The Big Four - Accounting firms under scrutiny | DW Documentary
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- Опубліковано 27 лип 2022
- The Wirecard scandal brought the role of big auditing firms into focus. Their work is supposed to create trust in companies. But are appearances deceptive?
EY, PwC, KPMG and Deloitte: these "Big Four" auditing firms are hardly household names. Yet they play a key role in the global economy.
They have also all been at the center of a number of major financial scandals. For ten years, auditors at EY (Ernst & Young) certified Wirecard's annual financial statements. They failed to uncover that a network of fraudsters were using accounting tricks to write billions into Wirecard's books over several years.
Hundreds of Wirecard employees lost their jobs, and thousands of investors lost a total of €4.5 billion. Why didn't the auditors recognize the fraud? Were they negligent, overextended?
The Big Four dominate the global audit industry, and their vast knowledge of company- and tax-law making them indispensable. Because growth opportunities in auditing have largely been exhausted, the Big Four offer a raft of consulting services, not only to the companies they audit but also to governments. Have the Big Four become too powerful -- even out of control?
This documentary explores the role auditors played in the Wirecard scandal, investigates potential conflict of interest within the Big Four, and sheds light on the companies’ role within a complex web of political and economic dependencies.
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I am ex-PwC myself and I think another issue that gets overlooked is the pressure on billable hours that is put on all layers from juniors all the way to the senior manager levels. It does happen that junior auditors could be working on multiple engagements due to planning and it's almost like industrial churn. So you end up having junior auditors who are inexperienced and yet they don't get proper mentorship from their seniors and on top they are too far removed from the business to truly understand how it operates. As a result they don't really know what to look out for when on the field. You end up with a culture of "just get on with the work program so that my manager sees that I ticked off all the right boxes, get a good end of assignment evaluation and then move on to the next" In parallel, managers are exhausted from checking the work papers of several auditors on different engagements and this could lead to confusion etc. A full overhaul is needed from top to bottom in the Big-4 as there are just too many scandals with their involvement, that just seem to go off either unpunished or lightly punished with a slap on the wrist.
They just keep outsmarting anyone.. The key to that is not having a proper training so they hire dumb junior and senior... auditors. It works.
I am ex-PwC myself, it is true like what you said. They literally will allocate senior position to people who dont understand the industry or the Company well and there is no proper mentor or senior to guide you. Our professional faces labour turnover and only follow procedures to meet deadline.
What's needed is to break up the "big 4". They are out of control money machines that have lost objective. They should have to put up a bond equal to 20% of their annual revenue subject to seizure for incompetence such as with wirecard.
and don't forget how small is the pay compared to the workloads
Ex-KPMG and everything you just said is true.
"A public auditor does not need to be an angel they should only be an independent". Precisely and well said!
Then there are laws.
People in west are still so blind. They can’t see that Russia and China is the good guys that are standing up against the 666 that disguised itself as the false prophet, the one that Jesus had warned all of us. Despite all the signs God has shown us, these people still choose to be blind. As Jesus said “ No one is more blind than a person that refuse to see and that is a big sin”. Lets look at some of God’s sign shall we :
1. They sanctioned Russia but it only made Russia richer and stronger with the complete opposite effects onto themselves.
2. They wanted regime change in Russia and China but we are only seeing their own leaders falling one after another. Lets not even talk about how Joey fell from the stairs and bicycle. Even Trump was a good guy but yet he immediately lost when he played the anti-china card. Never go against God’s will.
3. Now when Lizz Truss is winning the polls and the moment she starts talking about how she is going to take down Putin, the host in front of her fainted sending Lizz jumping and screaming in fear. So this is the tough person that wants war?
Just stating the few out of thousands of other God’s signal.
Learn how to identify the false prophet. Don’t worship the wrong God. Also if you look deep into the eyes Biden’s, Clinton’s, George soros, Ursula, Pelosi etc you will notice one thing. There is no soul inside. Its almost like a dead body that is being controlled by that small alien that has taken over the whole body. That is what happens when you sold your soul to the devil
Moot point.
You can be independent and greedy, there is no correlation between independence and ethics, if you know that the worst that can happen with massive financial crime is a slap on the wrist and a fine you can afford, financial wrongdoings is "manageable".
Only when corporate financial crime will be considered as criminal as organized crime and punishable with harsh jail time, then you will have a cleaner financial system.
But I doubt many current politicians will agree with this view, they use the same financial services(by proxy) whenever they can get away with it, so nothing to talk about really, unless there is a real societal outrage.
It won't happen neither as most of the people have been brainwashed since kindergarten into being "a good boy\girl" and "stop being difficult" whenever they are getting screwed.
COVID management and vax issues, Russia-Ukraine conflict have demonstrated this. At this point the asylum is openly run by the inmates.
@@silenciothequiet3471 Harsh jailtime and the absorption of every bit of wealth these white-collar criminals own. Even if it's more than the damage they caused. It's the only way to prevent this kind of greed.
@RWorld : Not quite right, imo. You wrote, " _"A public auditor does not need to be an angel they should only be an independent". Precisely and well said!_ ". Not quite " _Precisely and well said_ ", for what needs to be additionally emphasized is HONESTY. After all, an independent person can be very dishonest. Acting independently does not necessarily mean with honesty.
I am a retired Chartered Accountant. I was aware of such conflicts during my time with the big firms, indeed I was once denigrated as "a delving auditor." Even before that, during my training, there was discussion of "The Audit Expectation Gap." The near impossibility of detecting high level fraud, if carried out by one or more determined offenders. Detection was doubly difficult if external parties colaborated in the crimes.
Well done DW. This issue needs to be followed-up in every country.
thank you for your service, as a cancer (international banker) you have caused most damange to humanity than the vast majority of human beings.
@@lo2740 What a weak-minded reply. As if people working for big banks/auditors are rotten by default. I think your unnuanced thinking is more of a cancer than his occupation ever was.
