The recent scandal in Germany starring one of the largest digital payment companies in Europe, highly unreliable role of the four major international audit firms, as in the case of Enron Corporation (2001) in the USA.
Wirecard AG is an insolvent German payment processor and financial services provider at the center of a financial scandal in Germany. The company offers its customers electronic payment transaction services and risk management, as well as the issuing and processing of physical cards. In June 2020, the company reported €1,9 billion in cash missing. The CEO of the company Markus Braun resigned and was arrested.
By Thanos S. Chonthrogiannis
©The law of intellectual property is prohibited in any way unlawful use/appropriation of this article, with heavy civil and criminal penalties for the infringer.
Wirecard AG’s audit firm Ernst & Young (EY) described the case as a “highly elaborate fraud” and since Ernst & Young is included in a class action lawsuit against it because of its main audit role in the Wirecard AG.
On the other hand, there are not a few who argue that the relevant German Regulatory Authority, BaFin (Federal Financial Supervisory Authority), which works closely with the European Central Bank (ECB), accuses it of poor oversight as always does when such a scandal occurs.
The four major international audit firms Ernst & Young, KPMG, Deloitte, and PricewaterhouseCoopers, have developed a strong connection in the political-economic world of each country in which they operate, making it exceedingly difficult to control them.
In addition, these strong links fully affect the competent regulatory authorities and given that many executives and heads of these competent regulators are former executives and heads of these four major international audit firms.
The Solutions that should exist in a functional regulatory supervisory framework
A country that wants to put an end to all this vulnerable things that will be discussed every time a scandal like that of Wirecard AG and Enron Corporation breaks out, it will have to impose a strict regulatory framework with clear and inviolable rules such as::
1. These large international audit firms should be broken up by fully separating their auditing sector from their advisory field. This can be done with the Government of a country voting on a bill expressly prohibiting audit firms providing audit services to undertakings from providing both advisory services to the same undertakings.
At the same time, a law should be imposed stipulating that companies offering audit services will also be prohibited from offering advisory services. In this case, all these audit firms are forced to split.
2. It should be defined by law that executives and former heads of these four majors international audit firms carrying out audits will be prohibited from participating, participating in and working in major market and industry supervisor bodies respectively and for seven consecutive years from the date of their departure from the audit firms.
3. It should be established that audit firms carrying out audits should be obliged to contribute a certain amount-which will be a specific percentage of the remuneration they receive from each service/work(insurance premium)-to a joint treasury/fund so that the amounts accumulated will be used as compensation to the shareholders and creditors of a company in which it is shown that money has been lost.
This policy will act as an insurance policy for the shareholders and creditors of a company that follows the control mechanisms and trusts the audit firms so that in the event of their company going bankrupt from a loss of money they can be compensated.
A regulatory framework like this above could drastically limit the occurrence of scandals such as Enron Corporation and Wirecard AG.
