Baywa's audit assignment with PwC may face uncertainty
Title: Question Marks Over PwC's Audit Mandate at Baywa After Financial Scrutiny
The future of PriceWaterhouseCoopers (PwC) as Baywa's auditor hangs in the balance. Reports in Börsen-Zeitung suggest the supervisory board of the Munich-based conglomerate, owned by co-operative banks, is growing increasingly skeptical about PwC's performance.
This escalating doubt arose particularly in November, when the Federal Financial Supervisory Authority (BaFin) ordered an audit of Baywa's consolidated financial statements and management report for 2023. BaFin toed this line due to "concrete indications" of accounting regulation breaches under the German Securities Trading Act. Such potential inaccuracies included the presentation of the financial position and financing risks.
PwC may share partial responsibility for these errors as they gave an unqualified opinion on the consolidated balance sheet for 2023 in late March of last year, without flagging the precarious financial state of the former SDax member. This oversight could further complicate matters, especially given that the Auditor Oversight Authority (Apas) has initiated a supervisory procedure investigating PwC due to the Baywa case.
Such an image blow for the international big-four auditor has already made waves, with PwC previously landing in hot water in China. Authorities there levied fines against the company due to discovered audit deficiencies in connection with the troubled property group Evergrande.
PwC has been auditing Baywa since 2021, taking the mantle from Deloitte. They were likewise mandated for the 2024 consolidated financial statements, due on 27 March. At the Annual General Meeting (AGM) held on 11 June 2024, the Supervisory Board's proposal to appoint PwC again for the audit received over 99% approval, primarily via the votes of the two major shareholders. These shareholding vehicles represent credit cooperative primary banks from Bavaria (33.8%) and cooperative banks from Austria (28.1%), who together account for 62% of the share capital.
However, speculation surrounds whether the Supervisory Board will renew PwC's contract for 2025, with a shareholders' meeting scheduled for 27 May. The recommendation from the Audit Committee of the Supervisory Board is likely to prove pivotal in this matter. The Audit Committee usually puts forward proposed auditors responsible for annual financial statement audits.
With the financial crisis at Baywa looming large, the chances of PwC being granted another contract have plummeted. Under mounting pressure, Baywa might opt for a different firm for the next audit cycle.
The Chairman of the Audit Committee, Wilhelm-Josef Oberhofer, holds a key position in this unfolding scenario. At 56, Oberhofer is a member of the Board of Management at Raiffeisenbank Kempten-Oberallgäu and a shareholder in Baywa's largest single shareholder, Bayerische Raiffeisen Beteiligungs-AG. Oberhofer, a Supervisory Board member since 2015 and re-elected in 2024, is partially attributed to Baywa's troubles. Unlike his colleague Wolfgang Altmüller, who vacated the Supervisory Board in November, Oberhofer seems unwilling to draw personal conclusions from the dire situation at hand. Since early May, fellow banker Gregor Scheller has headed the Baywa Supervisory Board.
- The Audit Committee of the Supervisory Board, instrumental in selecting proposed auditors, may play a decisive role in determining whether PwC will continue as Baywa's auditor for 2025.
- Given the financial crisis at Baywa and the escalating doubt about PwC's performance, the chances of PwC being granted another contract for the next audit cycle are dwindling.
- In light of the ongoing investigation by the Auditor Oversight Authority (Apas) due to the Baywa case and potential audit deficiencies discovered in China, the finance industry is watchful of PwC's preparedness for the 2025 auditing mandate.
- The future readiness of PwC to meet the audit requirements of the industry and finance business, particularly Baywa, is under question due to the discovered deficiencies and the ongoing scrutiny by regulatory authorities.
