Wirecard - Controversial Accounting Practices

Wirecard is a global internet technology provider which helps to process online payments. Established in 1999, Wirecard has benefited from rapid growth over the last 10 years and has been extremely popular with investors since its listing on the Frankfurt Stock Exchange. A lot of this growth can be attributed to their acquisitions of many smaller companies.

However, throughout its growth Wirecard has frequently found itself under scrutiny because of allegations of accounting malpractice. There have been reports and allegations of Wirecard conjuring up sales and profits in order to increase shareholder value and increase their share price to attract further investment from the Frankfurt Stock Exchange. When accused in the past, Markus Braun, the Chief Executive of Wirecard, played down these reports and allegations and claimed they were merely local difficulties in accounting which did not have any financial impact whatsoever.

Yesterday, The Financial Times published documents apparently highlighting how Wirecard had 'fraudulently inflated sales and profits' in both Dubai and Ireland. Wirecard's share price dropped from €139.95 on Monday at 5:30pm to €109.75 on Tuesday at 9:30am. The publication of these documents caused Wirecard's share price to plummet by 22%.

The documents published by the Financial Times shows one of Wirecard's partner processing companies based in Dubai, Al Alam Solutions, contributed half of Wirecard's total profits in 2016. Al Alam Solutions supposedly deals with 34 of Wirecard's biggest clients globally. However, 15 of those 34 clients claim to never have heard of Al Alam Solutions. A further 8 of those 34 clients have been shut down completely, yet these were still showing in Al Alam Solutions' finance reports. This begs the question as to where the €350m of payments that were recorded monthly from these 34 clients are actually coming from or if this money even exists.

The reckless unsustainable financial decisions of Wirecard have led to a decrease in share price and therefore, a decrease in Shareholder value. This is not in the best interest of any of the main primary objectives of Corporate Finance such as Revenue/Sales Maximisation, Profit Maximisation, Survival, Market Share Dominance, Social Responsibility and Shareholder Wealth Maximisation. 

Another problem caused by Wirecard's supposed fraudulent accounting practices is that it adds uncertainty and risk to investors decisions. This could lead to investors losing trust in companies and therefore halt further investment, not only for Wirecard, but for other companies as well. Wirecard's fraudulent accounting practices can damage both their employee's and shareholder's morale as well as threaten their continued existence as both their reputation and investors trust are tarnished.

From the evidence shown, it does appear Wirecard have been fraudulently creating false revenue and profits in order to drive up the share price and increase shareholder wealth. However, in doing this, the opposite has occurred as now their share price has dropped, and they have lost the trust of investors. However, saying this, the Wirecard's share price has continued to increase since the drop on Tuesday morning and has since increased by 14% to €125.35 at the time of writing which suggests investors have not lost their complete trust in Wirecard just yet. I am very interested to see what will happen regarding these documents and Wirecard's share price in the coming weeks and I would say the outcome would depend on the findings of the investigation into the controversial accounting practices of Wirecard.