The head of Germany’s new monetary reporting watchdog has lashed out on the nation’s auditors, accusing them of being “too close” to purchasers and calling for extra “professional scepticism” within the wake of Wirecard’s collapse.
In his first interview as BaFin’s head of accounting regulation, Thorsten Pötzsch took intention at “audit teams who are left unchanged for years” and audit corporations “who do not rotate” because the regulator tries to rebuild Germany’s battered repute after repeated monetary scandals.
“Auditors are required to exert professional scepticism. This . . . needs to be emphasised more than it was in the past,” Pötzsch, chief govt director of securities supervision, advised the Financial Times.
BaFin and Pötzsch changed Germany’s controversial Financial Reporting Enforcement Panel (FREP), a non-public sector physique with semi-official powers, in January after it was wound down following failures to analyze longstanding accounting allegations towards Wirecard.
The disgraced German funds group collapsed in 2020 after admitting that half of its revenues and €1.9bn in company money have been pretend, sending shockwaves by the nation’s political institution.
In the wake of the scandal, German lawmakers overhauled the nation’s accounting supervision, abolishing the FREP and giving BaFin intensive powers to probe the monetary accounts of Germany’s most essential listed teams. The authorities additionally tightened some guidelines for auditors, who lobbied arduous towards extra stringent adjustments.
But even because the regulator beefs up its powers, Pötzsch mentioned there remained a structural drawback. “We do not have enough firms that are able to audit large companies . . . we have an oligopoly.”
In Germany, KPMG, PwC, EY and Deloitte have a mixed market share of 80 per cent, in accordance with information by Lünendonk & Hossenfelder, a consultancy. Such focus of energy “does not lead to competition that is working. This is then surely reflected in real life,” mentioned Pötzsch.
The watchdog’s newly created accounting unit, which remains to be hiring, will ultimately have 60 workers, in contrast with a workers of simply 18 at FREP.
BaFin flexed its muscular tissues publicly earlier this month when it introduced that embattled German actual property group Adler overstated its 2019 accounts by as much as €233mn. The group mentioned it might take authorized motion towards the interim discovering of an ongoing BaFin probe.
“Our message to companies is that firms who are using illegal accounting shenanigans have no place in the German capital market,” mentioned Pötzsch, including that “the risk of getting caught has never been as high as it is today”.
Pötzsch in 2021 changed Elisabeth Roegele, who was accountable for BaFin’s controversial ban to brief Wirecard shares in 2020 and resigned throughout a parliamentary inquiry into the scandal.
From 2018, Pötzsch was accountable for BaFin’s decision and anti-money-laundering division and earned a repute for toughness after he publicly ordered Deutsche Bank to take motion to forestall cash laundering and terrorism financing, and — in an unprecedented transfer — appointed an unbiased monitor to test the lender’s progress.
“We will act where it is necessary,” Pötzsch advised the FT, including that BaFin’s accounting unit was intently co-operating with Germany’s felony prosecutors.
“If there are any indications of criminally relevant misconduct, we immediately reach out to the public prosecutors and share our insights,” he mentioned. He added that the watchdog had shut ties with legislation enforcement authorities and that BaFin had already flagged potential accounting manipulation to prosecutors. He declined to reveal which circumstances these have been.
BaFin is growing a monitoring system that makes use of publicly accessible and proprietary information to flag doubtlessly suspicious firms whose accounts want particular scrutiny.
One crimson flag would be the delayed publication of quarterly outcomes, which Pötzsch described as a “bad habit” and might be handled as a “clear indication that the affected firms deserve our scrutiny”.
