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EY subsidiary in Germany has been Wirecard’s trusted auditor and with KfW accounting records under scrutiny by the German government the bank has indicated its readiness to drop EY in order to avoid conflict of interest.
Ernst and Young Global Limited (EY), one of the world’s big four accounting firms may be experiencing a strain in its business relations in Germany following its role in the Wirecard AG (ETR: WDI) scandal. As seen on The Straits Times, KfW, Germany’s third-largest bank by assets, may drop Ernst & Young as its auditor as EY continues to be plagued by its role in the country’s Wirecard accounting scandal. And EY failed in its most fundamental role to Wirecard who harbored fraud for periods spanning more than a year.
Recall that EY declared back in June that as much as €1.9 billion was missing from Wirecard’s balance sheet, a scandal that has sent the once highly regarded company down on its knees. The scandal has not only caused the plunge in Wirecard’s shares by about 99%, but the company’s corporate profile has also been badly affected. Bids to acquire some of Wirecard’s subsidiaries have also emerged since the scandal broke out.
EY subsidiary in Germany has been Wirecard’s trusted auditor and with KfW accounting records under scrutiny by the German government, the bank has indicated its readiness to drop EY, who doubles as its auditor, in order to avoid conflict of interest, although no decisions have been made yet, according to people familiar with the matter.
As The Strait Times reported, Commerzbank AG (ETR: CBK) and DWS Group GmbH & Co KgaA (ETR: DWS) have already moved away from EY on general allegations of poor work and conflicts of interest in recent years and more exodus of clients are likely. Atul Shah, a professor of accounting and finance at City University in London, noted that he would expect more companies who use the services of EY Germany to change auditors as management teams look to show they are taking the allegations at EY seriously. Prof Shah noted further:
“I have a feeling this is more of a German board reaction, and if they change their auditor they can at least say they did their bit to protect the company and the shareholders.”
EY Board Response to Cushion Wirecard Fueled Business Down Turn
As its German subsidiary is on the verge of taking hits from clients who are currently being projected to drop the firm, EY Chief Executive Officer Carmine Di Sibio has sent a letter seen by Bloomberg promising support to clients and the business’s unit in Germany.
“External reviews by local regulators of EY Germany’s audit work are likely to go on for several months,” he wrote in the letter, adding “We will provide EY Germany whatever they need to continue meeting the deservedly high-quality expectations of our clients and other stakeholders.”
While EY appears to be in the spotlight following its relationship with the embattled Wirecard, a professor at the University of Oxford’s Blavatnik School of Government, Karthik Ramanna has revealed that the absence of throughput in auditing services that places EY in this position is “an industrywide issue for auditing,” and not just an EY thing.