Germany’s auditor oversight body, APAS, and the country’s federal financial supervisory authority, BaFIN, announced sanctions against audit firm Ernst & Young for its audit work of now-defunct payment card processor Wirecard.
Without identifying the firm by name, APAS announced that EY will be prohibited from taking on any new audits of companies of “public interest” in Germany for two years. EY was also fined 500,000 euros.
“The law expressly does not provide for a separate sanction for each individual breach of professional duty,” APAS said. “All relevant circumstances must be taken into account when determining sanctions.”
Five current and former EY auditors were also sanctioned and face potential fines of between 23,000 euros and 300,000 euros. “In the case of seven other auditors, the respective professional supervisory procedures were legally discontinued due to the waiver of their appointment as auditors,” APAS said.
In a statement, APAS said EY breached its professional duty concerning the audit of Wirecard’s financial statements for fiscal years 2016, 2017, and 2018. However, it provided no further details on EY’s specific violations.
APAS said it based its investigation on “the working papers of the auditing firm, the relevant communication of the parties involved, witness statements, information from third parties, and statements of the persons concerned.”
Wirecard filed for insolvency at the end of June 2020, three days after acknowledging a bombshell revelation that $2 billion in assets listed on its balance sheet likely did not exist. EY, Wirecard’s decadelong auditor, refused to sign off on the company’s 2019 financial report after the $2 billion discrepancy was discovered.
The massive accounting scandal also turned a spotlight on German authorities’ supervisory practices, following a peer-review report published in November 2020 by the European Securities and Markets Authority (ESMA). ESMA’s report analyzed the events leading up to Wirecard’s collapse, including the supervisory response of BaFin and the Financial Reporting Enforcement Panel (FREP).
According to ESMA, its review identified “a number of deficiencies, inefficiencies, and legal and procedural impediments” in the areas of “the independence of BaFin from issuers and government; market monitoring by both BaFin and FREP; examination procedures of FREP; and the effectiveness of the supervisory system in the area of financial reporting.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.