F.Finance Minister Olaf Scholz and Justice Minister Christine Lambrecht (both SPD) will present an action plan this Wednesday “to combat balance sheet fraud and to strengthen control over capital and financial markets”. The two politicians are reacting to the Wirecard accounting scandal. The former Dax group had manipulated its annual reports for years. After the payment service provider had admitted air bookings of 1.9 billion euros, it had to file for bankruptcy.
“There are coincidences”, one day before the start of the committee of inquiry, Scholz came with it, said the Green finance politician Danyal Bayaz of the F.A.Z. This Thursday is the constituent meeting of the committee, which is supposed to clarify, among other things, why neither auditors nor financial regulators uncovered the balance sheet manipulation earlier – especially since there have been reports from abroad for a long time. Bayaz is chairman of the Greens on the committee.
“In order to strengthen trust in the German financial market over the long term, we must draw the necessary conclusions from the events in connection with Wirecard AG,” says the introductory concept that the two ministers intend to present today at 2:15 pm. “To this end, we will quickly and thoroughly clarify what happened and how it came about.” This analysis is not yet fully completed. “Nevertheless, on the basis of the current knowledge, initial conclusions can already be drawn for improving the fight against accounting fraud and for strengthening control over capital and financial markets.”
The Bafin is to be given powers over listed companies
The central point of the concept is to strengthen Bafin’s financial supervision. “We will fundamentally reform the two-stage balance sheet control procedure, which is geared towards consensual participation of the audited companies, in favor of a balance sheet control process that is more strongly shaped by the state,” is the thrust. “The Bafin must be able to act directly and immediately with sovereign powers vis-à-vis capital market companies.”
They need the right to audit all capital market-oriented companies, including the right to information against third parties, the possibility of forensic audits and the right to inform the public earlier than before about their approach to auditing the balance sheet. So far, the state Bafin has not had such rights. Therefore, in February 2019, it commissioned the German accounting auditor (DPR), which is organized under private law, to take a closer look at Wirecard’s accounts for the first half of 2018.
However, this test dragged on for an extremely long time. According to Scholz and Lambrecht, the new regulation gives Bafin control over the audit process “and ensures that sovereign funds are available in all audit phases”. In this way, balance sheet controls would be faster, more transparent and more effective overall. “We are examining how an inspection body organized under private law can also take on a function in the audit of financial statements in the future.”
Audit firms should separate more strictly between consultants and auditors
In addition, according to the concept presented, the federal government plans to strengthen the independence of the auditors “by providing for a mandatory external auditor rotation after ten years for capital market companies”. In addition, the separation between auditing and advice is to be sharpened, but only “in the case of companies of public interest”. In addition, the civil law liability of auditors for breaches of duty is checked in order to promote the quality of the audit.
As if that weren’t enough, it goes on to say: “We will take measures to strengthen the corporate governance of listed companies, in particular to establish appropriate and effective internal control and risk management systems, to establish an audit committee and to strengthen the information rights of the supervisory board.” Combating money laundering is named a series of measures that should be intensified, improved or examined.
The Greens MP Bayaz called the action plan a disappointment. As an answer to the Wirecard scandal, it offers little more than the announcement to examine this or that. “Olaf Scholz tries his hand at being a great enlightener by pretending to be busy exactly one day before the start of the investigation committee.” Especially in the area of the supervisory authorities and their cooperation, there is hardly anything concrete from the federal government. Not even in the case of private financial transactions of the Bafin employees is the federal government as far as the authority itself. While Scholz wanted to investigate, the Bafin had prohibited its employees from trading with supervised companies in the future. “One wonders whether one hand knows what the other is doing.”