Sven Giegold
Member of the European Parliament – Greens/EFA Group

Speaker of the German Green Delegation

Auditor in the Wirecard case: Fatal incentive structures need reform

An investigation by the Handelsblatt shows that the auditors at EY no longer “believed in the innocence of the management” of Wirecard already in early 2019. Previously, incriminating material had been leaked to the audit firm by a whistleblower. Wirecard’s supervisory board also knew about the auditors’ concerns. But EY caved in: Only weeks later, the auditors signed off on Wirecard’s 2018 annual accounts. Critical wordings were additionally weakened at Wirecard’s insistence. Behind closed doors, the auditors urged Wirecard to strengthen its internal control systems. But for the public, the company’s shining reputation remained.

Already in June 2020, together with my liberal colleague Luis Garicano, I called for the right lessons to be learned from the Wirecard disaster. Our joint call can be read here.

 

MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:

“The investigations by the Handelsblatt once again clearly show why the current audit system repeatedly leads to scandals. EY already had serious doubts about Wirecard at the beginning of 2019 and nevertheless signed off on its 2018 financial statements. Critical wordings by the auditors were weakened at Wirecard’s insistence. The fact that companies pay their own auditors is a fundamental system error. This economically rewards lax auditing. Those who ask too critical questions risk losing mandates. This gives fraudulent companies the upper hand. We have to turn this imbalance of power on its head.

Critical auditing must pay off again. To ensure this, we must repair the fatal incentive structures. Auditors should not be appointed by the companies themselves, but by a body committed to the common good. In addition, the parallel consulting business by audit firms must come to an end. This would tackle the root of the problem. The EU should act and reform its Audit Regulation. In the current debate, an increased rotation of audit firms and higher liability limits are being discussed. That alone will not be enough as long as the fundamental incentive problems remain unsolved.”

 

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Investigation by the Handelsblatt:
https://www.handelsblatt.com/finanzen/banken-versicherungen/neue-dokumente-fruehe-zweifel-an-wirecard-ey-glaubt-nicht-an-die-unschuld-des-managements/26906070.html?share=twitter

Joint call by Luis Garicano and myself for a reform of statutory audit:
https://sven-giegold.de/en/liberals-and-greens-call-for-wp-reform/

 

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