faces considerable financial losses.

It has also been clear since yesterday that there will be a parliamentary committee of inquiry into Wirecard.

This will make one of the biggest economic scandals in the Federal Republic the topic of the election campaign in the coming year - and possibly a burden for 

Olaf Scholz

 (62), the SPD's candidate for chancellor and the incumbent Federal Minister of Finance.

The financial supervisory authority Bafin is subordinate to his ministry.

The bankruptcy of the alleged German model company had cost numerous investors a fortune and damaged Germany's international reputation as a financial center.

mg / Reuters

Source: spiegel

All news articles on 2020-09-02

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