I don’t see anything about this anywhere on the SDMB, but this is looking to be a really big deal as far as I am concerned.
The basic idea is that Wirecard, an online payment processor based in Germany, has been inflating its revenue by faking that it has contracts with third parties to let them operate in countries indirectly where they don’t have direct license to work, and all the revenue from that business line from the last 5 years or so has been supposedly sitting in escrow accounts in the Philippines. This year, their auditor (EY, formerly Ernst & Young) refused to sign off on their financial statements when they couldn’t get independent confirmation of the balances of those bank accounts. Without audited financial statements published by last week, they were in violation of their loan covenants, and their line of credit became due immediately. Whenever something like that happens, it’s major bad news, and the stock tanked and they filed for insolvency since they couldn’t repay the line of credit immediately.
Now, it’s “only” a mere $2bn - more like $2.2bn, or 1.9bn euros. That’s nothing compared to the size of other frauds, but it’s still a whole hell of a lot of money, and was a major component of the assets of the corporation the past few years, and I heard it was 1/4 of their assets on their not-actually-released 2019 financial statements. The reason it’s such a big deal to me is exactly how it happened, and what it says about the state of the auditing industry with large firms.
I work at a very small CPA firm (3 CPAs including me), so auditing on the scale of a $2bn company is outside of my direct experience, and the reason I didn’t really want to work at a large firm was exactly things like this. My experiences in learning the auditing process and learning what sorts of things people had pulled past auditors in the past (Enron, WorldCom) did not exactly inspire confidence that they had the investors in mind when they did these audits. Pretty much everything pointed to the fact they wanted to keep client business, since corporations get to choose who audits them, and thus were likely to not shake things up and try to keep billing down by not doing as much work as they really should, and only be able to say that they supposedly followed professional standards. From what I learned of those standards, they might as well not even exist. The most I ever found in any of these standards was the repeated mantra that the auditor must consider factors X, Y, and Z in determining what the risk of material misstatement is, and design audit procedures appropriately. There’s basically nothing that says you have to do something specific in certain cases.
To be continued due to board limits.