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Wirecard Ethical Case: Summary and Analysis

Wirecard is a global provider of risk management and electronic payment services. The Wirecard ethical case involved the arrest of the company’s former CEO, who embezzled more than two billion dollars from the German company (Beerbaum 10). After the indignity was exposed to the public, the organization’s shares suddenly fell, and they lost about 90% of their value and made the company file for insolvency (Langenbucher et al. 11). The company’s balance sheet had been artificially inflated by the former CEO and other company members by creating transactions that never happened.

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The discovery happened when EY was hired to conduct an audit on Wirecard. The relevant facts about the Wirecard ethical case are board members failed in supervising the firm’s financial activities (Liao and Shao 24). There was a significant difference between the corporation’s accounting proceedings and its actual economic position, and it went unnoticed for about four years. The stakeholders in the Wirecard case are Markus Braun (Wirecard’s former CEO), Felix Hufeld, Bafin’s president, Financial Conduct Authority (FCA), and other multiple banks across the world.

Wirecard’s case is associated with several AICPA professional codes of conduct. The following are some of the principles that relate to the incident:

130.010 Knowing Misrepresentation in the Preparation of Financial Statements or Records

This code relates to Wirecard’s case because EY allowed the company’s financial statements to be misstated by about two billion dollars and failed to authenticate the company’s cash balances. EY was also unable to correct the financial statements that were materially false and misleading, and they had the full authority to record the entries.

320.001 Accounting Principle Rule

An EY employee raised concerns about signs of fraud, but EY went ahead to violate the accounting guidelines by continuing to present Wirecard’s financial reports with their unqualified opinion. The Accounting Principle states that a participant shall not (1) express an opinion or state affirmatively that the economic data or other financial statements are presented in conformity with the commonly acknowledged accounting principles (Jenkins et al. 174). Or (2) state that they are not conscious of any material alterations that ought to be made to such statements or data for them to comply with generally accepted accounting ideologies.

Wirecard auditors should have used various alternatives to mitigate the fraud. Ernst and Young (EY), who was the company’s auditors, could have checked thoroughly into Wirecard’s financial statements and verify the firm’s cash balance at the start instead of delivering unqualified opinions (Hucke 7). When taking the auditors’ job in 2008, Ernst and Young could have been keen on knowing that the German Company had suspected deficiencies in the past. Wirecard, on its part, could have disassociated itself from gambling companies because of the scandal it was involved in.

Numerous ethical implications are associated with the mentioned alternatives. Ernst and Young options would have allowed EY to avoid allegations they face today. If EY did not sign the Wirecard’s account without confirming the balances, the auditing company could not have provided wrong opinions and suffer scrutinization (Dermarkar and Hazgui 188). In the case of Wirecard, the alternatives would have helped the company to avoid its downfall.

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The most alternative ethical choice that EY would have made is scrutinizing Wirecard’s financial operations. The auditors should have included the deficiencies suspected in the audit and obtain more information to support the verbal reassurances made by Wirecard (Langenbucher et al. 11). If the information gathered by EY did not meet their auditing criteria, they would have offered an opposing opinion. EY should have noticed some red flags regarding the company’s financial health because two billion dollars were unaccounted for.

EY would have safeguarded itself when auditing Wirecard according to AICPA principles by applying multiple independent auditors, and duties should have been divided among them. Using numerous individuals and targeting areas of concern would have enabled EY to disclose the fraud that was going on in Wirecard. Earlier, EY could have used proactive tactics, which would have safeguarded it from falling into the line of fire when the fraud was uncovered.

Works Cited

Beerbaum Dr., Dirk. “Satyam Versus Wirecard – A Case Study Research on two Accounting Corporate Scandals.” SSRN Electronic Journal, 2021, pp. 8-12. Elsevier BV. Web.

Dermarkar, Simon, and Mouna Hazgui. “How Auditors Legitimize Commercialism: A Micro-discursive Analysis.” Critical Perspectives on Accounting, 2020, pp. 102-228. Elsevier BV. Web.

Hucke, Jonathan. “The Role of Audit Firms in Fraud Detection Against the Backdrop of Potential Conflicts of Interest.” Urn.Fi, 2020, pp. 4-9. Web.

Jenkins, J. Gregory et al. “Monitoring the Accounting Profession under the AICPA Code of Professional Conduct: An Analysis of State Board of Accountancy Participation.” Journal of Accounting and Public Policy, vol 39, no. 3, 2020, pp. 106-242. Elsevier BV. Web.

Langenbucher, Katja et al. What are the Wider Supervisory Implications of the Wirecard Case?. Econstor, 2020, pp. 9-20.

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