Arthur Anderson Squared

It increasingly appears that accounting firm Ernst & Young covered up fraud by the defunct German electronic payments firm Wirecard.

Here's hoping that regulators go medieval on their ass:

Germany’s audit watchdog suspects EY partners knew they were issuing a “factually inaccurate” audit for Wirecard in 2017, according to four people familiar with the matter.

Apas, the Berlin-based audit oversight body, has reported EY to prosecutors, telling them that the firm may have acted criminally during its work for Wirecard, which collapsed into insolvency earlier this year in one of Europe’s largest fraud scandals.

Wirecard, a once high-flying German payments company, was audited by EY for more than a decade and until 2019 always received unqualified audits.

However, in 2017 EY was just days away from denying Wirecard the crucial all-clear, according to documents reviewed by Apas. On March 29 of that year EY warned Wirecard that a qualified audit was imminent and shared a draft version of a qualified opinion with its client, people familiar with the documents told the FT.

………

Just days later, the auditors changed their minds. On April 5, they signed an audit opinion that stated: “Our audit has not led to any reservations.”

Apas found that it was unreasonable to believe that the issues could have been resolved within a few days, according to people familiar with the matter. The watchdog told prosecutors that therefore EY’s unqualified audit was “factually inaccurate”.

Last week the EY auditing partners, Andreas Loetscher and Martin Dahmen told MPs that they were being probed by Apas over their work for Wirecard and declined to give testimony to the parliamentary inquiry commission into Wirecard.

………

Munich prosecutors are evaluating the evidence sent by Apas and have not decided whether to open a criminal investigation of EY partners. Under German law, auditors found guilty of such misconduct can be punished with up to three years in jail.

I'm rooting for Munich prosecutors to do the right thing here, which, in light of prosecutions in Munich, feels a bit strange to me.

Prosecutions, even without convictions serve as a deterrent, and convictions, even with relative short sentences are a real deterrent.