Fraud: Examples of Accounting Fraud

In 2020 Wirecard, Luckin Coffee and NMC Health collectively cost shareholders $30 billion dollars in 2020. All three were accounting frauds that took years to uncover, and all three had been audited by Ernst & Young. Per an article in the WSJ:

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.

What do you believe the role of the auditor should be?

After previously reporting $2.1 billion of debt, NMC Health PLC has since had to revise this number for an unexpected and unknown sum of an additional $2.7 billion of debt. The share price declined 60% before trading was suspended.

An article in the FT argues that some instances of accounting fraud should be easier to identify. One example was particularly entertaining:

“Parmalat’s €3.9bn cash pile … was supposed to have come from selling milk powder to Cuba. But an analysis of the volumes claimed suggested that if the company’s numbers were accurate, each of the island’s inhabitants would have needed to be consuming 60 gallons a year.”