Auditores y servicios financieros bajo sospecha - El poder global de las Big Four | DW Documental

The Power and Influence of Major Auditing Firms

The Role of the Big Four Auditors

• The major auditing firms are referred to as "guardians of capitalism" and are seen as the conscience of the free market.

• The "Big Four" auditors—KPMG, PWC, EY, and Deloitte—hold significant influence over the economy due to their extensive knowledge of corporate structures and tax laws.

• These firms play a crucial role in reviewing annual financial statements, which is vital for consumer and investor trust in financial information.

• The Wirecard scandal in 2020 highlighted failures within these auditing firms, raising questions about their effectiveness and reliability.

• Despite being responsible for audits, these firms failed to detect fraud at Wirecard, leading to a massive stock market collapse.

Accountability Issues in Auditing

• Each new scandal casts doubt on the diligence of major auditors; issues may stem from negligence or systemic overload.

• Tomas Gergert, a retired teacher with limited financial means, invested his savings into Wirecard based on its perceived stability.

• Gergert's investment turned disastrous when Wirecard collapsed unexpectedly, erasing significant value from his shares.

• The fallout from Wirecard resulted in over €10 billion lost in market value due to fraudulent activities that went undetected by auditors.

• Gergert joined a class-action lawsuit against Wirecard’s auditor, believing they share responsibility for failing to identify discrepancies.

Historical Context of Auditing Regulations

• Sylashtausolm studies the impact of major auditing firms on economies; she emphasizes that audits are essential for market functionality.

• Trust in financial information is critical for consumers and investors; audits serve as their primary tool for verification.

• Following the 1929 economic crisis where many companies concealed poor performance, mandatory audits were instituted in Germany starting in 1931.

• This regulatory shift assigned audit responsibilities primarily to professional auditing firms.

• Globalization led to rapid growth among companies and necessitated adaptations within auditing practices.

Evolution of Major Audit Firms

• In the 1980s, eight major audit firms dominated globally but began merging to enhance capabilities for servicing large corporations.

• This consolidation process led first to six major firms then five (the "Big Five"), ultimately resulting in today's "Big Four."

Regulatory Framework Governing Audits

• The German Institute of Auditors (IDV), representing over 1,000 auditors including those from the Big Four, sets standards governing financial audits.

• Legally mandated requirements compel auditors to certify financial statements with integrity and thoroughness.

-Auditors must maintain an objective stance throughout their review processes regarding client companies.

-The audit process is strictly regulated with an emphasis on identifying errors or fraud during external accountability assessments.

Audit and Trust: The Case of Guaid Card

Overview of Audit Processes and Trust Issues

• If the annual balance figures are correct for the auditor, they grant their approval.

• This serves as a quality seal for the company; in the case of Guaid Card, accounting evaluations were trusted for many years.

• Guaid has repeatedly claimed to have conducted thorough reviews. If auditors fail to detect hidden issues, it undermines trust in economic data, which is fundamental.

Investigative Commission on Guaid Card

• The commission began its work in October 2020.

• Over nine months, deputies interrogated 110 witnesses; a key question was whether Iwi's auditors made any errors.

• This isn't the first time major auditing firms have faced scrutiny.

Historical Context of Audit Failures

• Flutex inflated its annual balance with fictitious sales between 1994 and 1999; KPMG auditors failed to notice this.

• The damage amounted to nearly 5 billion marks, marking it as Germany's largest economic crime case at that time.

• Arthur Anderson, then ranked fifth in the market, allegedly overlooked significant issues leading to document destruction by executives.

Consequences of Audit Failures

• Following scandals, Arthur Anderson lost its license to audit publicly traded companies and ceased operations.

• Lehman Brothers declared bankruptcy in 2008 after using accounting tricks to mask financial troubles; Ernst & Young approved their balances despite discrepancies.

Economic Impact of Audit Failures

• Stock markets reacted with shock as shares plummeted following Lehman Brothers' collapse under massive debt burdens.

• This event triggered the worst economic crisis since World War II, leading to taxpayer-funded bank bailouts globally.

Reflection on Auditing Efficacy

• In Germany alone, €59 billion was spent on bailouts due to these failures.

• Some corporate scandals went undetected by auditors that should never have occurred.

Limitations and Conflicts within Auditing Firms

• Despite ten scandals over ninety years not indicating total failure of auditing systems—thousands of balances are reviewed annually—the doubt remains regarding their effectiveness.

• Auditors often only help identify corporate scandals occasionally due to potential conflicts of interest.

Financial Relationships Between Companies and Auditors

• Companies hire and pay their own auditors directly.

