I used to work at EY in banking & capital markets audit - before I went into engineering - and everyone learns that if there is one thing, ONE THING!!! that the auditor should always do, it is to send bank confirmation letters. You get a list of all the banks where accounts are held and send them a letter asking for confirmation of the balance. This proves existence of the balances and helps with completeness as sometimes they send back balances you didn’t know about from the accounts! If the letters don’t come back, you chase them because, in my experience, the partner would not sign off unless all cash was accounted for. There was always a significant risk associated with cash so providing a clear audit opinion in the absence of cash confirms is not a very smart move. Other procedures include checking reconciliations and “cut off” to make sure cash swept from one account to another is counted and / or not double counted. We would also get literally all the bank statements too and some poor graduate would have to “substantively audit” them. So yes... We used to do a lot of work in this area.

What happened with Wirecard? Who knows?! Seems like the team didn’t do their job properly because in my experience, it’s fairly easy to spot missing cash. And 1.9 billion of it...! The article states that EY didn’t “verify cash balances”... I’m not sure what that means - “verify” is a dirty word in audit because it’s not specific enough. I find it hard to believe they didn’t send bank confirms but if they didn’t then that’s an unforgivable mistake.

It’s also worth noting that auditors are not responsible for detecting fraud but clearly if something odd is going on and they find it, then it will be raised. In my experience most wrong things that we asked our clients to adjust were due to incompetence or over valuing illiquid securities.