Deutsche Bank may leave EY as its auditor after the Wirecard scandal left the Big Four company under investigation and struggling to restore its reputation.
In an unusual move, Germany’s largest lender is inviting companies to compete for its 2022 audit just two years after it hired EY to replace KPMG, which had been checking the bank’s books for more than 60 years.
Paul Achleitner, president of Deutsche, told shareholders at the bank’s annual meeting on Thursday that the lender wants to “keep open all its options” regarding EY dates and “future uncertainties”. He added that opening the bid for his 2022 audit was a precautionary step.
However, the decision is a blow to EY, which conducted its first audit for the bank this year alone. The company has been under siege since Wirecard collapsed last June in one of Europe’s largest accounting frauds of recent decades.
After the implosion of Wirecard, which received a decade of unqualified checks from EY, the accounting firm lost several high-profile clients such as Deutsche Telekom, the asset manager of Deutsche Bank DWS, and also providers based in Frankfurt Commerzbank and KfW.
The three financial services companies have all lost hundreds of millions of euros in the Wirecard debacle and have indicated they could take EY to court. Deutsche Bank losses remain at € 18m as the provider covered most of its Wirecard exposure.
Until last year, EY had increased its market share among blue German companies, winning mandates from Volkswagen and Lufthansa alongside Deutsche.
Organizing a competition for a new auditor is a complex and costly process that companies tend to avoid. Under German law, banks are now required to change their auditors after 10 years.
In a statement, EY said that “by holding an offer, Deutsche Bank’s supervisory board keeps all options open and this does not automatically imply an audit change.” He will participate in the bid for the 2022 audit, the company added.
EY invoiced 580,000 hours to Deutsche during its 2020 audit of the bank.
“The first audit is certainly particularly difficult because they need to get acquainted for the first time [their client’s] systems and processes, ”Achleitner said.
“During the transfer of the mandate from KPMG to EY and during the audit by EY, the supervisory board did not find a reason for an objection questioning the quality or independence of EY,” the president added, which supports the board’s move to maintain EY for the 2021 audit.
Shareholders at Deutsche’s annual meeting supported the move to keep EY for the bank’s 2021 audit with a 99.3 percent majority.
Deutsche in 2018 hired Andreas Loetscher, the EY partner who had led the most recent Wirecard audits, as its chief accounting officer. Loetscher temporarily he walked away from his role in December after Munich prosecutors opened a criminal investigation into the potential violation of professional functions during the Wirecard audit.
James von Moltke, chief financial officer of Deutsche, told shareholders on Thursday that Loetscher would remain by the time the case was resolved. Von Moltke emphasized that the presumption of innocence was applied to Loetscher, which was done on the one hand to “avoid conflicts of interest, or the occurrence of conflicts of interest.” Loetscher declined to comment.
EY’s work as a Wirecard auditor has been under scrutiny by a German parliamentary committee investigation into the fraud. A special investigator led by the committee found in two report that EY’s controls have suffered seriously shortcomings.
At a hearing this month, an anti-fraud specialist in EY told lawmakers that he found the actions of his control colleagues “Incomprehensible.”
EY Germany this year announced a change of leadership and a quality improvement program. The company said it was cheated by the fraud.