Fraud: Examples of Accounting Fraud

 

$30 Billion of Shareholder Losses with One Thing in Common

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?

Source: Patricia Kowsmann, Mark Maurer and Jing Yang | “String of Firms That Imploded Have Something in Common: Ernst & Young Audited Them” | The Wall Street Journal | 10/16/2020 | Visit

 

 

Accounting Fraud in Plain Sight: Parmalat

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."


 

Source: Jonathan Ford and Tabby Kinder | “After Wirecard: is it time to audit the auditors?” | The Financial Times | 7/3/2020 | Visit

 

 

NMC Uncovers an Additional $2.7 Billion of Debt

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.

Source: Anna Isaac | “NMC Health Discloses $2.7 Billion More in Debt” | The Wall Street Journal | 3/10/2020 | Visit

 

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