Germany’s audit watchdog suspects EY partners knew they were issuing a “factually inaccurate” audit for Wirecard in 2017, according to four people familiar with the matter.
Apas, the Berlin-based audit oversight body, has reported EY to prosecutors, telling them that the firm may have acted criminally during its work for Wirecard, which collapsed into insolvency earlier this year in one of Europe’s largest fraud scandals.
Wirecard, a once high-flying German payments company, was audited by EY for more than a decade and until 2019 always received unqualified audits.
However, in 2017 EY was just days away from denying Wirecard the crucial all-clear, according to documents reviewed by Apas. On March 29 of that year EY warned Wirecard that a qualified audit was imminent and shared a draft version of a qualified opinion with its client, people familiar with the documents told the FT.
One of the sticking points raised by EY were protracted delays to a forensic audit by EY’s anti-fraud team into alleged accounting manipulations at a Wirecard subsidiary in India, which was being stonewalled by Wirecard executives.
Just days later, the auditors changed their minds. On April 5, they signed an audit opinion that stated: “Our audit has not led to any reservations.”
Apas found that it was unreasonable to believe that the issues could have been resolved within a few days, according to people familiar with the matter. The watchdog told prosecutors that therefore EY’s unqualified audit was “factually inaccurate”.
Last week the EY auditing partners, Andreas Loetscher and Martin Dahmen told MPs that they were being probed by Apas over their work for Wirecard and declined to give testimony to the parliamentary inquiry commission into Wirecard.
EY told the Financial Times on Monday that because of “the ongoing confidentiality obligation” the firm and Mr Dahmen were unable to discuss details of the audit procedures at Wirecard. 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”, the firm said.
The auditing firm stressed that it was “actively working towards a legally effective release from the confidentiality obligation after which we will be able to provide details”.
Mr Loetscher, who in 2018 left EY to become Deutsche Bank’s head of accounting, declined to comment. Apas previously said that it categorically does not comment about its work, pointing to strict legal confidentiality requirements.
Munich prosecutors are evaluating the evidence sent by Apas and have not decided whether to open a criminal investigation of EY partners. Under German law, auditors found guilty of such misconduct can be punished with up to three years in jail.