So by now, all of you have heard of Wirecard and the turmoil the company is in. So what exactly is the scandal and what is the background. Not worth writing a lengthy article on it. Here are quick points for your information.
1. Wirecard is a German company that links banks, retailers, and consumers. Basically an intermediary for an online transaction.
2. Started around in 1999, it grew exponentially between the periods 2015 to 2018 [that’s what they say]. At one point market cap was $24 billion euros. Now its around $6 billion. Spare a thought for the poor investors.
3. There were a lot of issues on the business model of the company. Not going into that now. We’ll focus on the current crisis that forced the company to file for bankruptcy.
4. EY was the independent auditor beginning from the period ending December 31, 2009. Audit fees was nominal in 2010 with the total payment being 292K euros
5. The below information is from Financial Times. For all enthusiasts who want to dig deeper, here is the link to the FT Article
March 2019 – FT reports half of Wirecard’s business is actually outsourced who then pay a commission to Wirecard. FT attempts to visit Wirecard offices in Philippines only to find a retired seaman and his family [Imagine living in a regional HQ of a global payments company. I’d take that]
April 2019 – SoftBank invests 900 million euros into the company. Seems like Wework is not the only laggard for the Japanese billionaire Masayoshi Son.
October 2019 – FT reports that profits in Dubai and Dublin offices were fraudulently inflated and customers in the list provided to EY for audit did not exist. KPMG appointed to conduct special audit.
March 2020 – EY postpones publication of full-year audited results. EY receives documents from a Wirecard trustee in Philippines confirming 1.9 billion euros held in two banks in the country.
April 2020 – KPMG report published. Report says KPMG cannot verify arrangements that are responsible for lion share of profits from 2016 to 2018. Also says no sufficient evidence for 1 billion euros of cash balance. Interestingly, CEO Braun tells investors that EY is ready to sign-off on 2019 results.
June 2020 – Philippine banks inform EY that documents detailing 1.9 billion euros of bank balance is spurious. Wirecard confirms 1.9 billion euros is missing. Also says previously issued audited results not reliable. [You bet!]. CEO Braun is arrested and on June 23, the company informs it will file for insolvency.
6. EY’s fees for 2018 was 2.3 million euros. [probably not worth the negative publicity its getting]
For all the first year associates out there. Cash confirmation is a critical audit procedure. Not sure enough credit is given for that when everyone is running behind impairment and what not! So hopefully you are now better informed for the latest accounting scandal.