Matrix of Responsibility and Conflict of Interest of Auditing Companies Big 4: The Wirecard Story
Wirecard (the company used to be the pride of Germany, filed for bankruptcy in June 2020) “famous” this year because it was discovered that nearly $ 2 billion in cash “disappeared” from the balance sheet.
|The story of Wirecard surpassing one of the top 4 auditing companies in the world has not ended yet. Photo: ST|
The other side of the story
The above event is associated with the scandal of Big 4 auditing firm Ernst & Young (EY). Many analytical papers have criticized EY for many flaws in the Wirecard audit process, especially there are shortcomings that are considered “unacceptable” with a basic audit array – cash audit.
Many recent information also shows that, inside of EY there have been warnings about the possibility that senior leaders of Wirecard are showing signs of fraud from … in 2016. However, EY continues Issue “clean” audit reports for Wirecard until 2018.
How Wirecard has outdone one of the world’s top four auditing firms in such a long period of time, with things as simple as overstating revenue and cash is an endless debate.
In this story, it is worth noting that KPMG, the audit firm assigned to investigate some of Wirecard’s obscenity at the request of shareholders, acts as the “frontman”. Through its “special audit” activities, in April 2020, KPMG published a report stating that the Company could not confirm transactions related to the majority of revenue and profit. Wirecard announced from 2016-2018 is honest. The auditing firm was also unable to determine whether Wirecard’s cash balance of more than 1 billion euros was in existence.
It is easy to feel that the main role in the investigation of Wirecard belongs to KPMG, and the villain role belongs to EY because there are so many mistakes. In its report, KPMG criticized EY’s investigations of Wirecard’s fraud risks as “incomplete” and there was evidence that “these should have been thoroughly investigated.” .
However, recently, the Financial Times discovered another side of the story. KPMG himself may not be the perfect protagonist either.
Specifically, there is evidence that the senior leaders of Wirecard have approved an investment fund, Emerging Market Investment Fund 1A in Mauritius’ tax haven, to sell to Wirecard Indian companies for nearly 350 million. euro only a few weeks after they buy those companies at much cheaper prices. This is a sign that the senior management of Wirecard is withdrawing the money of shareholders through magic to sell the company they own to Wirecard at a high price.
Interestingly, KPMG is an auditor of Emerging Market Investment Fund 1A, and also … participates in “advising” the sale of this company. And yet, KPMG himself, during its special audit, was assigned to investigate this transaction.
The Financial Times also discovered that a partner (partner) of KPMG, after the transaction of selling the company, he transferred to Emerging Market Investment Fund 1A. This makes people feel that KPMG is playing the role of kicking the ball and blowing the whistle. On the one hand consulting “doing deal to sell the company” for the fund in Mauritius, on the other hand, KPMG went to investigate the sale of that company.
While it is easy for industry insiders to point out that the team of investigators in Germany will be independent of the consulting team in Mauritius, that does not stop people from worrying about the complex matrix of auditing activities, Forensic investigation and advice of the Big 4. When he on the one hand acts as a police investigator to investigate whether the company is fraud or not, but on the other hand is the advisor behind the obscure transactions. Who will believe you?
Despite the experts always asserted, there is a steel wall between consulting groups with audit and forensic investigation services, making these groups unable to cover each other, but the public is seeing more and more. the case where Big 4 has let go of the “huge” accounting scandals. What here violates the conflict of interest standard is the open question.
After the Carillion scandal that rocked Britain, was the Wirecard that shook Germany’s financial and technology markets. These are the key strongholds of auditors and accountants, playing an important role in setting international accounting and auditing standards such as International Financial Reporting Standards (IFRS).
The call to separate consulting activities from the Big 4 auditing firm has been around for a long time, but people are still hesitating with such proposals. Is this another evidence that, very necessary or not?
In another aspect, after a series of reports on EY’s mistakes in the Wirecard audit, people are also asking to reconsider the view that auditors are not responsible for detecting and preventing fraud. The mindset of auditing without fraud detection is ingrained in many auditors’ heads, but clearly, it is no longer consistent with the society’s perspectives and the new corporate spirit. If something is no longer relevant, it must be changed.
The Wall Street Journal once commented: “EY and major audit firms have long affirmed that the role of auditors – checking the accuracy of financial statements – does not mean they need to be discovered. all serious frauds, ”but“ the investor’s attorney argues that auditing firms have a greater responsibility to identify misconduct than what firms This bear to bear “.
That is to say, what the auditing firms take for granted – no responsibility to assert wrongdoing, is not natural, at least in the legal interpretation of some lawyers.
In a hearing in the UK, it is noteworthy that, no matter how well audit firms have defended their role with the law, “what the public expects is to be able to trust a group of accounting data ”.
If an investor no longer believes in accounting data, then accountants and auditors have no reason to exist, no matter what the auditing firms say. Therefore, the responsibility of the public to regain confidence lies with the audit firm.