So basically, EY made the professional decision in years past that the risk of material misstatement was low enough such that they didn’t need independent confirmation of the bank account balances. They were satisfied with the fraudulent statements that Wirecard had conjured up, apparently because they seemed to be reasonable. This year they decided to dig deeper only because Financial Times had done a series of articles detailing how there was something sketchy going on at Wirecard that should be looked at further by the auditors. EY (and most of the accounting industry most likely) claims that the audit process is not infallible, and is generally not designed to detect this level of fraudulent activity that required the collusion of multiple people in management. While i certainly understand their point that it’s hard to uncover when people are bald-faced lying to you and you have no reason to suspect anything is wrong, I would have to think that for a public company, one of the main things the audit is supposed to detect is management cooking the books in some way to appear much better off than they actually are, and while I suspect small nudges towards the good would be hard to detect, the amounts involved here were the entirety of their profits the last 5 years basically.
I saw an article in relation to this that said at the big four firms (EY, KPMG, PWC, and Deloitte) that around 25% of peer-reviewed audits show significant problems. At KPMG that number was closer to 50%. And the next tier of accounting firms (Grant Thorton specifically) aren’t any better. And it’s impossible to state enough the problem wherein corporations choose audits them and thus firms have incentive to cut corners and get the “right” answer. There simply is too large of a conflict of interest between accounting firms and their audit clients that can be easily remedied in the current way of doing things. If a company knows it’s lying, it’s not going to choose an auditor that uncovers the truth. Stockholders are supposed to vote out board members who are putting management ahead of the shareholders, but in practically every situation, the shareholders have effectively no power to change anything with respect to the board. It is falling more on journalists to uncover frauds in large corporations. The auditors are just pro-forma rubber stamp machines.