There have been suspicions about the accounts of German-based Wirecard, which handles credit card payment processes, for some time. Now the company has admitted, according to the FT that:
Shares in Wirecard fell by 66 per cent after the German fintech group said that auditors at EY could not confirm the existence of €1.9bn in cash reported in its accounts, and that “spurious cash balances” may have been provided by a third party.
The payments group said on Thursday that there were indications a trustee of Wirecard bank accounts had attempted “to deceive the auditor and create a wrong perception of the existence of such cash balances”.
As the FT also noted:
The Financial Times reported in October that Wirecard staff appeared to have conspired to fraudulently inflate sales and profits at Wirecard subsidiaries in Dubai and Dublin and mislead EY, the group's auditor for a decade.
There hasn't been a major 'missing cash' afraid since Parmalat, which now feels like auditing history. But the question has to be asked as to how any auditor can miss cash of that amount and not have suspicions. This does not feel like a mistake; it feels like a systemic failing.
The question has to be asked as to when we might have decent audits, decent accounts and even accounts that meet stakeholder need. The Corporate Accountability Network exists to ask such questions, and is. After a lull for the coronavirus crisis when no one wanted to address such issues t is now back in action, and has been engaging with firms and companies this week. The need for reform is very urgent. So too, mind you, is the need for funding.
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Well, it seems EY has been sole auditory of Wirecard since 2011, and joint auditor for the previous two years. But at least EY finally noticed the problem this year. €2bn is about a quarter of the group’s balance sheet, but for some reason it suddenly seems not to be there.
Andrew says:
“…€2bn is about a quarter of the group’s balance sheet, but for some reason it suddenly seems not to be there…”
Because it was fantasy money in the first place ?……. or because it has been spirited away ?
Either way it would seem to constitute a major failing of the audit process.
From what little reading I have done, there appears to have been fraudulent misreporting of income in some subsidiaries at some point, and then some fraud involving bank accounts too. Two Filipino banks that are meant to be holding €1.9 billion in cash (according to documents that the company showed to the auditors) say they know nothing about it. https://www.cityam.com/wirecard-chief-quits-as-shares-plummet-over-missing-e1-9bn/ Given the size of the number, I suspect it built up over a period of years.
In the Rihan case that I mentioned elsewhere, the EY audit team signed off accounts which showed US$5.2 billion of cash transactions (40 per cent by value). I suppose the cash was actually there, but you might have hoped that the auditors would ask some hard questions about their business practices and their counterparties.
I still think this requires considerable lack of audit judgement
In my view, many accountancy staff doing audit work are often the most commercially unaware / naive people, concentrating on their processes and filling the audit file rather than having an enquiring mind. Senior staff are interested in building relationships with the business owners/executives in order to obtain consultancy work or at least keep the client.
In the same way that the UK Food Standards Agency didn’t know horsemeat was in the food chain (and who knew cheap sausages and burgers contained any meat anyway?) and so didn’t look for it, whereas the Irish FSA (apparently) said to themselves, something along the lines of ‘what would you do to cut costs etc. in meat production’ and decided that horsemeat was a possibility. They then went looking for it.
Precisely
Oh, and senior audit staff are looking for jobs…
“…and senior audit staff are looking for jobs…”
…..which they don’t get if they have a reputation for asking awkward questions (?)
True
I assume they sent the standard bank letter out and the reply said yes we have the 1.9bn held to the account of wirecard. I’m not sure how an auditor goes beyond that to check the cash is there, it’s not like stock you can physically touch
But for 1.9bn might you do a little advanced due diligence?
I think I might….
Apparently an employee at the bank falsified the account confirmation documents. I’m not sure how an auditor is supposed to spot fraud in these circumstances!
Oh come on – audit9ing is about an analytical review as well – do the figures make sense?
I strongly suspect no one followed the money here
I suspect that they did not know how to