Cash Flow should show up the deceit, just like Steinhoff, saw that is 15min on their prior AFS
And oh do they collaborate.
@@lo2740 Auditors aren't bankers. Its quite embarrassing that you don't even have the most rudimentary knowledge of business.
The problem is that these firms often have extremely greedy partners who overwhelm those actually performing the audit by having too few staffed and spreading them on multiple audits. This way they can keep more of the fees for themselves instead of staffing audit engagements appropriately.
Yup. As a junior I was told to take different sample so that we could move the file along. You also can't afford to loose the client.
Well said! I am also here to learn how to invest after listening to a lady on tv talk about the importance of investing and how she made 7 figure in 3 month, somehow the video taught me nothing and left me even more confused, I'm a newbie and I'm open to ideas on how to invest for retirement
@@ericalorraine7943Think long term, personally i ventured into the market so i won’t be stranded after i retire. A colleague of mine introduced me to CFA " Teresa Jensen White " who drew out retirement plans and they all aligned with what i wanted and had to pick one plan and with her exit and entry strategies on commodities, securities and digital assets, my portfolio has really been diversified with good ROI. I am really impressed by how much i have achieved
Financial management is a crucial topic that most tend to shy away from, and ends up haunting them in the near future
Investment now will be wise but the truth is investing on your own will be a high risk. I think it will be best to get a professional👌
DW is doing some really good stuff right now. Well done.
Thanks for watching and taking the time to comment, Robert. :)
As always I never miss a documentary by DW. I saw a documentary about WireCard but a person possibly should be trained in accounting with Electronic Data processing then taught all the angles to hide 🙈 things because Capitalism and the Bernie Madoff affair proved that nobody should trust anyone always get an independent audit but sadly during the 2008 financial crisis the three rating agencies also gave the investment a rating of A but was over 50% junk. There was a law that banks could not use the savings or account of customers for the investment side of the banks. When that wall was eliminated the fraud started and every government should allowed those companies to go out of business and fail. But Corporate Welfare exists for the rich with even the crooks such as President Nixon getting a pardon from Ford. Downhill ever since!
I found this presentation very informative but superficial in the persons chosen to provide personal testimony. There is absolutely nothing wrong with every person expressing their opinion, but it would have been nice to say more than "this person was fired" and "that person lost his life savings." It could be important to know if the person lost his job unfairly or with just reason. It would have been informative to analyze whether the small investor has means to protect himself instead of simply believing a certified audit is a stamp of veracity and safety (It isn't. In the small print which should accompany every report, the report should state what it can verify and what it can't). When DW doesn't present the whole picture of these testimonials, I feel uncomfortable accepting each person at their word. As of today (this writing) it has been only a year after the "audit of the audit" was published and 9 months after reactions. It will be interesting if after more time there are more or better actions that result from the Wildcard scandal.
Writing the rules and then advising companies how to get around he same rules.
Quis custodiet ipsos custodes?
Who watches the watchers?
These hacks are acting like Western governments arent directly responsible this fascist scheme. Nobody is allowed to act in such manner without the support of the Great Western Empire.
How do they write the rules?
Yep. Politics 101.
How does this comment have almost 200 likes?? The Big 4 doesn’t write the rules…
They have conflicting interest, they supposed to be auditing at the same time giving consultancy services. They are advisers to governments forming policies then advising corporations to exploit the loopholes. Excellent documentary.
A public accounting firm cannot give consulting services to an audit client. It ruins their independence and is against the law. In the U.S.
@@hoptop3159 same in EU
@@hoptop3159 yea so they set up consulting company that is a separate legal entity from the audit firm to provide said consultancy services instead,
Just like Big Pharmacies... Same system. Conflict of interest.
Yeah, they can be the consultant of the very same client they audited once the auditing contract has finished (and that happens many times).
How could they properly audit the client when they know that at the end of the auditing contract, the very same client will be their consulting client?
Here in Brazil PwC has fallen under scrutiny for, once again, not being able to identify a 20 billion accounting problem in a brazilian company. It made me go back to this documentary and watch it once again because i can't believe how these auditing firms can still work without being punished properly for the demaging consequences of not doing their jobs correctly.
Mesma coisa aqui, eu tinha deixado na metade. Fiz questão de terminar
Germany just announced banning EY from Germany and slapping them with fines.
@@MijoShrek : LOL.... This is a split of the accountancy firms.... Basically, Germany doesn't want British firms in European soil. Germany is saving their ass, that is why. Using SAP instead of an accounting firm... Basically Germany wants to protect their stock exchange, as well as their transactions in euro... and they already have the infrastructures, SAP to do it for... Absolutely diabolical...
There is a way, but it only really happens when the auditing company collaborates with a company to carry out financial fraud. This is what happened with Enron, and is why we have the big four instead of the big five.
@@thomashale2096
The story I heard about Enron is that when the feds were about to raid Arthur Andersen (the 5th of The Big 5), that someone tipped off the company that the feds were coming.
And when the federal agents arrived to raid the place, they found that every available employee was manning every available shredder trying to destroy as much of their Enron work papers as possible.
DW doing a service to humanity with these free documentaries
Great reporting. Behind these companies are individuals making decisions. Hold those at the top accountable with serious consequences. This goes for the auditing firms as well as their client corporations engaging in criminal activities. There’s no point in penalizing companies when the executives leading them can retire with enormous severance packages. If people are actually held accountable, more would think twice about trying the same.
So you want them to lift the veil of incorporation, they do that on serious issues such as treason
"Hold those at the top accountable with serious consequences" .. = wishful thinking. HOW MANY of those "at the top" were held accountable to the tune of going to jail or being inconvenienced more than attending to lawyers and court dates for MOST major defaults. If Trump and Putin can get away with criminal behavior, then almost anyone with access to money and shell company strategies CAN.
They own every regulating body that could hold them accountable , they are pretty much untouchable . For now , the only way they could fall is by turning against each other which is very unlikely to happen.
@@sundo-pf5zv Yup.
