Noted In Passing

Wall Street Journal:
String of Firms That Imploded Have Something in Common: Ernst & Young Audited Them  —  Big Four accounting concern reviewed the books of several companies where investors lost billions when scandals emerged.  The firm says it uncovered some of the problems at its clients.

This year, $2 billion is missing at a German fintech company, $300 million of sales has been found to be fabricated at a Chinese coffee chain and $5 billion in undisclosed debt has been uncovered at two related companies listed in the U.K. Together, the incidents cost shareholders of the companies roughly $30 billion.

All had been audited by Ernst & Young. Last year, EY also audited office-space company WeWork, which nearly collapsed after fumbling a planned initial public offering.

EY is one of the Big Four accounting firms, whose audits are meant to give investors confidence in companies’ figures. EY missed red flags or failed to aggressively pursue them at some of the companies ahead of their scandals, and for the most part it was outsiders who raised questions first, a review based on publicly available documents and interviews with people close to the events shows. Now, regulators are scrutinizing EY’s work.

The EY audit clients that faced financial issues were German payments processor Wirecard AG; China’s Luckin Coffee Inc.; hospital operator NMC Health PLC; and NMC sister company Finablr PLC, which owned the Travelex currency service.

EY says it stands by its work and has high global audit standards. The firm says it played key roles in uncovering fraud at two of the companies, and it says China’s regulator has found it to be prudent and independent.

“We take all issues extremely seriously,” said Andy Baldwin , EY’s global client service managing partner, who said EY conducts around 150,000 audits annually.

The firm also recently said that auditors must play a bigger role in detecting fraud at companies, which would represent a U-turn in an industry that for long has denied that was part of its job.