Auditing Scandals: A Closer Look

"Democracy demands information. I still believe I acted in the public interest." 

                                                                                                         ~Antoine Deltour

Over the years the field of auditing has faced a number of scandals that have cast doubt on the trustworthiness and reliability of auditors and the organizations they work for. This article explores three instances each shedding light, on facets of this issue.

PwC and Babcock: A Breach of Trust

[PwC fined for Babcock audit failings]: PricewaterhouseCoopers (PwC) one of the services networks globally has recently been fined £7.5m for significant violations, in their accounting audit of Babcock, an engineering firm. The Financial Reporting Council (FRC) which oversees auditors, accountants and actuaries in the UK discovered breaches across all areas they investigated.

Perhaps the concerning finding was that PwC had fabricated a record of audited documents for a sensitive government contract. This betrayal of trust is a violation. Goes against the core principles of honesty and objectivity that are fundamental to the auditing profession. Not does this harm PwCs credibility. It also raises doubts, about the overall integrity of the auditing field.

 

EY and Wirecard: A Failure of Skepticism

[EY and Wirecard: anatomy of a flawed audit]: For instance, another case involves Ernst and Young (EY), which audited Wirecard, a German payment processing and financial services firm. At the end of 2020, Wirecard went under after it emerged that its €1.9 billion in cash was probably non-existent.

The European Community has conducted audits on Wirecard over the last decade but has been criticized for not detecting the fraud. The audit did not discover any fraud and there were no hints about the audited company over 10 years. This means that professional skepticism is one of the fundamental duties that auditors have to fulfil, which was absent in this example by EC.

 

Deloitte, KPMG, and IL&FS: Organized Crime?

[Two Auditors Implicated In India Fraud Case]: India hosts the third case, which involves two auditors, Deloitte Haskins and Sells, as well as a KPMG’s subsidiary. These auditors were employed by Infrastructure Leasing and Financial Services (ILandFS), an infrastructure finance and construction conglomerate.

The Indian government accused the auditors of 22 audit failures that it called criminal conspiracy and quotes. Both of them could be banned from working as auditors for five years. This event shows how widespread the issue is worldwide, and what can happen when auditors do not report fraud.

 

Conclusion

These cases suggest that audit inspection and supervision must be strengthened to curb malpractice in the profession. They also emphasize the importance of promoting a culture that values ​​honesty and responsibility in audit firms. As these examples show, when auditors neglect their professional responsibilities, the results can be disastrous. Auditors should see them as a wake-up call that serves as a turning point for a recovery strategy that restores confidence in their fundamental role in the financial system.

 

References

            Makortoff, K. (2023, March 8). PwC fined for Babcock audit failings including creating false record. The Guardian. https://www.theguardian.com/business/2023/mar/08/pwc-fined-for-babcock-audit-failings-including-faking-evidence

PYMNTS. (2019, June 13). Two Auditors Implicated In India Fraud Case - PYMNTS.com. https://www.pymnts.com/news/security-and-risk/2019/auditors-india-deloitte-kpmg-fraud-case/

Storbeck, O. (2021, October 26). EY and Wirecard: anatomy of a flawed audit. Financial Times. https://www.ft.com/content/bcadbdcb-5cd7-487e-afdd-1e926831e9b7