Spot on. Because these white-collar criminals are exclusively wealthy individuals, they are punished too gently. Those responsible should pay for all the costs incurred by society. Drain them of everything penny they have. Start at the top of the corporate tree and work your way down until the detriment is paid. Let's see how many people will be so unscrupulous then. Spit on all these rich people.
I work with auditors from all 4. They hire cheap labor in recent years and they seem to be overwhelmed and rush through audits the very last minute.
As an auditor I don't think there's ever going to be a workaround. You're always squeezed into impossible deadlines ("we want to close off in 3 weeks after year end" etc) and the volume of work just requires cheap labour because you can't staff a job with 20 auditors costing 100k a year. Clients keep negotiating to keep fees low while their sales volume is growing and requiring double the work. Entire business model just isn't purposeful or profitable anymore
I was involved with the sale of a corporate division. I would get calls and e-mails 24 hours a day as the Big 4 staff was located all over the world
They didn't verify the bank balances and simply trusted a trustee when they said the money was there. 1/3 of this German company's cash was with a trustee in the Philippines.
This is pretty negligent. No new laws are needed. Auditing cash is not that hard. Just enforce the existing laws and accounting practices and take away EY's ability to audit German companies for a few years. Watch how quickly things change when you enforce all the laws already in place.
Yes
Lmfao, if the Auditors working 80 hours per week for $60k per year right out of college saw this documentary calling them "THE PINSTRIPE MAFIA", they might smile for the first time this busy season. If you want to know why an audit might go wrong, just picture this: You have one guy in his 50s, the Partner, who is making all of the money and "overseeing" the engagement. He has a guy in his 30s or 40s, the Manager, directly under him and managing the audit of the client from the accounting firm's office. The Manager keeps in contact with the Senior, a lower level manager, usually 25 to 30 years old, who is on-site at the client babysitting a small team of fresh college graduates who are working 70-90 hours per week, overworked, and sleep-deprived. The fresh graduates have to fake it until they make it, so they all just follow the principle of "SALY" (Same As Last Year), essentially copying the work that was done last year and rolling the numbers forward. All of the work is done by fresh college graduates and the seasoned professionals just sign off on the work. After 1 or 2 busy seasons, most fresh graduates quit for other jobs and the ones who stay become Seniors, Managers, and Partners. It's truly miserable work, I remember sitting there in my first busy season thinking "so this is what the rest of my life is going to be like?" Lmao. I understand all of the conflict of interest stuff they're talking about in the documentary, but the ones doing the work are fresh graduates who don't even think about those things, they're just overwhelmed with the task in front of them.
cho nên kiểm toán là trò bịp bợm :)) bị thao túng hết
Much needed program, for years I have said this to anyone that would care to listen, auditors know that there are three areas that they need to look into 1) errors and omission mistakes 2) fraud 3) management override of controls. Mistakes and omission errors generally have the least impact on the value of an organisation, yet this is the greatest focus of auditors, followed by fraud, so attention by auditors, but management override of controls causes the greatest loss of value, yes, even grater than fraud because without management override of controls any fraud cannot be hidden until and unless the organisation has poor internal controls to begin with (internal could also been deliberately kept lax by management to enable concealment later. Yet, most auditors are not trained in identifying management over ride of controls, in fact many auditors are not even aware there this such a thing.
Management removing controls is a feature not a bug.
That's how you make the profitable kind of fraud happen.
Which is all the owners care about, and since those owners also own the auditors. It's a nice closed system.
Saving this
I worked in audit firms for 7 years. Until today, I do not trust "audited account".
Audit report is more of a "discharge of liability" rather than a report of examinations and checks (audit as it is called professionally)
Outstanding quality of documentaries as usual. DW is the way to go 👍🏼
Thank you for the positive feedback. :)
Why do DW have channels at INDIA?
@@UPAKHOSALA Propaganda, every single county does it, and it's ok, as long as you know why and when there's a bias. RT have (had) channels in Latin America and that's how we know western media is lying about the Ukrainian conflict. Plurality of opinions and views is good... until they censor certain media
@@UPAKHOSALA need of profit as a for profit company, or just requested by government for cultural exchange relationship as a state own enterprise
DW is funded by the German government, be careful. Although most of DW contest are objective and unbiased, but DW is not objective and unbiased always.
I worked in the tax department of a large US bank in the '90s. As I recall, the bank had around 500 US subsidiaries and 400 foreign subsidiaries. There are probably thousands today. I don't think audits are realistic anymore. Bidding for audits is competitive. CPA firms have an interest to cut costs. The auditors earn large fees. Accordingly, there is no independence -- just conflict of interest.
Just the partners... we, the salaried auditors, have little salary/take home pay for long hours we put in. It's exhausting. Really. That's why auditors leave audit firms and go to private entities.
There is a conflict of interest, of course. There is also a big difference between an annual audit and a fraud audit. There is no reason to assume that an annual audit checks for fraud - it does not
Totally agree, the difference that is.
There should be a requirement that annual audits check the claimed facts as closely as possible, and rules that detract or district from such checks need to be avoided (for example rules that auditors should audit predictions of future events, which is logically impossible).
@@johndododoe1411 This is simply impossible to ask for in an annual audit of every major corporation across the globe. The amount of work and manpower to comb through everything for fraud, especially ever year, is just simply not realistic. Even then you cannot guarantee fraud will be detected. Turns out it's really hard to discover something meant to be hidden and covered up.
@@ALittleMessi I am asking for systematic checks of things that can be done en masse (like getting statements from banks), direct checking of significant stuff like a place listed as holding 30% of the company cash, and randomized sampling of other stuff, like randomly choosing a branch office for in person audit. It's not a systematic fraud hunt, but verification that makes it statistically likely the alleged assets and liabilities are factually correct. Another thing is that the auditor and directors should be in the same room to witness each other sign the annual statement, that room might be a conference room at the auditing company, the board room where the auditor presents the audit or the podium at the AGM where the auditor seeks reelection by the shareholders.
