Audit quality is set to become a sexy debating topic again amongst the political class in Australia following the recent news that the plaintiff firms are getting themselves ready to chase down global accounting firm EY for alleged noncompliance with auditing processes.
Two Berlin-based law firms are having a crack at the accounting behemoth given that media reports have asserted that a failure to check whether US$2.1 billion was actually where it was assumed to be parked means EY is liable to pay damages for the clients of Wirecard AG.
"It has been confirmed that there was no bank confirmation for significant amounts in escrow accounts,” Dr Wolfgang Schirp, one of the legal eagles participating in the chase, said:
“We cannot understand how EY was able to sign off Wirecard's annual financial statements 2016 to 2018 in this situation. Our clients want to hold EY accountable for this."
Dr Schirp is putting the argument for his clients and is keen to see more people participate in a class action against the auditing giant. Punters in Australia will watch this one with interest because Wirecard has had some involvement with local payment facilitation outfits.
Politicians, however, are somewhat different and an issue the accounting profession thought would be buried by the coronavirus pandemic and debates over economic stimulus will be disappointed.
Any excuse will now be used to try and get the firms before the parliamentary committee looking at the state of audit regulation a second time.
Regular readers of Banking Day will recall that the parliamentary committee managed to get all of the major accounting firms before it last December to explain themselves with both topic-relevant questions and also a smattering of queries that would have been better placed in another committee setting.
Certain aspects of working conditions in accounting practices, legal firms and legal chambers – as we have observed with the Dyson Heydon saga – ought to be put before a stringent parliamentary committee process. Audit regulation is not the place to look for that kind of material.
It is a ‘colour by numbers’ exercise because it is really easy to cast shade on professionals that cannot reveal what happened on an engagement at any point in time without breaching their terms of employment for non-disclosure and also the ethical standard requirement to maintain confidentiality of client information.
The simplicity with which accounting professionals can be made to look evasive as a result of the circumstances in which they cannot speak in the public domain ought to be noted.
Do auditing standards require people to get sufficient appropriate audit evidence in all material areas? Yep. Do auditors look at every transaction? No. The only way anybody can determine whether an auditor has failed to do something properly is to look at the audit plan, samples that have been examined and the conclusion that is reached on the basis of what has been looked at by the audit engagement team.
It will be too attractive for policymakers to resist the call to debate how Australia avoids having large and complex businesses collapse with accounting and auditing as a backdrop in the context of Wirecard’s insolvency. It is worthwhile reminding them, however, that companies are actually run by directors, senior management and staff.
The suite of auditing standards do not have one that tell auditors how to run an audit client because that is not what auditors do.
There is something that is also best avoided by politicians, regulators and journalists alike as we go into a period of dissecting the affairs of Wirecard across the globe. Wirecard’s circumstance is not another Enron nor will there ever be another Enron.