This paper addresses the Wirecard scandal of 2020 and aims to derive related corporate governance issues. An analyzation of proposed solutions that should help to provide similar future crises is also part of the investigation. Firstly, it is argued that there is a confusion concerning the responsibility among german supervisors which needs to be clarified. Additionally, it is discussed that early warning signs must not be neglected. Finally, suggestions for necessary modifications within the external and internal audit process are given and analyzed.
Table of Contents
1 Introduction to the Wirecard Case
2 Background Information about Wirecard
3 The scandal of Wirecard
4 Related Corporate Governance Issues
5 Lessons learned and proposed solutions
6 Summary and Outlook
Objectives and Topics
This paper aims to investigate the 2020 Wirecard scandal, identify critical corporate governance failures, and evaluate potential regulatory and structural solutions to prevent similar financial crises in the future.
- Analysis of the rise and subsequent insolvency of Wirecard.
- Evaluation of institutional oversight failures, specifically concerning BaFin and the German supervisory framework.
- Examination of the role and accountability of external auditors in preventing financial fraud.
- Investigation into internal control deficiencies and the necessity of robust Compliance Management Systems (CMS).
- Assessment of policy recommendations, including the establishment of a Single Capital Market Supervisor (ESCMS) and dual audit models.
Excerpt from the Book
Related Corporate Governance Issues
The Wirecard Scandal uncovers several shortcomings within the field of Corporate Governance. This chapter aims to analyze weaknesses on the side of institutional oversight as well as related corporate governance guidelines. Discussing the weaknesses of institutional oversight concerns a proper decision making of public authorities, ensuring trustworthy information channels and ensuring accuracy in external audits.
First of all, regarding proper decision-making of public authorities, the BaFin was blamed for having neglected existing signs of fraudulent behaviour at Wirecard (Krahnen & Langenbucher, 2020). Although the hindsight bias facilitates pointing fingers at someone, such claims have already been raised as early as 2015 by the FT. In this context, the European Securities and Markets Authority (ESMA) sees a lack of clarity in the German financial supervisory authority's responsibility.
"Apparently, there is a great confusion of responsibilities in the German financial supervision, which in the result leads to a lack of information exchange and a completely ineffective supervisory action." (Bender, 2020, n.p.).
The oversight of Wirecard did not fall under the direct regulatory supervision of the BaFin because the company was not defined as a financial holding company (Krahnen & Langenbucher, 2020). The first step in the legal process is to contact the "Deutsche Prüfstelle für Rechnungslegung" (DPR) before proceeding to BaFin (Krahnen & Langenbucher, 2020). Besides the regulatory confusion, the BaFin was furthermore blamed for giving wrong signals to investors. The two-month ban of short-selling was interpreted as a sign for the unfounded accusation of Wirecard and helped only slightly decrease the extreme volatility (Krahnen & Langenbucher, 2020).
Chapter Summary
1 Introduction to the Wirecard Case: This chapter introduces the collapse of Wirecard, highlighting the magnitude of the accounting fraud and the resulting loss of investor trust.
2 Background Information about Wirecard: This chapter traces the company's development from a venture capital startup in 1999 to its inclusion in the DAX index.
3 The scandal of Wirecard: This chapter details the timeline of the scandal, covering the allegations of accounting fraud, the failed audits, and the eventual insolvency filing.
4 Related Corporate Governance Issues: This chapter identifies specific failures in institutional oversight, external auditing, and the implementation of internal corporate governance principles.
5 Lessons learned and proposed solutions: This chapter analyzes potential reforms, such as the creation of a Single Capital Market Supervisor and the introduction of dual audit models.
6 Summary and Outlook: This chapter synthesizes the findings and emphasizes the necessity of structural reforms to maintain the reputation of the German financial marketplace.
Keywords
Wirecard, Wirecard Scandal, Corporate Governance, Auditing, Supervision, BaFin, Financial Markets, Accounting Fraud, Compliance Management System, Capital Markets, Investor Trust.
Frequently Asked Questions
What is the primary subject of this paper?
The paper examines the Wirecard scandal of 2020, analyzing the factors that led to the company's collapse and the subsequent implications for corporate governance.
What are the central themes of the work?
The core themes include institutional supervision, the effectiveness of external audits, the importance of information transparency, and the necessity of internal control mechanisms.
What is the research goal?
The research aims to identify corporate governance weaknesses revealed by the Wirecard case and to evaluate proposed solutions to prevent similar future crises.
Which methodology is applied?
The study uses a descriptive and analytical approach, synthesizing existing reports, investigative findings, and policy recommendations from various institutions.
What does the main body address?
The main body covers the history of Wirecard, the progression of the scandal, an analysis of governance shortcomings, and a discussion of proposed regulatory improvements.
Which keywords best describe the paper?
Key terms include Wirecard, Corporate Governance, Auditing, BaFin, Financial Fraud, and Supervision.
Why was the role of BaFin controversial?
BaFin faced criticism for its ineffective oversight, confusion of responsibilities with other bodies like the DPR, and its decision to ban short-selling, which arguably sent the wrong signals to the market.
What specific reforms are proposed regarding external audits?
The paper discusses potential reforms such as increasing auditor accountability, implementing dual audit models, and strengthening public audit oversight.
How did internal control failures contribute to the scandal?
The paper notes that Wirecard failed to adhere to the German Corporate Governance Code (DCGK), lacked a proper audit committee for a significant time, and suffered from weak management oversight.
What is the recommended role for the Single Capital Market Supervisor (ESCMS)?
The ESCMS is proposed to overcome regulatory fragmentation and conflicts, ensuring a more centralized and effective supervision of financial markets at the European level.
- Quote paper
- David Baur (Author), 2021, The Wirecard Scandal 2020. Wirecard and related Corporate Governance Issues, Munich, GRIN Verlag, https://www.grin.com/document/988669
