Wirecard's missing $2 billion

asajj

rbulph said:

jonnygee2 said:

As an ex now retired auditor, I sadly have to agree with you!!

Even the auditors themselves seem to agree:

David Dunckley, chief executive of Grant Thornton, told MPs in January that it was not his firm’s job to uncover fraud. “We’re not looking for fraud, we’re not looking at the future, we’re not giving a statement that the accounts are correct,” Mr Dunckley said at the time.

https://www.independent.co.uk/news/business/news/pwc-kpmg-deloitte-and-ey-audit-quality-failure-frc-report-a8998321.html

  

Er, what does that leave as the purpose of an audit? Collecting fees?

Purpose of the audit is not to uncover fraud. That's a misconception among non-accountants unfortunately. They are there to assess if financial statements are reasonably stated. They consider if there is a risk of fraud that would lead to financial statements being materially misstated.
inspectorperez

"Are you sure?

Reason why I question your statement is that Wirecard's latest filed accounts (to 31 December 2018, interestingly just filed), show cash and cash equivalents of circa £500M.

I really wouldn't have expected the company merely providing infrastructure to be carrying anything like these cash levels!"
We are talking about customer balances, not the entity's own money. EY confirmed for 2019 FS that they were unable to obtain sufficient evidence to confirm cash balances on trust accounts in the consolidated financial statements in the amount of €1.9bn. There are also allegations about inflated revenues in Asian operations.

Stroopwafel hope you get it sorted. I believe your money would be safe but frozen until FCA gives a green light. 

inspectorperez

asajj said:

rbulph said:

jonnygee2 said:

As an ex now retired auditor, I sadly have to agree with you!!

Even the auditors themselves seem to agree:

David Dunckley, chief executive of Grant Thornton, told MPs in January that it was not his firm’s job to uncover fraud. “We’re not looking for fraud, we’re not looking at the future, we’re not giving a statement that the accounts are correct,” Mr Dunckley said at the time.

https://www.independent.co.uk/news/business/news/pwc-kpmg-deloitte-and-ey-audit-quality-failure-frc-report-a8998321.html

  

Er, what does that leave as the purpose of an audit? Collecting fees?

Purpose of the audit is not to uncover fraud. That's a misconception among non-accountants unfortunately. They are there to assess if financial statements are reasonably stated. They consider if there is a risk of fraud that would lead to financial statements being materially misstated.
inspectorperez

"Are you sure?

Reason why I question your statement is that Wirecard's latest filed accounts (to 31 December 2018, interestingly just filed), show cash and cash equivalents of circa £500M.

I really wouldn't have expected the company merely providing infrastructure to be carrying anything like these cash levels!"
We are talking about customer balances, not the entity's own money. EY confirmed for 2019 FS that they were unable to obtain sufficient evidence to confirm cash balances on trust accounts in the consolidated financial statements in the amount of €1.9bn. There are also allegations about inflated revenues in Asian operations.

Stroopwafel hope you get it sorted. I believe your money would be safe but frozen until FCA gives a green light. 

With respect, customer balances are precisely that!
The statutory accounts description includes the word “cash”. 
However, whether it’s cash and/or cash equivalents, it would seem that there has been some massive asset overstatement in the company’s balance sheet.
What I find interesting is that the auditors gave a clean bill of health less than 8 weeks ago on accounts made up to 31 December 2018, and yet now appear to report according to what you say that they have insufficient evidence to support cash balances.
Reading in between the lines, it seems to me that there has been a partial or complete accounting breakdown, perhaps as a consequence of the well publicised ransomware attack earlier in the year.
No doubt all will be revealed in due course!
I guess EY will be studying their PI insurance position accordingly.

Thrugelmir

inspectorperez said:

asajj said:

rbulph said:

jonnygee2 said:

As an ex now retired auditor, I sadly have to agree with you!!

Even the auditors themselves seem to agree:

David Dunckley, chief executive of Grant Thornton, told MPs in January that it was not his firm’s job to uncover fraud. “We’re not looking for fraud, we’re not looking at the future, we’re not giving a statement that the accounts are correct,” Mr Dunckley said at the time.

https://www.independent.co.uk/news/business/news/pwc-kpmg-deloitte-and-ey-audit-quality-failure-frc-report-a8998321.html

  

Er, what does that leave as the purpose of an audit? Collecting fees?

