(Bloomberg) -- EY's German business has been banned for two years from accepting major new audit mandates, after it failed to uncover fraud at Wirecard AG.
Ernst & Young GmbH breached its professional duty when auditing the payments firm's annual reports for 2016, 2017 and 2018, Germany's audit watchdog APAS said in a statement Monday, which didn't mention EY by name. It levied a fine of €500,000 ($542,330) on EY and banned it from new audit work for companies of “public interest,” though it exempted contract renewals.
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The decision is the harshest regulatory consequence yet for EY Germany since Wirecard's demise almost three years ago. There have also been commercial repercussions including decisions by Commerzbank AG, KfW and DWS Group to move business away from the firm.
Wirecard went bankrupt after acknowledging that €1.9 billion it had listed as cash probably didn't exist. Although the collapse also exposed severe shortcomings at supervisors and banks, EY's repeated approvals of the firm's annual reports has attracted strong criticism.
“We regret that the collusive fraud at Wirecard was not uncovered earlier and we have learned important lessons from the case,” a spokesman for EY Germany said in an emailed statement. “The important thing is that EY Germany is a different company today”, the statement said, pointing to changes in the firm's fraud risk assessment and a new management team.
APAS also sanctioned five audit staff while saying it couldn't punish seven others because they had returned their audit license, effectively ending APAS jurisdiction over them. EY and the individuals can appeal the decision, the watchdog said in the statement.
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