Case in point

Reimagining audit quality using Wirecard and PCAOB examples

The Wirecard case and recent PCAOB inspection reports on the top six audit firms highlight continued issues with audit quality and the independent auditor’s responsibility in uncovering material misstatements due to fraud. They also emphasize the need for the auditing profession to hasten improvements.

Here are ways to improve audit quality, address material financial statement fraud during audits, and prevent and deter more big frauds using Wirecard and PCAOB examples.


On Oct. 15, 2019, the Financial Times (FT) published an investigative article revealing internal documents pointing to accounting fraud involving inflated revenue and profits at Wirecard, the German financial services company. While the company’s stock plummeted and management continued to deny the allegations, the board of directors requested a special review, which the company awarded to KPMG. (See the Fraud Magazine cover article, Wirecard’s house tumbles, by Dick Carozza, CFE, and Wirecard’s suspect accounting practices revealed, by Dan McCrum, Oct. 15, 2019, the FT.)

The Wirecard scandal — the largest accounting fraud case in post-war Germany — shocked the European financial markets, losing an estimated US$13 billion in stock market value and becoming the first Frankfurt Stock Exchange blue chip company to file for bankruptcy protection. (See What the Wirecard scandal reveals about the state of German financial supervision, by Dustin Voss, Nov. 19, 2020, The London School of Economics and Political Science.)

KPMG’s April 28, 2020, final report stated that the review had been obstructed and that it was unable to verify the existence of the cash held in the escrow accounts and the existence of outsourced business.

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