Purpose of the audit is not to uncover fraud. That's a misconception among non-accountants unfortunately. They are there to assess if financial statements are reasonably stated. They consider if there is a risk of fraud that would lead to financial statements being materially misstated.
inspectorperez

"Are you sure?

Reason why I question your statement is that Wirecard's latest filed accounts (to 31 December 2018, interestingly just filed), show cash and cash equivalents of circa £500M.

I really wouldn't have expected the company merely providing infrastructure to be carrying anything like these cash levels!"
We are talking about customer balances, not the entity's own money. EY confirmed for 2019 FS that they were unable to obtain sufficient evidence to confirm cash balances on trust accounts in the consolidated financial statements in the amount of €1.9bn. There are also allegations about inflated revenues in Asian operations.

Stroopwafel hope you get it sorted. I believe your money would be safe but frozen until FCA gives a green light. 

Reading in between the lines, it seems to me that there has been a partial or complete accounting breakdown, perhaps as a consequence of the well publicised ransomware attack earlier in the year.

Overseas subsidiaries are the root cause. Somebody lied and provided false representations. 

inspectorperez

Thrugelmir said:

inspectorperez said:

asajj said:

rbulph said:

jonnygee2 said:

As an ex now retired auditor, I sadly have to agree with you!!

Even the auditors themselves seem to agree:

David Dunckley, chief executive of Grant Thornton, told MPs in January that it was not his firm’s job to uncover fraud. “We’re not looking for fraud, we’re not looking at the future, we’re not giving a statement that the accounts are correct,” Mr Dunckley said at the time.

https://www.independent.co.uk/news/business/news/pwc-kpmg-deloitte-and-ey-audit-quality-failure-frc-report-a8998321.html

  

Er, what does that leave as the purpose of an audit? Collecting fees?

Purpose of the audit is not to uncover fraud. That's a misconception among non-accountants unfortunately. They are there to assess if financial statements are reasonably stated. They consider if there is a risk of fraud that would lead to financial statements being materially misstated.
inspectorperez

"Are you sure?

Reason why I question your statement is that Wirecard's latest filed accounts (to 31 December 2018, interestingly just filed), show cash and cash equivalents of circa £500M.

I really wouldn't have expected the company merely providing infrastructure to be carrying anything like these cash levels!"
We are talking about customer balances, not the entity's own money. EY confirmed for 2019 FS that they were unable to obtain sufficient evidence to confirm cash balances on trust accounts in the consolidated financial statements in the amount of €1.9bn. There are also allegations about inflated revenues in Asian operations.

Stroopwafel hope you get it sorted. I believe your money would be safe but frozen until FCA gives a green light. 

Reading in between the lines, it seems to me that there has been a partial or complete accounting breakdown, perhaps as a consequence of the well publicised ransomware attack earlier in the year.

Overseas subsidiaries are the root cause. Somebody lied and provided false representations. 

Maybe, but isn’t it part of the auditors role to be sceptical about management representations and seek independent verification?

nyermen

Wirecard I understand offer two services relevant here - prepaid cards etc, for which they hold the money (supposedly in trust accounts), and also payment infrastructure (processing and so on, particularly since smaller banks /services aren't clearing banks so can't directly process payments all the way).  I guess their prepaid cards also use their infrastructure.
I just hope for everyones sake here, that they're mostly with banks/services that just use the infrastructure.  I believe those such as curve are such a situation.  Suspect things like Thomas Cook prepays may not be.

Uxb1

I would have thought it standard audit practice to request direct from the holding bank an independent statement of the all the account balances - particularly when we are not talking about the odd £10 but $2bn.

asajj

Uxb1 said:

I would have thought it standard audit practice to request direct from the holding bank an independent statement of the all the account balances - particularly when we are not talking about the odd £10 but $2bn.

Yes, bank accounts are audited this way - you would request bank statement independently and it appears EY didn't do it at least properly.

