Germany Moves to Overhaul Accounting Oversight Amid Wirecard Scandal
By Nina Trentmann
Germany is overhauling its framework for accounting oversight
following a financial scandal at Wirecard AG, and is canceling the
existing regulator's contract after 2021.
The Federal Ministry of Justice and Consumer Protection is
working on a new regulatory setup together with the Federal
Ministry of Finance, a spokesman for the justice ministry said.
The justice ministry on Monday also canceled its contract with
the country's accounting watchdog, the Financial Reporting
Enforcement Panel, effective Dec. 31, 2021.
Aschheim, Germany-based Wirecard last week filed for insolvency
proceedings after disclosing a $2 billion accounting hole. The
once-high flying electronic-payments company and member of the
German Dax index of blue-chip companies on June 22 said the money
missing from its balance sheet probably doesn't exist, confirming
earlier reports by banks which said they never held the funds.
The events led to a meltdown of the company's stock and the exit
of Wirecard's chief executive, and triggered a debate among German
regulators questioning whether the current oversight regime was
"The Federal Ministry of Justice and Consumer Protection --
together with the Federal Ministry of Finance -- is currently
analyzing the extent of the need for reform...resulting from the
Wirecard balance sheet scandal. It is important to ensure effective
control at all times, " the spokesman for the justice ministry
The current regulator FREP was set up in 2004 in response to
various accounting scandals and fraud cases, including at Enron
Corp. The Berlin-based body is responsible for overseeing the
accounts of both listed and closely held companies in Germany. It
had 15 employees and a budget of just over $6 million in 2019,
according to its most recent annual report.
FREP conducted 86 investigations in 2019, up from 84 in the
prior year, and found issues in about 20% of those examinations,
the regulator said in its annual report. It has pursued some
prominent cases in the past, including one against sportswear maker
BaFin, Germany's banking regulator, asked FREP in February 2019
to look into Wirecard's 2018 financial results following tips from
a whistleblower, according to a spokeswoman. BaFin couldn't conduct
the investigation on its own because of the existing regulatory
structure that gave FREP the right to conduct the first probe, the
FREP didn't respond to a request for comment, and hasn't
commented on the results of its probe.
BaFin launched a separate investigation into potential market
manipulation by Wirecard in 2019. That investigation is still
ongoing, the spokeswoman said. BaFin President Felix Hufeld is
expected to attend a parliamentary committee hearing on the
Wirecard case on Wednesday.
The BaFin spokeswoman declined to say if BaFin would take over
accounting oversight at nonfinancial institutions, replacing
The case also is placing a spotlight on Wirecard's longtime
auditor Ernst & Young.
EY on June 25 said its client gave the auditor false
"There are clear indications that this was an elaborate and
sophisticated fraud, involving multiple parties around the world in
different institutions, with a deliberate aim of deception," the
company said in its statement.
The company declined to comment on its interactions with
The current debate in Germany about accounting oversight at
Wirecard mirrors a similar situation in the U.K., in which the
government is working to overhaul the existing regulatory framework
following a string of corporate failures.
The U.K. last year said it would launch a new regulator called
the Audit, Reporting and Governance Authority, and integrate the
existing watchdog, Financial Reporting Council, into it. Those
changes are still to happen.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
June 29, 2020 17:34 ET (21:34 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.