The effect of last year’s Wirecard scandal is still lingering, as the European Union has announced its intention to sharpen its rules for regulators and company financial reporting, Reuters reports.
On 25 June 2020, German financial services provider and payment processor Wirecard AG filed for insolvency. The reason—1.9 billion euros ($2.32 billion) was missing from its cash balances as a result of the inflation of its profits for years. CEO Markus Braun was arrested, and an investigation was initiated. Wirecard AG COO Jan Marsalek remains a fugitive.
Almost a year after “Germany’s biggest post-war fraud scandal,” the main culprits have been pointed out—the Federal Financial Supervisory Authority (BaFin) and Wirecard AG’s auditor Ernst & Young (EY) that failed to uncover the fraudulent practices within the company.
Although Wirecard AG had been the subject of accusations years before the scandal happened, little action was taken by BaFin, and EY’s audits reported nothing out of the ordinary. BaFin is currently undergoing core reforms, while EY has since been involved in a lawsuit and lost numerous high-profile clients, the latest being Deutsche Bank, according to Financial Times.
Wirecard AG may have filed for insolvency, but its subsidiaries are still running and offering services such as online banking, credit card processing, and payment transactions (via ecommerce websites or POS checkouts in markets and restaurants).
How Will Wirecard’s Failures Affect Others?
During a speech for the European Policy Centre on Thursday, the European commissioner for financial stability and financial services Mairéad McGuinness called the events from last year “a wake-up call,” adding that, “More and more board members should think twice if they are going to sit on a board and look at their wider responsibilities rather than just looking internally at the bottom line.”
Investigations during the past year have pointed out many irregularities in the internal quality control of EU auditing companies, including inappropriate monitoring and lack of documentation.
To combat this widespread problem, following this summer, McGuinness announced the launch of a public consultation to look into the auditing process—the audit committees, those who sign off on the companies’ financial figures, as well as those who supervise them.
The aim of this move is to discuss ways to improve the auditing process of companies and highlight the responsibility of the company board members to publish error-free reports.
92% of the market share for audit companies in the EU is held by the Big Four—PwC, KPMG, Deloitte, and EY. The reform is expected to create stronger competition between these companies and diversify the market.