Dhe accounting scandal surrounding the former Dax company Wirecard has still not been finally clarified after almost two years. The auditor Martin Wambach from Rödl & Partner and other accounting experts therefore discussed on Wednesday at the Heinrich Heine University in Düsseldorf what lessons can be learned from the case. Stefan Süss, Dean of the Faculty of Economics, raised the question of what needs to happen so that such cases no longer occur. Wambach made it clear that auditors would have to reckon with being confronted with cases of fraud in the future. The economist Barbara Weißenberger is also of the opinion that accounting scandals like Wirecard cannot be completely contained. However, auditors are expected to oppose this.
For the auditors, the Wirecard insolvency in June 2020 was a debacle, also because the auditing company EY, which was responsible for the company for many years, discovered deep gaps in the balance sheet too late. EY now sees itself as cheated by Wirecard. The auditor Martin Wambach led an investigative team commissioned by the Wirecard investigative committee to help the members of the Bundestag to form an opinion as to whether the auditors could have contributed to an earlier discovery.
During his presentation in Düsseldorf, Wambach made it clear that he did not want to judge the work of his colleagues at EY. Instead, the auditing authority APAS, which wants to decide on possible sanctions against EY later this year, will make a judgment. The courts in Munich will also make a judgment, which will have to decide, among other things, on claims for damages by Wirecard victims against the auditing firm EY.
What does the testing standard of the testing institute IDW say?
Wambach hinted that in the Wirecard case, some facts had come to light that would make an auditor cringe. Wambach’s test results have already been widely reported, but he has not yet made public statements in as much detail as on Wednesday. The accounting expert named a whole list of warning signals that could have made us suspicious earlier in the Wirecard case. In doing so, Wambach relied on the auditing standard 210 of the auditing institute IDW, which contains numerous detailed indications of possible accounting fraud. What is it about in detail?
First of all, the audit standard warns of unusual, complicated and opaque transactions, as existed in the Wirecard case in the form of third-party business. The payment service provider had outsourced business areas to other companies on a large scale. In addition, high-ranking Wirecard managers repeatedly asserted that everything was fine in response to numerous critical voices and inquiries. There was also little willingness on the part of management to admit or correct mistakes. The IDW standard warns the auditors’ guild against such behavior, just as it does with Wirecard, where, according to Wambach, aggregated sums are often booked instead of individual transactions. Not to be forgotten was the warning signal of negative press reporting, which was not lacking in relation to Wirecard. However, Wambach also expressed understanding for the situation of the auditors, who in many companies are sent from one department to another in search of original documents and often end up in dead ends, where they are under great time pressure.
According to Wambach, when looking at various accounting scandals, it often turns out that they are based on very simple facts. In the Wirecard case, it was ultimately about liquid funds, i.e. a balance sheet item that is considered to be little risky and that relatively inexperienced audit assistants are often commissioned to check. Cash and bank balances are easy to check and evaluate – usually. In the equally spectacular Parmalat case, a CFO of the Italian food company clumsily forged a receipt for the gigantic sum of 400 million euros, and the scandalous company Comroad had achieved 90 percent of its sales with a subsidiary in Hong Kong, which, however, did not even exist. But nobody had checked that, although that would have involved little effort.
According to Wambach, what was also noticeable in the Wirecard case was that the company had not set up an internal audit and there was no audit committee on the supervisory board. However, these deficits mentioned by Wambach should not only have made the auditors more cautious, but also lenders and shareholders.
