Here’s your weekly update with a handful of in-depth articles we think are worth a bit of your time.
What on earth did EY do when they signed off on Wirecard’s audits?
This week saw the culmination of a stunning accounting scandal as Wirecard AG filed for insolvency after admitting that over $2 billion in cash on its balance sheet probably did “not exist”. Ernst & Young gave the company a clean bill of financial health and subsequently signed off on more than 10 years of the company’s results without raising significant concerns.
EY has now accused Wirecard of “an elaborate and sophisticated fraud” that allowed more than $2 billion to go missing. The company argues that “even the most robust audit procedures may not uncover this kind of fraud”.
But can EY reject all responsibility by blaming Wirecard? Between 2016 and 2018, EY did not check directly with Singapore’s OCBC Bank to confirm that the lender held large amounts of cash on behalf of Wirecard. Instead, EY relied on documents and screenshots provided by a third-party trustee and Wirecard itself.
Obtaining independent confirmation of bank balances is a routine procedure in an independent audit, something that is so basic that it would be taught on day one in an audit course. After all, if you cannot even trust the cash balance in the financial statements, what else can you trust? And cash is really easy to audit too, all it requires is a direct confirmation from the bank. So what exactly did EY do during the audit if they did not even confirm cash balances?
The Financial Times started raising troubling questions about Wirecard’s accounting as early as July 2015 and published story after story that should have compelled EY to ask the same tough questions the journalists were posing. But Ernst & Young issued unqualified audits of Wirecard for a decade despite increasing questions over suspect accounting practices from journalists and short sellers.
The Wirecard fraud is one of several international accounting scandals that have emerged on EY’s watch this year, including at NMC Health and Luckin Coffee. Of course, audit breakdowns are not unique to EY. All of the Big Four firms (as well as others in the next tier down) have been rocked by scandal upon scandal. What’s more, none of the firms are showing any sign of getting better; their audit failure rates bounce around considerably from year to year, but there is no clear improvement.
A Q&A with Silicon Valley’s VC legend
Marc Andreessen is one of the most notable and influential figures in the history of the internet. He quite literally helped build the internet with his company Netscape, after which he founded the venture firm Andreessen Horowitz and went on to become one of the most legendary venture capitalists in Silicon Valley.
It’s been a while since Marc gave a public interview, but he recently had a conversation with The Observer Effect about how he spends his time and attention, how he tries to set goals for himself, how he reads so much, why free time is key to being productive, and what he wanted to accomplish with that “build” essay.
“The big thing is basically *everything* is on the calendar. Sleep is on the calendar, going to bed is in there and so is free time. Free time is critical because that’s the release valve. You can work full tilt for a long time as long as you know you have actual time for yourself coming up. I find if you don’t schedule enough free time, you get resentful of your own calendar.”