EY's Audits Scandal: Negligence, Relief, and Ongoing Repercussions

In a scandal involving EY's audits of Wirecard, the German audit watchdog found EY's conduct negligent and grossly negligent. However, criminal intent was not established, leading to relief within EY but resulting in an unflattering assessment. This ruling limited EY's liability in civil cases to €4mn, prompting the firm to drop its appeal against a penalty and a ban on taking on listed audit clients in Germany. The finding also triggered an investigation by Munich prosecutors, signaling ongoing repercussions for EY.

Key Takeaways

• EY's audits of Wirecard were deemed "negligent" and "grossly negligent" by German audit watchdog, Apas.
• An unflattering assessment by Apas did not establish criminal intent, limiting EY's liability to €4mn in civil cases.
• EY dropped its appeal against a penalty and audit ban in Germany, attributing this decision to the relatively favorable conclusion by Apas.
• EY lost significant market share among German blue-chips over the past four years and aims to regain it from 2026.
• Previous failures by EY in spotting signs of fraud risk and obtaining crucial account information have led to accusations of professional negligence.

Analysis

The scandal involving EY's audits of Wirecard has had significant repercussions on various stakeholders. EY's reputation has been marred, leading to limited liability in civil cases and a subsequent drop in market share among German blue-chips. The firm's decision to forgo an appeal signals recognition of the unfavorable assessment by Apas, impacting its future audit opportunities in Germany. The ongoing investigation by Munich prosecutors and accusations of professional negligence further compound the firm's challenges. In the long term, EY aims to regain market share by 2026, but its overall standing and credibility may continue to be called into question, affecting both the firm and its clients.

Did You Know?

• EY's audits of Wirecard were deemed "negligent" and "grossly negligent" by German audit watchdog, Apas.
• An unflattering assessment by Apas did not establish criminal intent, limiting EY's liability to €4mn in civil cases.
• EY dropped its appeal against a penalty and audit ban in Germany, attributing this decision to the relatively favorable conclusion by Apas.