Honorable mention here for Arthur Andersen and their role in the Enron audit: https://en.wikipedia.org/wiki/Arthur_Andersen
EY gets banned from new audit business in Germany
21–30 of 303 posts
Re: EY gets banned from new audit business in Germany
#22Look, these sentences are probably more than just and even on the light sight. Handing in your auditing license is a pretty severe punishment, at least career changing. But will the risk and audit professionals at BaFin face the same penalties?
The head of BaFin and their deputy were forced out over it and the agency is undergoing significant restructuring[1], and a new agency was formed specifically for investigating financial crimes[2].
In terms of actual liability - no, at least not yet. A number of lawsuits by individual investors were thrown out[3] but it's possible there will be public prosecution:
> Criminal prosecutors in Frankfurt are assessing whether BaFin employees obstructed justice by not properly investigating fraud warnings.
In the end, it's a regulator, they have to rely on auditors to some point. If Wirecard lies and EY doesn't catch it, that's on the criminal and the auditor. Still, it's hard to understate just how badly the agency fucked this one up... Hopefully, it'll serve as a true wake-up call.
Certainly seems like it - they have been more aggressive recently with other problem companies like N26, Solaris Bank, Coinbase, Deutsche and others.
[1]: https://www.ft.com/content/4f948457-678e-485c-92f7-2837064a5...
[2]: https://www.ft.com/content/587b6c52-c93e-4b2c-949a-53f6a1667...
[3]: https://www.ft.com/content/9fab6842-4ee6-4114-a35c-09bf9c62a...
Re: EY gets banned from new audit business in Germany
#23Audits in general are such a joke. Rubber stamping and checks done by students or graduates who barely understand what they are doing. And even if they detect something, it is considered as not material and ignored. From business perspective the auditors are clueless. I dont claim that audits are bad, they are very needed. But the execution in many ways is so poor.
I worked at a company that had to deal with EY as a part of a tech certification. Tha auditors barely knew why they were being sent over. Out managers and techs had to explain the process to them and assure them the numbers in the report were correct. The auditors happily accepted that, and then charged around 100k. Top job.
Re: EY gets banned from new audit business in Germany
#24Look, these sentences are probably more than just and even on the light sight. Handing in your auditing license is a pretty severe punishment, at least career changing. But will the risk and audit professionals at BaFin face the same penalties?
BaFin's role in this is indeed pretty astonishing:
"The German financial watchdog has filed a criminal complaint against two Financial Times journalists and several short sellers, accusing them of potential market manipulation over reports about suspected accounting irregularities at payments processor Wirecard."
https://www.ft.com/content/8e1948be-6060-11e9-b285-3acd5d435...
Re: EY gets banned from new audit business in Germany
#25Audits in general are such a joke. Rubber stamping and checks done by students or graduates who barely understand what they are doing. And even if they detect something, it is considered as not material and ignored. From business perspective the auditors are clueless. I dont claim that audits are bad, they are very needed. But the execution in many ways is so poor.
> From business perspective the auditors are clueless. Hey! I used to be a young IT grad helping with financial audits. If it helps, I was young and clueless and frequently I still figured out more about the business processes I was auditing than the client employees taking care of them every day :-p
From my experience, you're the exception, not the norm.
Many audits and compliance frameworks have so many loopholes and DIY rulings that basically anything is possible and acceptable as long as whatever you're doing is written beforehand.
Re: EY gets banned from new audit business in Germany
#26If a CEO mismanages and goes bankrupt, they cannot start another company for 5 years; a two-year ban seems mild, but better than nothing, as the reputational damage is substantial (why would any non-criminal pick EY afterwards in good faith if there are others?).
It would be an interesting idea to make auditors fully accountable like bankruptcy advisors. I know, this is never going to happen.
The current problem is that the insentives are all wrong.
It is the company being audited that gives the auditers the business. Its not in the interests of a dodgy company to appoint a good auditor, and its not actually in the auditors (short term) interest to uncover wrongdoing as it just means they'd lose a client.
My proposal is that you require every company to have insurance to cover the risks, making the insurers fully liable for fraud (and any other business risk that audits protect against).
Companies then don't appoint their own auditors, but the insurers do. Its in the insurers interest to make sure that any audit is effective as they're on the hook for any liability the audit misses.
This way the insentives for the auditors are aligned with the interests of the people relying on the audit (shareholders, customers, suppliers).
Re: EY gets banned from new audit business in Germany
#27Look, these sentences are probably more than just and even on the light sight. Handing in your auditing license is a pretty severe punishment, at least career changing. But will the risk and audit professionals at BaFin face the same penalties?
The head of BaFin and their deputy were forced out over it and the agency is undergoing significant restructuring[1], and a new agency was formed specifically for investigating financial crimes[2]. In terms of actual liability - no, at least not yet. A number of lawsuits by individual investors were thrown out[3] but it's possible there will be public prosecution: > Criminal prosecutors in Frankfurt are assessing whe…
> The head of BaFin and their deputy were forced out over it
They tried to get innocent people put in prison. They belong in prison themselves. If all that happened to them was losing their careers, then they haven't been brought to justice.
Re: EY gets banned from new audit business in Germany
#28Earlier quoted context omitted.
> From business perspective the auditors are clueless. Hey! I used to be a young IT grad helping with financial audits. If it helps, I was young and clueless and frequently I still figured out more about the business processes I was auditing than the client employees taking care of them every day :-p
From my experience, you're the exception, not the norm. Many audits and compliance frameworks have so many loopholes and DIY rulings that basically anything is possible and acceptable as long as whatever you're doing is written beforehand.
Well, I'm not talking about everything, or the high level picture.
But I was checking what were called "IT controls" for their systems and a lot of that stuff was straight forward and yes, it did involve some rubber stamping, but a lot of it made sense: "Do you have a written approval process for adding users to this sensitive system?". "Can you show us how you mitigate not having a written process?".
And it wasn't super rare that besides the fact they didn't have the thing I asked for, but sometimes I couldn't even get them to understand why it would be a good idea.
A lot of companies are the Wild West :-)
Re: EY gets banned from new audit business in Germany
#29If a CEO mismanages and goes bankrupt, they cannot start another company for 5 years; a two-year ban seems mild, but better than nothing, as the reputational damage is substantial (why would any non-criminal pick EY afterwards in good faith if there are others?).
Really? 5 years? That seems really harsh. Is it all business failures or does it have to be due to mismanagement? I've heard the climate is very hostile to businesses in Germany; my sister in law was trying to sell art on etsy and apparently she had to get a business license to do so in Germany. She's now back in the USA where she can just sell stuff online and the only thing she needs to do is file her taxes correctly
Re: EY gets banned from new audit business in Germany
#30If a CEO mismanages and goes bankrupt, they cannot start another company for 5 years; a two-year ban seems mild, but better than nothing, as the reputational damage is substantial (why would any non-criminal pick EY afterwards in good faith if there are others?).
Really? 5 years? That seems really harsh. Is it all business failures or does it have to be due to mismanagement? I've heard the climate is very hostile to businesses in Germany; my sister in law was trying to sell art on etsy and apparently she had to get a business license to do so in Germany. She's now back in the USA where she can just sell stuff online and the only thing she needs to do is file her taxes correct…
>she had to get a business license to do so in Germany. She's now back in the USA where she can just sell stuff online
If you want to sell in the Germany, get a business license from Estonia or Romania or some other low-cost low-bureocracy EU country, and pay your taxes there. Germany is still living in the business climate of the '60s.