The epic collapse of German payments company Wirecard continues to raise questions about its accounting firm for years, Ernst & Young (EY). Munich prosecutors have begun an investigation into EY’s audit of Wirecard, adding to its troubles associated with $2.1 billion that went missing at the payments company.
In addition, the Financial Times reports that an EY anti-fraud team warned in 2018 that “red-flag indicators” at Wirecard pointed to potential accounting manipulation, according to documents seen by the news outlet. Nonetheless, the EY team actually in charge of Wirecard’s annual audit decided no further probe was needed.
The warnings raised within EY only renew focus on its decade-long role as Wirecard’s auditor.
The FT said that new documents it reviewed show that EY’s anti-fraud team repeatedly pointed out problematic “observations” it had made during its investigation. For instance, EY had discovered that one-time revenues — such as proceeds from the sale of internet domains and IT infrastructure — were tacked onto operating profits. The probe also concluded that interest income was added to a gauge of operating profit that explicitly excludes such income.
Last week (Dec. 9), the head of accounting at Deutsche Bank, Andreas Loetscher, stepped down, in a move said to be temporary. That came after Duetsche Bank and Loetscher became part of the scope of authorities’ Wirecard investigations.
Before moving over to Duetsche Bank in 2018, Loetscher had previously been in charge of auditing Wirecard at EY, where he worked for over 20 years.
Loetscher is one of at least two Wirecard auditors under investigation by Apas, Germany’s audit oversight body, for potentially violating professional duties.
The FT reported Wednesday (Dec. 9) that it had reviewed an email to Duetsche Bank staff saying that Brigitte Bomm, global head of tax, would replace Loetscher effective immediately.
The report added that James von Moltke, the bank’s chief financial officer, told staff that Loetscher’s temporary replacement was taken “at Andreas’ request and in mutual agreement” and stressed that “this step is neither an acknowledgment of wrongdoing by Andreas nor a change of perception on the part of the bank.”