I like it how this film starts with the retired gentleman who lost everything to show us how corruption effects each and everyone of us.
People certainly do suffer harm when fraud is involved. But any investor that’s put all of their money in one company almost deserves to lose it. Rule 1 of investing - DIVERSIFY.
Fraud at public companies is very rare compared to all the other frauds and cons going on out there.
But why was he not invested in an index tracker and de-risk his investment? Or an investment trust?
He lost everything because he blindly trusted an opinion from an auditor. Even if the audit results in an unmodified opinion, it does not mean that the business is riskless or even performing well financially. The auditor is only assessing "going concern" for the next 12 months in most jurisdictions. Private investors should do a bit more research about prospective investments before they sink money into companies, looking at cash flow generation, leverage ratios, markets covered by the companies, etc. Yes, it requires a lot of time and understanding, but it is up to people to educate themselves. There is a lot of free material out there on the Internet (and books can help too). A bit too easy to blame others for your own mistakes.
Very good watch. Thank you! The importance of journalism cannot be understated.
Having worked in one of the big four as an internal auditor, I can tell from experience that it is very much a flawed system. Keep in mind that the big four firms are for-profit organizations, and they are paid, by the very companies that they are suppose to audit and essentially find dirt one? It's an interestingly weird dynamic to say the least; if the auditors are not willing to "play the game" and blur the lines a little bit, then the clients will simply choose not to use the auditing firm and switch a more obliging one next time... free market capitalism can be a double edged sword.
But why the other firm also does not do the job professionally ? Is it that some auditors are cheater?
Meaning that 20% of their pay is probably hush money..
Perhaps when huge fraudulent practices emerge, especially systematic practices then the auditor should also be criminally liable. Although effectively nobody was in 2008, not even the worst offenders
@@thebagelsproductionsno the auditors definitely are held accountable. Remember it used to be the Big 5 until Arthur Andersen totally f’d up their auditing of Enron.
Actually, now that I think about it compared to that, now Big 4 auditors get slaps on the wrist in comparison. They get fined, the partners cut costs by laying off staff and senior auditors to protect their profits, then outsource the work to India. Which just results in worse audits. It’s really getting bad.
Please remember that the Big Four are a club for those who went to private schools and elite universities. They are not necessarily the brightest but they have money and money gives them power. When they mess things up or are naughty, not much happens. Know your place, little people!
Since I had heard of Wirecard fraud in the past, I was surprised how they could pull it off, and nobody noticed. Your documentary provides a new angle and sheds new light. I believe the new law should make it harder for fraudulent corporations. Thank you for the documentation DW.
Take away the camera & watch...
the signet upon my right hand
would like to see more such documentaries discerning the problems in the global financial system. keep going DW.
I'm an accounting major and did an internship in one of big 10, not even big4. But even then I got the impression that you should look close, but not too to close. The whole is system is a sham.
2:40 "I'm not a risk-taker which is why I did not buy just any stock, I bought Wirecard."
I'm sorry for the losses this guy incurred... but when you buy individual stock of a single company it is the opposite of avoiding risk, you're putting all your eggs in one basket. It is embracing risk. Buying individual stock is a risky strategy no matter how old and stable the company is.
You need the funds to buy a spread or index dude. When your finances are limited, one tends to chose to get the best profit margin from what accounting firms like the big 4 and rating institutions like Moodys say regarding the financial soundness of featured corporation stock, under the assumption that corporations with corresponding rating grades are as financially sound as rated, and the high ratings mean their stocks can’t lose much value because the real assets owned far outweigh their exposure. Before the scandal, wirecard had a BAA3 rating, meaning banks were allowed to buy their stock because they were rated as very low risk investment stock.
If you buy individual stock, need to buy at least enough different companies to avoid this risk
His biggest mistake he made was investing in the stock market.
I do invest in individual companies, but my portfolio consist of about 40 companies + crypto currencies. 40 companies are probably 10-15 too many, so I am trying to cut back.
I was thinking along those line, "am not a risk taker", hello! Everything in 1 basket"??
The relationships between the client and auditing firms are way too intimate and financially rewarding for both parties.. I can say when issues are found we've been told to destroy our work and select a different account or transaction. Those upstairs claim they will investigate. The reality is our bosses go directly to the client to say there was an issue we couldn't resolve. The client then sends in a bogus excuse or files cooked books for our records. Unless our initial findings show a clear case of fraud, the clients response is always accepted without question. In the end we almost always end up with the desired audit. Doing so for large firms lends credibility and a favorable reputation for both the client and the firm. There is considerable pressure placed on us to ensure our audits come back clean. If we hit a road block we were directed not to look beyond that issue or questionable transaction to avoid seeing anything we ethically and legally can ignore. We're instructed to simply choose a different route with no obstacles in the way. The file is then sent upstairs where we're told the matter will be investigated further. There is no investigation. The client simply needs to submit their response or cooked books in order for that file to be closed without completing that specific audit. I am not saying this issue is industry wide. Nor am I saying the issue is company wide. I am saying the closeness of firm and client relationships lend themselves to this fraud and deception. The financial implications from losing a large client can be catastrophic to a firm. Firms and clients are codependent for survival. This needs to change. You can't have two private entities with a financial stake in the outcome watching over each other without total transparency. The risk of fraud and deception is too great. The use of standardized AI technology by governments to monitor firm activities across all auditing firms globally is a tool we should deploy going forward. All of those files we halted and sent upstairs would be flagged by AI and sent to regulators for independent auditing. Doing so would cut the risk to investors and detect fraud before billions in losses is finally exposed years later.
Fraud is profitable so fraud is done.
In the inherently illogical system where infinite growth is the only acceptable outcome. Corporations lying and auditors giving those lies a veneer of legitimacy is basically required.
Great read- what an eye-opener!
And EVERY attempt to update the Laws simply meets with so much pressure from people with the i8nflence that the problem simply goes away. BIG fraud is happening in high places, yet the little guy with too much pot in his car can go to jail for 5 years ?
