German parliament expands probe into EY’s audits of Wirecard

German MPs have asked a special investigator to expand a probe into EY’s audits of Wirecard after his initial report uncovered serious shortcomings.

The Big Four firm has been under intense scrutiny since last year’s collapse of Wirecard, which was awarded unqualified audits by EY for a decade.

Concern has grown in recent days after a report commissioned by a German parliamentary inquiry examining the scandal reached a damning verdict over the quality of EY’s work.

The report, which was seen by the Financial Times, describes how EY failed to spot fraud risk indicators, did not fully implement professional guidelines and, on key questions, relied on verbal assurances from executives.

The parliamentary inquiry committee this week unanimously agreed to give the report’s author, Martin Wambach, a partner at mid-sized accountancy firm Rödl & Partner, more time to expand his investigation.

Following a private hearing with Wambach on Tuesday, the special investigator now has until May to examine EY’s 2018 audit of Wirecard. His initial 91-page report focused on Wirecard’s financial reports up until 2017.

MPs also asked Wambach to examine “Project Ring”, a botched forensic investigation by EY into alleged accounting manipulations and bribery in India by Wirecard employees.

“The [first] Wambach report was extremely insightful for the committee and answers many questions for the 2014 to 2017 period,” said Matthias Hauer, a Conservative MP on the committee. All MPs on the committee agreed that investigations of later audits were important, he added.

The committee will further examine the findings of the initial report and any future insights from Wambach by late May and intend to question EY.

“I hope that EY will overcome its blockade mentality and won’t object to a public discussion,” said Hauer.

In a statement to the FT, EY said that the “clarification of the events at Wirecard is a top priority for EY. In this context, EY Germany has supported the investigations of the parliamentary inquiry committee from the beginning and will continue to do so.”

It added that EY Germany “will continue to fully co-operate with the special investigators, including an extended mandate”.

The firm is in discussions with the parliamentary committee over when and in what form Wambach’s initial report can be published, people familiar with the matter told the FT.

Rödl & Partner did not respond to a request for comment.

The decision to extend Wambach’s mandate carries risks for EY, which in February acknowledged that the Wirecard scandal had damaged trust in its business. The partnership has already lost some prestigious clients such as Deutsche Bank’s asset manager arm DWS, Commerzbank, public lender KfW and Deutsche Telekom.

EY partners responsible for the Wirecard audits are under criminal investigation over potential violations of rules while conducting their professional duties. The firm is also facing lawsuits from Wirecard’s shareholders and creditors.

“Wambach and his team did an excellent job,” said Florian Toncar, an MP for the Free Democrats. “With regard to the 2018 audit – the last one which was completed by EY – further detailed examinations, which are necessary, so far could not be conducted to a lack of time.”

In producing his initial report Wambach and his team had access to 90 gigabytes of EY data that included internal working papers and 40,000 emails.

“We do have additional questions after the report was presented to us, and Wambach was asked to help in answering them,” said Jens Zimmermann, an MP for the Social Democrats. “We need to turn around every stone,” he added.

EY has repeatedly said it was deceived by the fraud at Wirecard.

“Based on our information, the EY Germany auditors performed their audit procedures at Wirecard professionally, to the best of their knowledge and in good faith,” the firm said last week.

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