Wirecard: An Institutional Failure? Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Wirecard: An Institutional Failure? Case Study Help

Introduction

One of the biggest corporate scandals in recent memory was the German payment processing firm Wirecard. The business, which was established in 1999, expanded quickly and eventually evolved to become one of Europe's biggest payment processors. In contrast, it was discovered in 2020 that Wirecard had used dishonest accounting techniques to inflate its revenues and profits by billions of euros. As a result, the business failed, its stock price fell, and CEO Markus Braun was detained.

Many people believe that the affair represents an institutional failure because various important players failed to recognize and stop the illegal activities at Wirecard. Several parties, including regulators, auditors, banks, and investors, are involved in this institutional failure. Serious concerns have been raised about the effectiveness of financial regulation and auditing and have highlighted the need for greater transparency and accountability in the financial sector.

Development and its link to Audit Quality

In terms of development, the Wirecard incident has brought to light several flaws in the institutional and legal systems that control financial reporting and auditing. Since the organization’s financial statements were examined by one of the top auditing companies in the world, Ernst & Young (EY), which missed the fraud in the case, for instance, showed vulnerabilities in the auditing process.

More regulatory control of the auditing sector has been demanded as a result of the scandal, along with changes to strengthen the independence and responsibility of auditors. The case has also sparked concerns about the necessity of stronger whistleblower protections as well as the significance of good corporate governance and transparency.

The Wirecard scandal has effects on supervision that extend beyond the audit sector. The incident has shown gaps in the oversight and regulatory systems that made it possible for the fraud to happen and go unnoticed for so long. The necessity for more extensive regulatory control is one of the major supervisory consequences of the Wirecard case. The crisis has brought attention to the necessity of robust and functional regulatory structures that can identify and stop fraudulent activity.

This covers both general financial sector oversight and oversight of the audit industry. The requirement for increased international cooperation is another supervisory implication. The fraud in the Wirecard case, which involved a vast network of organizations, was able to go unnoticed for so long in part due to insufficient coordination between national regulators. To stop future frauds, there has to be more cooperation and information sharing among regulators from different jurisdictions

The Wirecard issue has sparked debate on the effectiveness of auditing in identifying and preventing fraud as well as the caliber of the audit services offered by organizations like EY. The case has also brought to light the significance of auditor independence and skepticism in assuring the credibility and correctness of financial accounts. In general, serves as a reminder of the crucial role that auditing plays in preserving the integrity of financial markets and the necessity for continual reforms to strengthen the institutional and regulatory frameworks governing financial reporting and auditing.

Proposed Measure for Safeguarding Audit Quality

Few measures are proposed to prove the protection of audit quality inside the organization. These proposed measures are increasing governmental monitoring, and regulatory control, and enhancing the role of the internal auditor. All of these measures help to provide strength and control over the audit procedure.

Governmental Monitoring

Government financial sector oversight has been under increased pressure as a result of the Wirecard affair, notably in Germany where the company was headquartered. The incident has shown gaps in the oversight and regulatory systems that made it possible for the fraud to happen and go unnoticed for so long. The absence of effective supervision by the German financial regulator, BaFin, was one of the primary problems with governmental oversight in the context of the Wirecard case. For numerous years, allegations of financial irregularities at Wirecard had been known to BaFin, but no action was taken.

In fact, rather than the business itself, BaFin had started an inquiry into the journalists who had brought up concerns about Wirecard. There have been proposals for increased governmental oversight of the regulator itself as a result of BaFin's failure to identify and stop the fraud at Wirecard. To make sure that regulators are performing their jobs efficiently and in the best interests of investors, there is a need for increased transparency and accountability in their operations.

Increasing governmental monitoring of auditors is one suggestion made to protect audit quality in the wake of the Wirecard affair. This can entail strengthening the independence and responsibility of audit committees, mandating more stringent sanctions for non-compliance, and mandating frequent and thorough inspections of auditing firms............

Wirecard An Institutional Failure Case Study Help