@inspectorperez Not sure what you mean. There is a whole set of regulation around Client Money and accounting for it is not always straightforward. Client money balances are accounted for differently under different GAAP. While UK Gaap says you can't show it on the balance sheet, IFRS is less clear and US Gaap is also different. IAS 1 tells us to consider whether the client money is a resource controlled by the entity, and economic benefits associated with the client money are expected to flow to the entity. A bank, therefore, could record customer deposits as an asset with an offsetting liability vs the customer but Wirecard isn't a bank. So just looking at the balance sheet line is not sufficient in this context in my opinion.

@nyermen That's my understanding too with regards to their service too. Let's hope so.

inspectorperez

asajj said:

Uxb1 said:

I would have thought it standard audit practice to request direct from the holding bank an independent statement of the all the account balances - particularly when we are not talking about the odd £10 but $2bn.

Yes, bank accounts are audited this way - you would request bank statement independently and it appears EY didn't do it at least properly.

@inspectorperez Not sure what you mean. There is a whole set of regulation around Client Money and accounting for it is not always straightforward. Client money balances are accounted for differently under different GAAP. While UK Gaap says you can't show it on the balance sheet, IFRS is less clear and US Gaap is also different. IAS 1 tells us to consider whether the client money is a resource controlled by the entity, and economic benefits associated with the client money are expected to flow to the entity. A bank, therefore, could record customer deposits as an asset with an offsetting liability vs the customer but Wirecard isn't a bank. So just looking at the balance sheet line is not sufficient in this context in my opinion.

@nyermen That's my understanding too with regards to their service too. Let's hope so.

Whether it's UK GAP, US GAP, IFRS, the point remains that auditors signed off 2018 accounts with a clean bill of health in May 2020, and 8 weeks later an alleged £2Bn black hole appears.

The going concern review which auditors undertake before signing off is supposed to look 12 months ahead from the sign off date, so something extremely significant has been overlooked/misunderstood/missed, to allow the sign off to proceed on an unqualified basis.

asajj

inspectorperez said:

asajj said:

Uxb1 said:

I would have thought it standard audit practice to request direct from the holding bank an independent statement of the all the account balances - particularly when we are not talking about the odd £10 but $2bn.

Yes, bank accounts are audited this way - you would request bank statement independently and it appears EY didn't do it at least properly.

@inspectorperez Not sure what you mean. There is a whole set of regulation around Client Money and accounting for it is not always straightforward. Client money balances are accounted for differently under different GAAP. While UK Gaap says you can't show it on the balance sheet, IFRS is less clear and US Gaap is also different. IAS 1 tells us to consider whether the client money is a resource controlled by the entity, and economic benefits associated with the client money are expected to flow to the entity. A bank, therefore, could record customer deposits as an asset with an offsetting liability vs the customer but Wirecard isn't a bank. So just looking at the balance sheet line is not sufficient in this context in my opinion.

@nyermen That's my understanding too with regards to their service too. Let's hope so.

Whether it's UK GAP, US GAP, IFRS, the point remains that auditors signed off 2018 accounts with a clean bill of health in May 2020, and 8 weeks later an alleged £2Bn black hole appears.

The going concern review which auditors undertake before signing off is supposed to look 12 months ahead from the sign off date, so something extremely significant has been overlooked/misunderstood/missed, to allow the sign off to proceed on an unqualified basis.

My answer to your point about cash and cash equivalents being E500m not about EY signing off the accounts for 2018. 
Going concern assessment looks at the business as a whole and providing an unqualified opinion is the last resort for many auditors. I already pointed out their failure to audit bank accounts properly. 

Curve Card is back now, I was able to use it. Hope prepaid cards also will be unlocked soon.

mark55man

the investment community on twitter   have been highlighting for months that there is an serious long standard corruption and culture problem at Wirecard, so much so that not only EY but the government ministries were involved.  I believe the money hasn't gone missing, its just that it was falsely claimed (ie sales that weren't actually made, profits that were never achieved).  If anything this makes the failure of regulation and governance even more shocking, but likewise, does mean that customer's actual money in the ecard systems are probably safe if blocked