I have been part of two audit firms and believe me, the client pressure is what pushes the audit teams to wrap up the audit in a given deadline and this compromises the quality. A global convention of a minimum time period for audit must be established or else audit quality will continue falter.
We need harsher penalties for financial crimes, which affect far more people than a brute-force murder or drug-dealing do.
revoke citizenship. exile. after a long time in prison of course.
Agree, but most of all penalties should be unavoidable. I’m fed up with festival of loopholes and exceptions.
Yea, it's quite sad to see people who negatively impact the lives of millions getting away with a bit of prison time, a tainted reputation and a sizeable wealth to fall back on once they're out of prison. Something along the lines of Soviet gulags would be a better penalty.
That is a very good point, yet few look at it that way. I would say financial crime is akin to murder in many situations. People lose the shirts off their backs and commit suicide by the 100s in these situations. About time the the crooks involved in setting it up got their just deserts.
@@jojo7315 is this 1452
These four companies are failing over and over. The system and fees they charge have placed them inside the system not outside as they should be
They are as vulnerable to corruption like all other companies..
These companies are immortals and ethically cruel
Yes many have been burned ...
Not until corrupt executives face actual criminal liabilities for the amount of human suffering they cause.
That would also never happen here in the US, at least, not while every single politician is way more concerned about who can collect the most bribes from anyone willing to pay...
The only failing they are doing is being caught.
They are designed to give veneer of legitimacy to corporations that deliberately lie to shareholders.
Gotta keep pretending that infinite growth is a profitable business model. That's the only way executives get to keep buying cocaine and yachts.
Companies should be required to change auditors every five years. This could act to force auditors to use proper methods. This is a mechanism similar to investment banks requiring their traders to take a two+ week vacation every year, so any trading discrepancies will show up where they can't hide it.
@@SCC.1233 The automatic objection will be that this will increase the cost of auditing, because it takes a lot of effort to become knowledgeable. However, I think two things will alter that. 1) competition between auditors will become fierce, with five year contracts up for bid; 2) _most_ companies will make an effort to simplify and normalize their processes so an automated new auditor could step in and take over with minimal learning curve, with laudable side effects from the normalization; 3) insurance for both company and auditors will be cheaper.
Finally, the incidence of frauds, error,s or other large calamities affecting stakeholders will be reduced.
we use different CPA every year for our family business.
no use, they'll find some loophole.
@@SCC.1233 I think putting the government in charge could be worse.
@crassgop except there would be a dozen other firms competing desperately (one hopes anyway!)
Very interesting. Corruption is rampant all over the financial world.
We can't defeat 2 forces on earth, corruption and reception.
Terrorism, Pharmaceutical company, food industry, and capitalism are the biggest catastrophe we are facing in the world and who is the architect? The West. And both are the avenue of exploitation, corruption and deceptive.
More interesting it goes back thousands of years. Criminals will always be criminals, no matter how big or small.
Not only.. financial world.Pharmaceutical world as well..
We need more documentary like DW, excellent example of true documentaries.
Excellent documentary
Amazing even after two years of me hearing the news of wire card fraud, its still going on.
This is about the company named "wirecard" and how it died of fraud. Not about wire fraud done with cards.
@@johndododoe1411 Yeah, it's been going on for years.
This happened right as I was interning and it was when I first realized my big4 job wasn’t as idealistic as I thought
There is a saying in India before you enact a law, people find 10 different ways to bypass the law including politician, beauracts, small and big corporates.
Still remember the Satyam scandal of 2008 in India. Thats the first time I heard about pwc. It seems to be a pattern now that I can corelate with wirecard.
Noticeable in the Philippines😂😂😂
I would argue that the Big 4 are not independent auditors. This has been true for decades. I’ve watched the Controller of a Fortune 500 tell their Big 4 lead audit partner point blank, ‘You’re auditors aren’t going to look into this part of our financial records.’ The Big 4 partner wasn’t willing to risk a big client relationship and backed off.
True, yet look at the big clients E&Y lost due to their mishandling of Wirecard, plus future potential clients who won't even consider letting E&Y handle their financials. Is it worth it?
@@GladysAlicea It is becuse only 1 of 100 bad clients get exposed.
You'll have to do better than accuse some anonymous Fortune 500 company of that kind of action without whatever the response of the auditor was. There are rules for such situations that no major auditor can violate without itself becoming at fault and could cause great harm to the auditor. The difference is that the EY defects in the Wildcard audit aren't the type that EY would be found liable... They're the types of defects that nearly any big auditor might also make if they weren't skeptical enough and that's a subjective evaluation, not something that is clearly described in the set of rules all big auditors go by. If that Fortune 500 company you accuse of possibly hiding information chose to fire that auditor and hire another, if the new auditor is following the same rules, the same questions would remain.
The point also is that you don't describe what the relevance was of the forbidden data. Unless there was a very provable reason to deny access, the audit would simply include a statement about refusal to that data, much like what EY apparently did about some of Wildcard's business. The audit may not have access to everything and if that's the case the auditor has to note that to protect himself.
Cathy K
Yes, just like that !
The system they apply, and the big question is whether it is in accordance with the Constitutions of any normal state, is called
"WAREHOUSMAN INVENTORY HIS OWN WAREHOUSE!"
When I was in the game Regional partners pulled half a mil plus bonuses dog knows what that is now 6 figures and then some for ticking a box to agree a bank statement balance to an account...rinse and repeat, and we thought ENRON was an exceptional one off...NO, its the one that got caught out when the music stopped. Risk and Reward.
The problem with audit is that it's scope is inherently limited even at best.
There's also a saying that the annual report of a listed company is a like girl wearing bikini - she shows you everything apart from the important parts
Where there is corporate fraud there is a public accounting firm.
DWs quality of documentaries are top-notch ❤️
Absolutely top quality documentary. Thanks, DW. It's really an engaging documentary.
