The Wirecard auditor EY, to see the branch in Madrid, wants to bring the more lucrative consulting business to the stock exchange after a split.

Photo: APA/AFP/GABRIEL BOUYS

The auditors of the consulting company EY are apparently feeling the consequences of the Wirecard balance sheet scandal. After the payment service provider collapsed in 2020, EY, which had checked its souped-up balance sheets, was unable to land a new mandate as an auditor for a Dax group. Rather, according to a report by the Handelsblatt , EY's market share in the leading German index should decrease from 30 percent in the previous year to 20 percent by 2024.

Until the collapse of the Wirecard house of cards, EY was an up-and-coming competitor that had expanded business with DAX companies. However, the past as a Wirecard auditor should now catch up with the company, which has always rejected all allegations in this connection. "The damage to EY's image is clear. Many supervisory board members shy away from a commitment from the company because they are burdened with the Wirecard issue," says Jörg Hossenfelder, Managing Director of the German market research company Lünendonk & Hossenfelder.

Change of examiner

In 2016, audit firms were required to rotate, meaning that listed companies now have to switch providers at least every ten years. In the future, EY will only check eight instead of twelve of the 40 Dax companies. Siemens, for example, announced after 14 years with EY that from the 2023/24 financial year PwC will be examining the group's balance sheets. This means that PwC will remain the market leader in the Dax with a future 40 percent share. The winner of the so-called Big Four is Deloitte, whose market share will swell to 20 percent, followed closely by KPMG.

For the future, EY wants to reposition itself and split off the auditors from the more profitable consulting business. Officially not because of Wirecard, but because of regulatory developments. The UK Financial Reporting Council has asked the Big Four to separate auditing from consulting to avoid conflicts of interest. EY, where almost a third of the total turnover of 45.4 billion US dollars was generated with auditing, wants to be the first - and so far only - of the four companies to take this path.

Split by November

But the plans are being delayed, and the company is now aiming for implementation by November, assuming the partners agree. Especially since a fresh breeze is supposed to be blowing within EY: "After the Wirecard case, the mood among EY employees was certainly at freezing point. But that has clearly improved," says Daniel Nerlich, partner at Odgers Berndtson.

According to the Handelsblatt , a spin-off beckons executives to a rain of money, which is to be fed by a rapid IPO of the consulting company. EY partners in the testing division could receive cash payments. However, there are still risks lying dormant in Germany in particular: the auditor oversight Apas will soon decide on a possible penalty in connection with Wirecard. In addition, there is always a threat of negative headlines for EY because of the ongoing process against Wirecard ex-boss Markus Braun. (aha, 10.1.2023)