Munich prosecutors have launched a criminal investigation into EY partners over potential violations of professional duties during the audit of collapsed payments group Wirecard.
The investigation into the 2015-2017 audits comes just two months after Germany’s audit watchdog Apas told prosecutors in a 28-page letter that a preliminary assessment of EY’s work suggested that the auditors may have acted criminally during their work for Wirecard.
“We comprehensively evaluated the multi-paged letter. As it refers to specific suspects and penal provisions, we have [started] a criminal investigation against those named [in the letter],” Munich prosecutors said in a statement on Friday afternoon.
Apas stressed in the letter that its view is a “preliminary assessment” and “does not signify a conclusion or confirmation of any offences”.
Apas suspects that EY partners knew they were issuing “factually inaccurate” audits for Wirecard in 2017 and 2018. At the time, EY’s anti-fraud team was investigating allegations of accounting manipulation at an Indian subsidiary of Wirecard.
Apas suspects that those allegations were not properly disclosed in Wirecard’s 2016 audit report. In the 2017 audit report, EY stated that the forensic investigation had “concluded” without delivering “any evidence indicative of flawed accounting or other violations of law”.
The FT in September reported that the investigation had been terminated prematurely by Wirecard’s management after delivering several “red flags” that could have supported some of the accounting allegations.
Hailed as a rare German tech success, Wirecard collapsed into insolvency in June. Until last year, the company had received unqualified audits from EY for more than a decade.
The Big Four firm faces an avalanche of lawsuits from investors who lost billions in the Wirecard scandal. German MPs have criticised the firm for its work as well as its refusal to give testimony to a parliamentary commission of inquiry until it has been released from its confidentiality obligations by Germany’s highest court.
In its letter, Apas also claims that during the 2015 audit of Wirecard, EY partners failed to properly evaluate allegations that were raised by anonymous short sellers in the so-called Zatarra report.
In Germany, violations of professional standards by auditors can be punished with up to three years in jail.
EY has rejected the allegations raised by Apas. In a statement last week, EY said that based on its current understanding of the facts, “our colleagues conducted their audit procedures professionally, to the best of their knowledge and in good faith”, adding that there were “absolutely no indications for criminally relevant misconduct by EY auditors in the Wirecard case”.
EY also said it “has been fully supporting the investigations of the relevant government agencies from the start and will continue to do so”.
Earlier this week EY accused Apas of prematurely reporting suspected criminal misconduct to the prosecutors. “In our opinion, we have not been sufficiently granted the legal right to be heard in this case so far,” EY Germany said.