Wow this was an eye opening documentary! So interesting how all of these conflicts of interest are going on outside of the public eye within what are supposed to be organizations in place for public trust.
Credit rating agencies are similarly compromised. I believe state regulatory agencies are complicit, too. I keep wondering how many corporations are telling outrageous lies about their value, given the unlikely profits they post given the economic climate. There's no logic to it at all. Wall Street demands infinite growth forever and that's simply not possible, but the pressure to compete at all cost drives companies to find ways to pull growth out of thin air, leading to all kinds of poor incentives. Like executives slashing workforce just before Christmas to puff up fourth quarter numbers. And then giving themselves big bonuses as a reward for saving their companies so much money. No shady conspiracies going on, just a lot of greedy short-sighted people taking the path of least resistance and greatest reward.
agree 100%
I think audit has become more related to pretty documents rather than actual testing. You cannot check someone and say they might be wrong when you are getting your revenue/income from the same person!
DW is doing such an amazing work
Sometimes we don't realise that auditors cross a thin line between working as an independent entity to suddenly going on an independent and indirect off-roll employees
Outstanding piece of journalism.
Thank you DW for the exceptional length you go to to provide us with top notch documentaries.
Your content is highly appreciated in Morocco.
KPMG came to my school and wanted to give me a scholarship of €10.000. I refused on the basis of the nature of their company. Refused to be on their website promoting their philanthropy.
Bro what. What firm did u end up at lol
Overworked, underpaid audit staff and tight audit deadlines result in many of these scandals
Yep, auditors are underpaid with the partners taking in all the profit
💯
It's the same with all big buisness these days, we do all the grunt work (working class) fat cats take everything at the top, greed is rampant with the rich right now! The new kings and queens of this era
Companies should pay a scaled annual fee to BaFin for auditing services; auditing companies tender to be on the BaFin panel; BaFin appoints auditor from panel to company for a 5-10 year period. Company doesn't get to choose their auditor.
I looked at the wiki page of BaFin and found they too are rotten:
Wirecard scandal
Accusations of suspect accounting at Wirecard were levelled in 2008, 2015 and 2016 and 2019. Each time Wirecard alleged market manipulation, sparking investigations by BaFin which defended the company.[26] Wirecard wound up in 2020 and its CEO was arrested, sparking criticism of BaFin itself.[27] The Federal Ministry of Finance later disclosed that one fifth of BaFin staff had engaged in some kind of investment activity in 2019 and 2020, with an increasing interest in Wirecard in the months ahead of its collapse. Only in September 2020, BaFin banned its staff from trading shares and other securities of the companies that it oversees.[28]
Why the government intermediary? Fixed rates are fine. Random assignment is ok where independent selection is needed. But overseers immune to criticism from the overseen leads to indifference and abuse of power.
I wasn't in an auditing firm, but in my old company my boss was doing certain reports that were supposed to make sure clients were keeping up their obligations with their victims and government. Although we didn't completely change results (bad reports for the client still happened) we often discussed underlying assumptions and acceptable results with the clients. Trying to balance client relationship and objectivity doesn't work well.
Thank you for doing actual investigative journalism!
Glad to see media paying attention to these complex problems.
Skin in the game. Insure your audit. Now you have the insurance company auditing the auditor.
That is.....genius.
Insurance companies would end up hiring auditors from the big 4 to do those audits because theyre the ones with the most auditing experience.
Audits are not meant to detect fraud. If you want fraud detection, talk to your government.
@@Tribuneoftheplebs that's OK- as long as they pay out when it turns out that the company defrauded their investors
I worked a project with a client that was using PWC as an IT consultanting firm. I was hired specifically for my expertise with a COTS product. I was ignored by the management team that had hitched itself to PWC as well as the PWC development team. That is until a few months before the product was supposed to launch. I was handed paperwork explaining how the developement team was going to handle connecting to the COTS product. It was obvious that the PWC team had not even looked at any of the COTS documentation a day in their life. Well, we didn't launch. That product was shelved, because the previous phases product which had launched a month after I came on for the phase 2 product was failing so spectacularly that state regulators had become involved. Phase 2 was eventually scrapped entirely. I moved on to the next disaster involving mixing auditors and their clients.
They are doing this deliberately for a purpose. More like trying to incubate the marketing tech and sectors. Hence why you are watching this show now.... That is why it is clear that some are taught to lie. And some are taught to literally make mistakes. On purpose. Political much ? Since Enron. Lots of companies were cleared.
25 years in banking, and I can say with confidence that auditors are not up to the task, for various reasons. Mostly because they are not sufficiently independent, nor sufficiently held accountable.
And going by the comments, this view is widely shared by insiders from business and the auditing profession, and yet here we are, with little hope of real change.
As usual an Excellent Documentary by DW 👍.
The problem with the rules is that after they done with their 10 years (5 years in Indonesia) auditing contract the company then rehire the consultant from that audit firm until they are allowed to audit again. Their relationship never end and that's the issue.
A clear loophole. The independence must require a significant period between auditing and other economic relationships that could be used to camouflage bribes.
As usual. DW is onto interesting content. I am now so smart, just by consuming DW programmes.
i am afraid the will be shut down .to honest
@@shupdawupidy They report without bias. and the topics are very relevant.
In Australia some of these big 4 got lucrative contracts as consultants for the Australian government’s tax department, including for the issue of international corporate tax avoidance. They then used this confidential information to advise corporations they were advising/auditing, on how to avoid tax via international strategies.
It's really sad this excellent documentary has only 4.2milliom views..Says a lot why we are in this situation globally
Amazing documentary
Isn’t the financial supervisors at BaFin also guilt in the Wirecard debacle?
Very insightful documentary on the role of auditors in our financial systems and markets. We need to look into the independence questions raised more keenly and come up with solutions. Well done DW
Amazing documentary! Kudos for a good work 👍👍👍
Thanks DW for another independent study. Please keep on producing these reports to be an example of professional journalism 👏
Since double-entry accounting is 700 years old why isn't it mandatory in the schools.
