Wirecard, a payment processor and financial services provider,
headquartered in Munich, Germany, filed for insolvency in June
2020. Three former employees including the CEO have been charged
with accounting fraud and manipulation. Wirecard is suspected to
have engaged in a series of fraudulent accounting activities to inflate
its profit. There was chatter of irregularities in the balance sheet and
money laundering as far back as 2008. In 2018 an investigation
began after a whistleblower alerted of a plan to fraudulently send
money to India via third parties. Nothing came of this investigation
but in 2019 the Financial Times published documents showing that
profits were being fraudulently overstated. Wirecard then requested
that KPMG conduct an independent investigation to address the
allegations to which they could not provide sufficient document to
disprove the accounting irregularities. Their Auditor EY refused to
sign off on Wirecard’s accounts and were unable to prove the 1.9
billion Euros in cash on trust accounts existed.
Earnings managements occurs when companies artificially inflate or
deflate their revenues, profits, or earnings per share figures. The five
most common techniques include Big Bath, Cookie Jar Reserves,
Operating Activities, Materiality and Revenue Recognition. Revenue
recognition applies to the Wirecard case. The head of accounting
was accused of creating forged and backdated contracts to artificially
inflate profit. One instance, money was moved between subsidiaries
and external businesses in a practice known as round-tripping. Round
tripping usually refers to the unethical practice of purchasing and
selling shares of the same security repeatedly in an attempt to
manipulate observers into believing that the security is in higher
demand than it actually is. Wirecard's combined banking and non-
banking operations make its financial results harder to compare, so
investors had to rely on adjusted versions of the financial statements.
The "adjusted" accounts, unlike the reporting required by IFRS,
resulted in inflated earnings and cash flow numbers.
"Chief of failed Wirecard group charged with fraud." Times [London,
England], 15 Mar. 2022, p. 42. Gale Academic OneFile,
link.gale.com/apps/doc/A696788079/AONE?u=nhc_main&sid=book
mark-AONE&xid=2d4ba2af. Accessed 13 Oct. 2022.
Mintz, S. (5e). Ethical Obligations and Decision Making in Accounting.
New York: McGraw Hill Education.
Reuters Staff. (2021, March 16). Timeline: The rise and fall of Wirecard,
a German tech champion. Retrieved from Reuters:
https://www.reuters.com/article/us-germany-wirecard-inquiry-
timeline/timeline-the-rise-and-fall-of-wirecard-a-german-tech-
champion-idUSKBN2B811J
Scott, G. (2022, May 23). Round-Trip Trading. Retrieved from
Investopedia: https://www.investopedia.com/terms/r/round-
triptrades.asp
The Wirecard Scandal Explained. (2020, June 29). Retrieved from
Accountancy Careers:
https://www.accountancycareers.co.uk/2020/06/the-wirecard-
scandal-explained/
Wirecard scandal. (2022, Oct 13). Retrieved from Wikipedia:
https://en.wikipedia.org/wiki/Wirecard_scandal