• The law assumes companies desire rigorous evaluations; audits can enhance public confidence in a company's performance.

Independence Concerns Among Auditors

• Given that companies pay their auditors directly raises doubts about maintaining independence.

• If an auditor exceeds budgeted costs during an examination, it could lead companies to threaten switching firms if issues aren't resolved.

Pressure on Auditors from Clients

• Antoine del Tour shared his experience working as a junior auditor at PWC Luxembourg where client relationships influenced audit integrity.

• When clients resist correcting discovered issues, fulfilling proper auditing duties becomes nearly impossible.

Complications from Additional Services Offered by Big Four Firms

• The Big Four also provide advisory services alongside audits which complicates relationships with clients further.

• These firms wield significant influence over economies through various services impacting business development significantly.

Conflict of Interest Due To Dual Roles

• It’s problematic for firms to treat someone as a client while also evaluating them critically.

• Currently, only one-third of revenue comes from balance reviews while two-thirds stem from advisory contracts—a shift from traditional roles.

Economic Success Tied To Auditor Quality

• A firm’s financial success ensures quality work but may compromise independence when dealing with clients who fund them directly.

• This dependency makes it easier for errors detected by auditors to be overlooked or ignored altogether.

Lack Of Knowledge Among Companies Regarding Documentation

The Challenges of Auditing and Independence

Mauro Botá's Experience in Auditing

• Mauro Botá reflects on how companies benefited from lax auditing practices, emphasizing that it is not the auditors' responsibility to overlook issues.

• After reporting discrepancies to his superiors, Botá faced declining evaluations and was eventually removed from his position.

• His dismissal stemmed from accusations of being overly critical towards clients, highlighting the tension between auditor integrity and client relationships.

• He notes that if only one firm maintained strict auditing standards while others did not, they would lose contracts, indicating a competitive pressure against ethical practices.

• In 2017, Botá was fired; by August 2021, a California court rejected his reinstatement claim.

The Influence of Major Audit Firms

• Botá believes that the "Big Four" audit firms push smaller firms out of the market and advocates for a clear separation between auditing and consulting services for publicly traded companies.

• Following the financial crisis, the EU addressed these concerns in 2010; Commissioner Michel Barnier recognized threats to auditor independence.

• Barnier aimed for strict separation between audit and advisory roles and proposed mandatory rotation of auditors every ten years.

• However, major audit firms orchestrated significant lobbying efforts against these reforms in Brussels, as noted by Sven Gigol.

• Ultimately, little remained of Barnier's proposals; EU member states could choose which aspects of reform to implement.

Regulatory Challenges in Germany

• Germany implemented numerous exceptions allowing auditors to continue providing advisory services to their own clients.

• The Big Four regularly secure substantial consulting contracts with German ministries despite potential conflicts of interest.

• Concerns extend to federal financial oversight institutions like APAS being influenced by these large firms.

• This creates a system where major audit firms become nearly unaccountable due to their deep entrenchment within state institutions.

• There are conspiracy theories suggesting that these firms operate as an omnipresent power influencing various sectors.

Antoine del Tour's Perspective on Auditing

• Antoine del Tour viewed working at one of the Big Four as a significant career opportunity when he joined PWC in Luxembourg in 2008.

• He initially believed his role had social utility but later became disillusioned with its implications for transparency.

• Del Tour encountered questionable audits involving shell companies lacking real operations or revenue streams.

• He observed PWC facilitating tax avoidance strategies for international businesses seeking minimal tax burdens through dubious financial maneuvers.

• PWC even drafted tax settlements using official government seals without proper oversight.

Whistleblowing and Ethical Concerns

• Del Tour provided documents revealing unethical practices at PWC to a French journalist but faced legal repercussions from Luxembourg for document theft.

• In 2018, he was officially recognized as a whistleblower amidst broader concerns about tax evasion tactics employed by major consulting firms globally.

• These revelations raise serious questions about the role of large audit firms in undermining market economies through aggressive tax reduction strategies.

• According to the European Commission, EU countries lose €70 billion annually due to tax avoidance schemes facilitated by such firms.

Tax Competition and Its Implications

The Role of Tax Advisors

• Tax competition leads to tax illusions, where incentives exist for individuals to exploit them. Advisors must present clients with various tax payment options.

• If advisors or auditors fail to inform clients about legal possibilities for reducing tax burdens, they risk being held liable for financial damages.

Influence of Major Auditing Firms

• The "Big Four" auditing firms not only serve as tax advisors but also participate in legislative processes related to taxation within governments.