Are we supposed to believe that accounting is more difficult than trigonometry and calculus?
The difficulty lies in how easy it is to bribe an accountant. They should be taught ethics more than everything else they learn.
Accounting is difficult. Half the people who take the CPA exam fail each exam. This Form of thinking is the reason why people think they can make their secretaries do the accounting when in fact all their mistakes have to be purged.
@@KP-us1ld
Who says that someone needs to know enough to be a CPA to understand accounting. Double entry accounting is 700 years old. How complicated were the tax codes back then? Of course it is to the advantage of CPAs for everyone to believe it is complicated.
@@psikeyhackr6914 double entry accounting and taxation are unrelated. Let's start from there. Conceptually, you think double entry accounting and think it's just a journal entry that any layman can do. It's not. Behind every posting is a story and even workpapers. Your average layman is not equipped to practice accounting or double entry as you call it because there are so many rules that add on to the complexity of it.
@@KP-us1ld
That is a great word "layman". Like the Catholic church talking about the "laity". The Catholic church resisted having the bible published in colloquial languages so the layman would be dependent on the priesthood. The same crap happens in computers.
It is funny though. Accounting software was being coded in the 1950s. Those computers were a joke compared to today. They were still used the von Neumann architecture though. Curious how good explanation aren't everywhere though.
Accounting Game: Basic Accounting Fresh from the Lemonade Stand by Darrell Mullis
This is why I stay away from PwC, Deloitte, KPMG, and EY (I will include Accenture as well). These companies do not only do questionable acts, they treat employees under management as merely disposable equipment; making them work ungodly hours and unreasonable terms.
EY was also the auditor of Lehman Brothers. Something is wrong in their culture
Conflicts of interest in auditing/consulting and control fraud are an insanely toxic combination that must be guarded against at all costs. Most businesses are relatively honest, but the bad ones do tremendous damage, especially in our very concentrated corporate environment.
Sounds like the only person w/a conscience & proper accountability is the leaker. Whom ever it was, he/she should replace the current head of the government over sight dept. A country can only survive so long w/four giant leeches attached to it.
" Free of conflict of Interest "....Is there really such a thing in a corporate world?" I doubt it.
Thank you for excellent documentation ... An Eye Opener...I learned a LOT.
That channel is literally journalism on its finest! THANK YOU DW!
Thanks for watching! We're glad you like our content. :)
Pretty simple, when the fraud is discovered, the acctg firm not only to be held liable but justice should figure out the amount of damages based on the level of fraud. When they cert the financial statements, they sign for the reliability, truthfulness etc.
It is simple, in fact so simple that it is hard to believe that those in control actually want to solve the problem! Even the issue regarding conflict of interest is a minor issue if the company performing the audit is held liable and the punishment is guaranteed to be greater than the benefits from auditing, consulting etc; if that is the case it will not be in the interest of the consulting firm to give a favorable report unless they are certain because any mistake would end up costing them.
Another thing which makes me certain that they don't want to solve the issues are that it was stated that these accountants meet with government officials to let them know about flaws in the regulations which means that all tax loopholes could be closed if there was the desire to do so.
You are blaming the wrong people. The people you should be directing your anger to are the criminals that ran wireguard and personally pocketed the money. Unfortunately we are becoming more like America, where we can't sue the boss because he is in prison, so we move down the chain to the people who in this case have professional indemnity insurance... let's blame them as there is more chance to get money out of them.
@Faiez Cader So the guy who checks my car over and gives it an MOT, I then crash my car 5 minutes later, he should be jailed because he said my car was ok?
@@chrisbowser We expect the company directors and corporations to be criminal and to cheat where they can so no point in being angry with them. The auditors are supposed to be the ones who are trustworthy; if they are not doing a good enough job to certify that the accounts are accurate what is the point of having an audit?
@@ottomanstamper7609 not sure I agree with your first point, in my experience most people are honest and decent, less than 1% of people are criminal.
Second the point of an audit is to say whether the accounts give a 'True and Fair View' of the company. Accounts are one element used by Investors to judge companies.
Note the words True and Fair... not 'accurate' which is the word you used. This is a nuance I grant you but it means there can be mistakes but those are not 'material' . Now material in the case of a multi-billion dollar company could be several million dollars.
It's difficult to understand how a company could have an error of several million dollars and the accounts are still True and Fair, but this is the reality of the neoliberal capitalist system we have created.
To take one group (auditors) and make them scapegoats for another (fraudsters) is frankly remincent of another great German invention of the 30's
fully informative, same situation in India as well
Keep it up! Speak against greed DW. The fourth estate is supposed to be the auditor for our socioeconomic system
Hey! Thanks DW for making this documentary! amazing how the Indonesian subtitle helps to understand the whole documentary! I see what you did there ;) Best Regards from Indonesia!
The rule can be set up so that if the current auditor finds the previous auditor's fault, the previous auditor will be fined and part of the fine will be awarded to the current auditor.
Very good idea.
This won't solve anything. You have no idea how hard it is to detect fraud at these levels. The biggest failure of this documentary is showing just how hard it is to detect. It's also a failure on the politicians they interviewed. They all want to just push blame, when it's almost impossible to uncover high level fraud on major corporations.
No. Once you create an incentive to uncover fraud like that, you create an incentive to falsely uncover fraud.
The only way for an auditor to maintain independence is if the firm receives the same compensation regardless of the outcome of the audit.
Auditing seems to be a legal checkbox, which does nothing to detect or stop illegal activities.
Auditing was never designed as fraud detection.
It’s possible to uncover fraud during an audit, but that’s not the main purpose.
Watching DW docfilm is my alternative to movies, with unbiased information. Just sucking it real good. Thanks for the good work
Just started a job as an auditor in one of Big 4 and I got recommended this video 😬
I worked in big 4 tax but it never made sense to me when I heard of clients overlapping in our audit and consulting departments. Can't see how they did that "independently".
