Ernst & Young sued over Wirecard as accounting woes add up
Accounting firm Ernst & Young was sued over its work for Wirecard AG, just two days after Wirecard’s headquarters were raided as part of a market manipulation probe.
The German lawsuit alleges that EY failed to flag that 1 billion euros ($1.1 billion) in assets were improperly booked on the payment processor’s 2018 accounts, Wolfgang Schirp, a lawyer for private investors, said in a statement on Monday.
The suit adds to a list of criticism over EY’s work, which peaked Friday with a London judge slamming the firm for its treatment of a whistle-blower during a trial that ended earlier this year. In addition, EY is being investigated by U.K. regulators over its audit of NMC Health Plc, the hospital administrator that collapsed in April.
EY representatives declined to comment on the case, which opens another front in a growing battle over Wirecard’s accounting and trustworthiness. Munich prosecutors on Friday raided Wirecard’s offices in a market-manipulation probe prompted by German financial watchdog Bafin.
They are reviewing whether Wirecard gave “misleading signals” to the markets in March and April. Wirecard on March 12 and April 22 had issued market releases about a special report from another audit firm, KPMG, into its accounting and business practices.
EY and KPMG belong to the so-called Big Four accountants, which all have been beset by criticism in the U.K. Several instances of firms’ failure to flag the struggles of companies prior to bankruptcies have brought calls to break up their audit and consulting units.
Wirecard, based in the town of Aschheim near Munich, has been battling allegations for more than a year after the Financial Times published a series of articles on accounting-fraud allegations at company units in Singapore and other Asian countries. In October, the FT reported that payments processed by a Dubai-based partner company in 2016 and 2017 may not have taken place.
Wirecard subsequently hired KPMG to look into the matter. In its April 22 releases, the fintech company said KPMG’s findings at the time hadn’t supported the fraud allegations.
But when it finally disclosed the KPMG report on April 28, it had to reveal that the auditor didn’t have all the necessary data from third parties to fully review the issue, prompting the stock to slump as much as 28 percent.