EY overhauls German partnership in effort to repair Wirecard damage

EY is overhauling its German partnership after one of the world’s biggest audit firms admitted that the demise of disgraced payments company Wirecard had damaged trust in its business.

As Wirecard’s longstanding auditor, EY has been under intense pressure since the payments group collapsed into insolvency last year in one of Germany’s largest accounting frauds. EY issued unqualified audits for Wirecard for about a decade.

Under a raft of changes announced on Thursday, Hubert Barth, who has led EY in Germany since 2016, will move to a “European” role, EY said, without giving further details.

The leadership of the German partnership will instead be split in two, with EY parachuting in Jean-Yves Jégourel, a French national who is EY Global’s vice-chair of assurance, to run the business alongside Henrik Ahlers, EY’s most senior tax partner in Germany.

“We recognised that we wanted to make some leadership changes, and that now is the right time to do them,” said Andy Baldwin, EY Global’s managing partner, told the Financial Times.

The Big Four audit firm said it would launch a quality improvement programme, which will commit EY in Germany to improving its internal governance over the next two years. “This is a substantial undertaking by the German firm,” said Baldwin.

The overhaul will be overseen by an independent expert commission to be chaired by former German finance minister Theo Waigel, who a decade ago had a similar role at Siemens following a corruption scandal at the engineering group. Germany’s former minister for economics, Brigitte Zypries, will be Waigel’s deputy.

“We are mindful that the Wirecard matter caused a loss of trust for us and the profession in general and it is important to take steps to rebuild that trust,” said Baldwin.

Munich prosecutors last year launched a criminal investigation into the EY partners who were in charge of the Wirecard audits after Germany’s audit watchdog filed a complaint, saying it found evidence that they might have violated their professional duties.

EY has denied any wrongdoing and says its employees acted in good faith. In December, it hit back at the audit watchdog, claiming that “in our opinion, we have not been sufficiently granted the legal right to be heard in this case so far”.

There is little sign of the pressure on EY easing, however. Matthias Hauer, an MP for Angela Merkel’s conservative CDU/CSU block and s member of the parliamentary inquiry into Wirecard’s failure, on Thursday called for the appointment of a special investigator to help MPs when they examine EY’s role.

Hauer said an experienced auditor was needed to support the inquiry as it worked through the scores of documents submitted by EY about its work for Wirecard. EY partners will testify to the inquiry in March after Germany’s highest court said earlier this month that client confidentiality rules were not an obstacle.

The FT revealed in June last year that EY failed for more than three years to request crucial account information from a Singapore bank where Wirecard claimed it had up to €1bn in cash — a routine audit procedure that could have uncovered the fraud.

The shake-up of EY Germany comes a day after EY announced a reorganisation of its operations in western Europe that will group together businesses with combined revenues of $4.65bn and 27,000 employees.

Under Barth’s leadership, EY made significant inroads into corporate Germany, winning market share from its rivals KPMG and PwC. However, several prestigious clients, including Commerzbank, Deutsche Bank’s asset manager DWS and state-owned lender KfW have walked away from EY in recent months.