• Through their advisory roles, these firms identify flaws in the tax system and communicate these issues to politicians and government entities.

Legislative Concerns

• While it is acceptable for lawmakers to consult with business experts, problems arise when they become involved in drafting laws without oversight.

The Wirecard Scandal: An Overview

Investigative Findings

• In Spring 2021, the credibility of auditor Y was questioned due to the Wirecard case. A special parliamentary investigation team was formed.

• Their findings were compiled into the Van Bacht Report, which was initially confidential but later leaked to media outlets.

Key Insights from the Van Bacht Report

• Felix Holterman from Handelsblatt investigated Wirecard and highlighted that this report marked a significant official inquiry into one of the Big Four's work.

• Investigators traced back events to 2016 when Wirecard acquired a questionable Indian company, raising suspicions about management involvement.

Auditor Responsibilities and Failures

Issues Identified by Auditors

• According to the Van Bacht Report, Wirecard responded inadequately to accusations in India through an internal investigation called Project Ring.

• The report included a letter from Y's auditors warning that further clarification could lead to restricted approval of financial statements.

Consequences of Auditor Actions

• The auditors threatened withdrawal from future collaboration if concerns were not addressed adequately. This posed a potential disaster for Wirecard’s credibility among investors.

• Despite initial concerns raised by auditors regarding discrepancies at Wirecard, approval was granted without limitations shortly after.

Regulatory Oversight and Accountability

Questions on Auditor Integrity

• There are lingering questions about whether Y's auditors received sufficient documentation from Wirecard during their review process.

• Effective auditing requires skepticism; relying solely on management confirmations undermines audit integrity.

Legal Repercussions

• Following revelations of misconduct, major clients like Commerzbank canceled contracts with Y. Additionally, Munich prosecutors initiated criminal proceedings against responsible auditors.

Regulatory Authority Response

Bafin's Role in Oversight

• The Federal Financial Supervisory Authority (Bafin), responsible for overseeing banks and insurers in Germany, faced criticism over its handling of fraud allegations against Wirecard starting in 2019.

Limitations on Regulatory Action

Reform and Accountability in Financial Auditing

Rejection of Accusations Against Bafin

• Scholz rejected accusations that the Federal Financial Supervisory Authority (Bafin) protected Wirecard during investigations.

Admission of Weaknesses in Fraud Controls

• He acknowledged that state controls for fraud cases were not robust enough, emphasizing the need for well-established authorities and laws to prevent future occurrences.

Introduction of FISG Legislation

• In June 2021, the German Parliament passed the Financial Market Integrity Strengthening Act (FISG), aimed at restoring trust in Germany's financial market and improving audit quality.

Implementation of Audit Reforms

• The FISG implemented reforms initially proposed by Michel Barnier in 2011 for the European Union, including restrictions on simultaneous auditing and consulting services.

• Auditors are now limited to a maximum of ten consecutive years with a single company to enhance independence.

Expanded Auditor Responsibilities

• The law increased legal responsibilities for auditors, requiring them to adopt effective internal control systems.

• Bafin gained more authority and assumed full responsibility for state oversight of financial statements.

Critique of FISG Effectiveness

• While some aspects of the law are sensible, it is deemed insufficient regarding auditing practices.

• A stricter separation between auditing and consulting is advocated; although there are positive elements in the law, it does not improve audit quality significantly.

Concerns Over Market Concentration

• There are fears that this legislation could lead to greater concentration within the auditing market due to increased bureaucratic demands on smaller firms.

• Sven Gigold argues that while Schorz has strengthened financial inspections, conflicts of interest among auditors remain unresolved.

Limitations of Regulatory Measures

• It is suggested that no regulation can completely prevent cases like Wirecard from occurring; Tomás Gergert expresses disappointment over the new law's failure to restore confidence.

Call for State Oversight in Auditing

• Questions arise about what needs to happen for accounting audits to guarantee security; proposals include state-led audits across countries.

• Concerns persist regarding private auditors prioritizing profit over independence, complicating conflict resolution.

Radical Market Restructuring Demands

• Fabio de Masi calls for a radical restructuring of the auditing market with clear separations between auditing and consulting roles.

• This may involve breaking up major firms into smaller entities with defined responsibilities.

Responsibility in Fraudulent Balances

• For fraudulent balance sheets like those at Cloud Hospital Naman, primary responsibility lies with companies themselves; boards must ensure compliance with regulations.

• If corporate governance fails, regulatory authorities must intervene effectively; a powerful Bafin is essential.

Political Implications Post-Wirecard Scandal