By Paul J. Davies 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 29, 2020).

Shares in German electronics-payments giant Wirecard AG dropped more than 26% on Tuesday after a special audit reviewing allegations about some of its accounting practices left unanswered questions.

Wirecard, which has been celebrated as one of the biggest and fastest-growing European fintech companies, also said it wouldn't report its already delayed full-year 2019 results on Thursday. The company said it would complete its ordinary audit of 2019 results with its main auditor, E&Y in Germany, as soon as possible given the restrictions related to the coronavirus pandemic and the completion of the special audit by KPMG.

The German company has faced questions over aspects of its accounting for several years from hedge funds that bet against the company's shares as well as from media. Allegations of falsified transactions in its Singapore division led to an investigation by the Singaporean police's financial arm, the Commercial Affairs Division, which has yet to complete its probe.

The fintech company published the report by KPMG in German. It included some caveats, saying Wirecard didn't deliver all the documents requested by the auditor or delivered them several months later. It also said almost all documents submitted were electronic copies and couldn't be verified.

"Due to the lack of available documents or IT system access, some of the original investigative actions brought to the client's attention at the beginning of the investigation could not be carried out or could not be carried out in the manner originally intended," the KPMG report said.

"It is clear that KPMG still has work to do, many questions remain and the report does not give Wirecard the clean bill of health it hoped to receive," said Neil Campling, an analyst at Mirabaud Securities in London. "Information was withheld from KPMG, access to key contacts was postponed and authenticity of documents couldn't be verified."

The main area of investigation was into Wirecard's relationship with three third-party acquirers, which process payments on behalf of Wirecard customers. KPMG said that these partners accounted for the vast majority of sales of three Wirecard divisions and a major part of earnings before interest and tax for the group.

However, it added that there had been a lack of cooperation from these partners and KPMG had been unable to trace or verify any of the underlying transactions for the period it was investigating, 2016 to 2018. "KPMG can...neither make a statement that the sales revenue exists and the amount is correct, nor make a statement that the sales revenue does not exist and the amount is incorrect. In this regard, there is an obstacle to investigation."

Wirecard said in a statement Tuesday that "no incriminating evidence was found" regarding the accusations of balance-sheet manipulation. There have been no findings that would require a correction of the annual financial statements for 2016, 2017 and 2018, it said. KPMG sees no further need for an audit of Wirecard's business activities in Singapore beyond that done for its 2018 annual report, it added.

The Singapore allegations, first reported in the Financial Times in January 2019, put the group's shares under pressure. By early February of that year, the stock was down nearly 50% from its peak in September 2018.

In April 2019, the company announced a $1 billion investment from Japan's SoftBank, one of the world's most prolific technology investors. That lifted Wirecard shares 8.5% on the day it was announced. However, it later turned out SoftBank itself had put no money into the company.

The company's board ordered a special audit in October of allegations related to its Singapore operations as well as questions linked to a 2015 acquisition in India and its lending operations in Brazil and Turkey. Its longstanding chairman, Wulf Matthias, initially resisted calls for such a review from analysts and investors. He quit his role in January, while the company pledged to improve corporate governance.

Write to Paul J. Davies at paul.davies@wsj.com

 

(END) Dow Jones Newswires

April 29, 2020 02:47 ET (06:47 GMT)

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