Summary of The Big Four - Accounting firms under scrutiny | DW Documentary

00:00:00 - 00:40:00

The Big Four accounting firms are under scrutiny for their role in the global financial crisis and the Wirecard scandal. There is a class action lawsuit against them for their role in the scandal, in which the company lost 10 billion euros in market capitalization. There are concerns about their independence, and the investigations are part of an effort to reduce the EU's loss of up to 70 billion euros a year due to corporate tax tricks.

• 00:00:00 The "Big Four" auditors, Ernst & Young (EY), PricewaterhouseCoopers (PWC), Deloitte, and KPMG, are important players in the global economy, with a combined workforce of 1.1 million and offices in 150 countries. They are responsible for auditing corporate financial statements, and some small investors are joining a class action lawsuit against them for their role in the Wirecard scandal, in which the company lost a total of 10 billion euros in market capitalization.
• 00:05:00 The Big Four accounting firms-KPMG, EY, Deloitte, and Pwc-are currently under scrutiny for their roles in the global wirecard scandal. The audit process is important for a market economy, and without trust in financial statements, investors and consumers are at risk. Auditors are required by law to carefully verify annual financial statements, and to maintain skepticism towards the companies they audit. When a company opens its books, its business is laid bare in numbers, and auditors generally cannot examine a company in its entirety. They instead choose an area to focus on, and compare the company's statements with the actual financial transactions. If the auditor finds no fault in the company's annual financial statement, they give what's called an unmodified opinion, which is a seal of approval for the company.
• 00:10:00 The Big Four - accounting firms under scrutiny - were found to have engaged in various forms of corporate fraud, costing taxpayers billions of euros in Germany alone. The auditor failures were due in part to conflicts of interest, with the Big Four being influential in the market economy and providing a wide range of services that impact business.
• 00:15:00 The Big Four - accounting firms under scrutiny - are under scrutiny for their independence. Former PwC employee Bottle shares his experience of being fired for reporting improper behavior by management. The campaign to keep the Big Four independent is successful, but it comes at a cost.
• 00:20:00 The Big Four - accounting firms at the center of controversy - are meeting with member states early on, when it is crucial to get the commission and ministries on board with their ideas. However, as the reforms developed, Germany introduced several exceptions that led to auditor conflicts of interest. One example is that auditors could still act as consultants to companies they audit and could order the company for longer than 10 years. In addition, Delta found that his job at the Big Four was a good opportunity, but he lost his motivation after two years. He resigned before leaving, but before he did, he came across confidential tax returns that showed that Luxembourg was luring international companies with deals that slashed corporate taxes to less than one percent. Pwc even prepared tax rulings with the letterhead of Luxembourg's tax authorities. Government officials just had to sign.
• 00:25:00 The Big Four - accounting firms under scrutiny - are PWC,EY,KPMG, and Deloitte - all of which are being scrutinized for their involvement in helping businesses evade taxes. The investigations are part of an effort to reduce the EU's loss of up to 70 billion euros a year due to corporate tax tricks. The biggest damage is that people feel like some people are above the law, which lowers the entire system's legitimacy. The investigation of Ey's wirecard audit is key as it is the first public audit of one of the Big Four's work.
• 00:30:00 The Big Four - Accounting firms under scrutiny - DW Documentary follows the investigations into wirecard, a German company that was bought by an Indian payments firm in 2016. There are suspicions that wirecard managers made money off the deal, and in response, the auditors started a forensic audit. However, there were problems, and the management didn't sufficiently explain why they overpaid. The one back report included a letter from the auditor, addressed to the chairperson of wirecard's supervisory board, which if not clarified may lead to a modified opinion and the auditing mandate being withdrawn. This would have been a disaster for wirecard, as a modified opinion alone is enough for investors and banks to lose trust. However, despite the concerns, ey delivered an unmodified opinion a week after the letter. Later, in 2019, ey again referred to fraud investigations against wirecard employees in Singapore in their final report. Despite the concerns, the auditor's comments received little attention. Overall, Ernst Young failed to obtain independent confirmation that these funds existed, instead relying on trustees.
• 00:35:00 The Big Four, accounting firms under scrutiny, were not heedful of many warning signals, and their damage to their reputation is considerable. Clients such as Commerce Bank Deutsche Telekom and KFW, a government bank, ended their auditing agreements with Ey in 2020. Munich State Prosecutors opened an investigation into the partners at Ey who audited Wirecard in June 2021. The Parliamentary Inquiry Committee presented its final report on Wirecard in June 2021. The law, passed in June 2021, was supposed to help strengthen confidence in the German financial market and place more comprehensive rules on auditors. However, with fisk, German implementation of the EU auditing reform proposed by Michelle Barnier in 2011 has had limited success. Auditors are now no longer allowed to audit a publicly traded company for more than 10 years, and auditors also have more liability related to audits under civil law. Listed stock companies must have effective internal controls, and Barfin has more power and is directly responsible for monitoring balance sheets. Some parts of this law are useful but when it comes to auditing it doesn't go far enough. Sven Gigold, head of the German Association of Auditors, said the fisk doesn't address the actual problem, and stricter public supervision would attack from
• 00:40:00 The Big Four accounting firms are under scrutiny for their role in the financial crisis. Thomas Haggett is disappointed with the law, as it hasn't restored his trust in the accounting profession. Venezuela is an example of a country where pensions aren't safe and everyone should fend for themselves, and government and politicians have to make sure that auditors keep an eye on things and catch fraud before it happens. What would need to happen for that to be guaranteed by auditing? Fabio de Marzi would like to see radical changes to the market system, such as splitting up the big players and requiring the inclusion of mid-sized auditors. Class Peter Naumann says the companies are primarily responsible for incorrect balance sheets, and the supervisory board has to ensure compliance if the board isn't doing its job. Authorities must intervene and Baffin needs more rights. Markets need reliable monitoring free of conflicts of interest.