The head of the review into the auditing industry has called on the government to press on with an overhaul of the sector, after a Big Four firm failed to uncover fraud at Wirecard.
After a series of allegations against Wirecard, EY, which has been the firm’s auditor since 2009, said it was unable to verify €1.9bn in the accounts. The accounting firm blamed the black hole on a sophisticated global fraud, but is now coming under increased scrutiny for its role in the scandal.
“We must not wait until there is a market failure, there has to be a whole mindset change on what is the purpose of an audit,” Donald Brydon told the Financial Times.
“Another couple of big scandals and suddenly you have a global audit profession that is entirely in disarray because choices become more limited or there are knee-jerk reactions.”
Brydon, who was commissioned by the government to launch a review into the industry, handed a report to the Department of Business, Energy and Industrial Strategy in December. He proposed accounting standards be overhauled to include a requirement for auditing firms to “endeavour to detect material fraud in all reasonable ways.”
EY has been accused of failing to carry out a standard audit procedure on Wirecard for more than three years.
A report by the Financial Times claims that between 2016 and 2018 EY did not directly check with Singapore’s OCBC Bank to confirm the lender held huge amounts of cash on Wirecard’s behalf.
Auditors are currently only obliged to confirm that company statements are free from misstatements “whether caused by fraud or error.” However Brydon proposed firms should be taught forensic accounting methods and fraud awareness.
Brydon said: “Given the focus on Wirecard, making it clear that auditors have an obligation to find fraud rather than stumble over it would be a smart move to change auditor behaviour.”
The accounting industry was brought into the spotlight after Patisserie Valerie’s collapse last year, as people started to ask whether auditors should be looking for fraud in company accounts. Grant Thornton had failed to uncover a missing £95m in its statements.
EY was contacted for comment.