> EY believed the documents shown to them. Sloppy for sure, and EY got their amount of flak for it.
There are strict rules and guidelines around verifying an asset. The auditor isn't supposed to "believe the documents" - they need to form an independent opinion.^1
If the auditor is unable to obtain sufficient appropriate audit evidence to verify the asset, they can issue a qualified opinion due to a scope limitation.
Good nitpick. Thing is, the proof EY got from Wirecard was good enough to meet these thresholds, at least I never read or heard anything else. All that evidence was fabricated, of course.
What EY did was ignoring all the warning signs they had: money laundering, making up business, fraud and all that.
EY also wanted the proof the standards it seemingly met, that was the failure. But then those audits are not really meant to find organized fraud at a company to begin with.
> Thing is, the proof EY got from Wirecard was good enough to meet these thresholds
It objectively wasn't. I've never heard of a case where the auditor doesn't independently verify the bank account balance with the bank itself.
More reliable evidence reduces the need for additional corroborating evidence. In general the evidence obtained from the company itself wouldn't be considered reliable by itself.
Always happy to be corrwcted and learn something new, unfortunately the FT link is behind a paywall...
If memory serves well so, it is quite a while I read Dan McCrum's book, Wirecard produced documents from the Asian banks (fake ones, as we now know). Of course, and I couldn't agree more, they should have at least called the banks up. Especially since a German fin-tech start-up, with on-going bad press, claims to hold billions with some Asian banks from business activities directly related to said accussations circulating in the press. EY deserves all the flak it got.
That being said, again, if a company wants to defraud its auditors, they can for surprisingly long periods if they try hard enough.
From what I gather they not only called the bank, but actually went to a branch in the Philippines. They spoke to a clerk, took a picture of a screen showing a balance. But the branch office was fake.
There are strict rules and guidelines around verifying an asset. The auditor isn't supposed to "believe the documents" - they need to form an independent opinion.^1
If the auditor is unable to obtain sufficient appropriate audit evidence to verify the asset, they can issue a qualified opinion due to a scope limitation.
^1 https://www.accaglobal.com/gb/en/member/discover/cpd-article...