Keep up the good work, DW.
Brilliant documentary and service to humanity
I was an auditor 40 years ago. Today, nothing but the names have changed. Same fraud, same conflicts, same handwringing, same ineffective solutions.
Finally. Arthur Andersen lesson was not taken.
Fastow is laughing himself silly
Being an retired partner from the Big Four all the comments against CPA firms are right. All other CPA firms outside of Big Four want a cut from the Big Four's business. If you put the audit service to government 's hand that would lead to a bigger disaster. CPA firms are caught between policing the corporate accounting books and raking in more revenue to attract better talents. So Big Four are not wrong. Auditing is a conflicting function.
I don't think that auditor should be responsible for fraud or any other criminal schemas. It's more up to police or other authorities.
What a pleasant video to watch. I enjoyed every single second of this video. This video made me subscribed. Keep up the good work. 😊😊
Break up the companies so that they have to separate their audit and consultancy departments.
The big 4 conveniently brushed aside clear frauds in India by claiming Limited Liability Partnership with local firms. The Local partners with very limited funds took the fall. The Govt knowing these big 4 audit firms have unlimited legal budgets chose to not pursue the big 4 international. Common Indians were left carrying the burden. This is the case in most underdeveloped and developing countries.
They do the same in every economy. Poor countries aren't the only place they do that. Notice how they keep talking of "partners", not "employees" or "officials". Each of the big 4 is a giant pile of such "limited partnerships" deflecting responsibility into legal loopholes.
india is a whole other level of greed and corruption, the big 4 are certainly small players here.
Just remove the developing/underdeveloped statement and include all countries where they operate and you good.
Excellent doc as always! 👍
The question of accountability and responsibility also needs answering.
If firms with such a reputation that they are more or less blindly trusted by executives and the executive (the law), then why is there no consequence financial (fine) or legal (removal of certifications/accreditations or temporary ban from operation in the country) when such events happen?
Millions of Germans end up with their pensions gone. Survival uncertainty creeps into their lives after having worked for 35 to 45 years. And now they are being told that the "financial overseeing authority" who failed them is not being punished by the "legal authorities"... That sends a pretty bleak message.
Companies are not afraid of the law and that is starting to show problems. Not just like shown here with accounting but also on other subject matters.
Still remember the Satyam scandal of 2008 in India. Thats the first time I heard about pwc. It seems to be a pattern now that I can corelate with wirecard.
DW maintains its status and crown with another incredible documentary. This should be viewed in schools across the globe.
Thank you for your comment!
Agreed! Everyone should understand the global systemic corruption. Even as it is growing at an alarming rate, as everything economic on a global scale, is being held together by fraudulent (asset backed) securities duct tape. Look out, they are putting the junk in the working peoples pensions.🎯
A very worthwhile documentary, a very interesting and important topic.
Another good one on this under-reported topic...thank you!
It is very simple, the government must appoint auditors to companies and increase the breadth and depth of each audit.
This would prevent companies pressuring or persuading auditors to meet the companies needs.
A professional distance between auditors and company representatives must be maintained.
Prison terms rather than fines must be employed for breaches of proper accounting and honest reporting of 'the numbers' in financial reporting.
Ignorance of lawbreaking is not in law an excuse. Not because it does not occur, but because everybody would claim it to avoid conviction.
This seems like a good solution to me. Maybe there should also be a financial incentive for the auditors to do their job properly? For example, if they uncover some evidence of fraud that leads to a conviction, they receive a % of whatever penalty ends up being paid to the state.
Giving governments that job is a terrible idea!
Already all governments are corrupt (it’s only the degree that varies) plus governments have personal stake/interest in individual companies. This would cause a scenario where certain companies’ fraudulent activities go undetected while other companies end up being targeted and shut down even though they are conducting business ethically
@@MM-we4no I agree, we're well and truly f'ked. Any change will not stop them.
You know they're going to get away with it, I know they're going to get away with it, But let's not let them enjoy getting away with it.
I remember when banks in Australia were regulated. One had to have 25% deposit. Home loans were based on income and tended to be fixed terms of 20 years. I think shorter or longer fixed terms were available. The interest rate was fixed for the term of the loan. Deregulation of the banks gave the crim's the keys to the safe.
I agree governments are complicit in economic advantages and the disadvantaged.
@@lachlanphillips8474 Auditors do not look for fraud. They are solely responsible to give an opinion on the fair representation of the financial statements. if fraud causes a material misstatement, they are responsible for finding it. Otherwise no, the audit isn't meant to catch fraud.
What? The government doesn't even allow any independent auditors to audit their books!
What kind of audits do they mean? Do they just use internally supplied data to see if it adds up? Or do they actually talk to and confirm from outside vendors, suppliers, customers, and banks to see if the corporate data supplied is accurate?
Both, they confirm information/balances with external parties as well as recalculate
Both
If you just follow the internal data then You are a good auditor in the company book and they keep hiring you.
If you do accurate auditing by getting confirmation of data from the vendor, supplier and bank then you are a rigorous auditor who is unfriendly to the client and lose your job or your firm lose their contract to audit the company next quarter.
you see the problem now!
@@AshrakAhmed: You cannot get audits of the suppliers and external individuals etc. Cos that isn't your job. You are deviating from your audit role ? That is actually illegal. You should audit that the process of the supplier management is in place and check that the systems are working and have been working consecutively etc. You've never done accountancy, have you ?.... Lol... Omg.
@crassgop: You cannot call it fraud when the company's role is indeed data .. !.... The question for fraud is what type of company they are trying to be. Wirecard sounded like they got trapped in-between changing laws at that time if these turn if payments and laws are coming through etc. So.... But it still should not be stopped from happening. The audit firm should also protect their clients too and mitigate risks. That is their role. It's why they have financial backing to cushion these firms from collapse for.... It is as designed.
There should be a mandatory review of working papers, like the partner review, but by a different audit firm.
Fantastic reporting!