How much do you know about the Big Four auditors and the challenges they face?

Study Notes

The Big Four auditors (Ernst & Young, KPMG, PwC, and Deloitte) are influential in the market economy and audit the financial statements of major companies.
Auditing is important for consumers and investors to trust the information they are given.
The Wirecard scandal in Germany revealed that auditors may be taking shortcuts or overwhelmed, leading to questions about the system's effectiveness.
Auditors are required by law to carefully verify annual financial statements and maintain professional skepticism towards the companies they audit.
Auditors generally focus on areas with the highest risk and compare statements with actual financial transactions.
If no fault is found, auditors give an unmodified opinion, a seal of approval for the company.
The fact that companies pay their auditors is problematic and may lead to conflicts of interest.
The Big Four also offer consulting services, creating another conflict of interest.
The Big Four's core business used to be auditing, but now consultancy accounts for around two-thirds of their revenue.
Auditors rarely help uncover corporate scandals, and there have been several high-profile cases where auditors failed to detect fraud.
The financial success of auditing firms can impact their independence and objectivity in auditing clients.
Auditors may engage in consulting work for clients, which can compromise their independence.
Lobbying by auditing firms has influenced EU auditing reforms, with some member states introducing exceptions.
The big four auditing firms have been accused of forcing smaller firms out of the market.
Auditors may be more inclined to give positive control opinions to clients to maintain their business relationships.
The big four auditing firms also provide tax consulting services, which can involve aggressive tax planning and cause significant losses to EU budgets.
The complexity of tax laws creates a need for expertise, which the big four provide to governments and parliaments.
Auditors from the big four have been criticized for their role in the Wirecard scandal.
Antoine Del Tour, a former PwC auditor, became a whistleblower after discovering tax evasion schemes in Luxembourg.
The legitimacy of the tax system is undermined by tax avoidance and the perception that some businesses are above the law.
Ernst & Young (EY) auditors spotted problems at Wirecard, including doubts about management integrity, but continued to give the company an unmodified opinion.
EY failed to obtain independent confirmation that funds existed, instead relying on trustees.
Despite warning signals, EY continued to trust Wirecard's management board in key moments.
The damage to EY's reputation is considerable, with clients such as Commerce Bank, Deutsche Telekom, and KFW ending auditing agreements with the firm.
Munich state prosecutors opened an investigation into the partners at EY who audited Wirecard.
The case exposed a radical failing by authorities, especially by BaFin, Germany's financial supervisory authority.
BaFin banned investors from betting against Wirecard without verifying whether there were problems with the company's balance sheet.
The German Act to Strengthen Financial Market Integrity (FiMaNoG) was passed in June 2021 to help strengthen confidence in the German financial market and place more comprehensive rules on auditors.
Auditors are no longer allowed to audit a publicly traded company for more than 10 years, and BaFin has more power and is directly responsible for monitoring balance sheets.
Some believe that auditing and consultancy need to be strictly separated, and mid-sized auditors should be included to address incorrect balance sheets.

Description

Think you know all there is to know about the world of auditing and the Big Four? Test your knowledge with our quiz! From the importance of auditing for consumers and investors to the conflicts of interest that arise from offering consulting services, this quiz covers a wide range of topics related to auditing and the Big Four. Challenge yourself and see how much you really know about this influential industry.