The finance minister wants to pass a law to prevent manipulation like that at Wirecard from happening again. But this is not enough, says an economist.
Wants to prevent balance sheet manipulation like Wirecard in the future: Finance Minister Olaf Scholz Photo: Florian Gaertner/photothek/imago
site: Ms. Rinker, in the coming months the Bundestag will debate a bill with which Finance Minister Olaf Scholz wants to prevent balance sheet manipulation like that at the former Dax company Wirecard from happening again. Is the draft law up to the task?
No. There are some good approaches, for example that supervisory boards of companies will be more closely involved in balance sheet control in the future. But overall, the draft law is not consistent enough.
For example, companies will have to appoint a different auditing firm every ten years. But the respective employees do not have to change, so the same people can audit for longer.
Minister Scholz says the financial supervisory authority is getting more bite. Is that true?
To a certain extent, yes. But there are problems that are not being solved. The German Financial Reporting Enforcement Panel, which is organized under private law, will continue to be responsible for auditing financial statements. But so is Bafin. Germany is taking a special path with this two-tier balance sheet control. Economist Hans-Joachim Bocking from the University of Frankfurt am Main has written a 100-page report on the question of who should actually have been responsible in the Wirecard case. The problem with Wirecard was that no one felt responsible. Everyone saw themselves as victims. This can only be remedied if we simplify responsibilities. We need a one-tier system to resolve this confusion of competencies.
Who should be in charge?
Definitely the government side. Preferably in one institution, perhaps in several departments. The most important adjusting screw to prevent a new Wirecard case is to speed up detection.
EY’s auditors have been reviewing Wirecard’s balance sheets since 2009 and have not sounded the alarm. In France, there is a rotation requirement of five years. Would that make sense for Germany?
Auditors have to familiarize themselves with a mandate, so five years is very short. The aim must be to improve the quality of the audit. To this end, it is particularly important to strengthen the smaller auditing firms alongside the so-called Big4 – EY, PwC, KPMG and Deloitte. The liability limits, for example, should be based on the turnover of the audit firms and not set at a flat rate. Otherwise, market concentration will intensify. That certainly does not lead to better audit quality.
Would it perhaps make sense in this country, as in France, for a small and a large auditing firm to have to jointly audit the balance sheets of stock corporations?
There should at least be the possibility. But the present draft law does not create any incentives for this. In an international comparison, the fees for auditors in Germany are low. They average 0.09 percent of company sales for German companies listed in the Russell, the world’s largest stock index, 0.13 percent for European companies and 0.39 percent for U.S. companies. It could make sense to introduce a fee scale similar to that for notaries. If the fees are too low, there is a danger that savings will be made in some areas during the audit.
The 34-year-old is a management consultant and balance sheet expert. Among other things, the economist trains employees of the Federal Criminal Police Office on the subject of accounting fraud and was an expert in the Bundestag investigative committee on the Wirecard scandal. She believes it would be helpful if the auditor oversight body also denounced auditing firms by name when they have failed.
Wouldn’t it be better if the state dispensed with private auditors and took the entire balance sheet control into its own hands?
The fact that the auditors are in some way in competition with each other means that they also have an incentive to do a good job. If the state takes over, there is no competition in this sense. What would also significantly improve the quality of the audit would be the auditors’ fear of a loss of reputation. So far, the auditor oversight body Apas publishes errors made by auditors only anonymously. In the UK, the name of the audit firm is also published in the event of major deficiencies. Of course, as an audit firm, you don’t want that.
Apas did not cut a good figure in the Wirecard case either. Ralf Bose, the head of Apas, who has since been dismissed, bought Wirecard shares even though his agency was involved in the case.
Apas controls the auditors, but if it’s not strict enough, it’s no good. Apas and the German Financial Reporting Enforcement Panel need to do more public reporting. If the Panel finds errors, it will be published in the Federal Gazette. But if you’re not well versed in financial statements, you don’t understand that. This information should be published in such a way that it can be understood by someone who is not familiar with the ups and downs of international accounting. The entire audit process must become more transparent.