Audit Standards On Hot Seat In Wake Of Wirecard Scandal

The former chair of the London Stock Exchange is calling for a thorough overhaul of audit standards in the wake of the $2.1 billion Wirecard AG fraud fiasco.

Auditors should be required “to find fraud rather than stumble over it,” Donald Brydon, appointed last year to overhaul audit standards in the United Kingdom, told the Financial Times.

Brydon’s comments come as the spotlight in the Wirecard AG mess turns to Ernst & Young, or EY, which was in charge of auditing the accounts of the German payments processing firm.

Earlier this year, EY raised a red flag when it refused to sign off on Wirecard’s 2019 books, citing false statements and discrepancies around $1.12 billion that Wirecard had claimed was in a Singapore bank, but could not be found there.

However, reports in both The Wall Street Journal and the Financial Times have raised questions as to how exacting EY’s oversight of Wirecard’s accounts was in the years leading up to the accounting firm’s recent decision to blow the whistle. Many are now debating the role of auditors in fraud mitigation.

For its part, EY has in part blamed third parties for providing it with false documentation.

“Given the focus on Wirecard, making it clear that auditors have an obligation to find fraud rather than stumble over it would be a smart move to change auditor behaviour,” Brydon told the FT.

Law enforcement officials in Singapore, Munich, and the United Kingdom have launched investigations, while founder and now former Wirecard AG CEO Markus Braun has been arrested and faces charges of misrepresenting Wirecard’s accounts and market manipulation.

The scandal has also prompted a top player in the international payments sector to hint that changes in how the sector is regulated should be considered as well.

“As more details transpire, I think that we will be able to pinpoint if or not further supervisory or regulatory action is needed,” Augustin Carstens, president of the Bank for International Settlements, told reporters Tuesday, according to Reuters.