Introduction to topic meeting: Humans may have different reasons to engage in fraud but typically there are three factors present, which is called "the fraud triangle". Auditors have clear responsibilities regarding certain types of misstatements resulting from fraud during the financial statement audit. Auditor professional skepticism is helpful for detecting fraud. Furthermore, auditors need to cautious for unconscious biases they could be subject to which could lead to failure in detecting fraud. However, is it really the task of the auditor to prevent and detect fraud? What about other parties involved in the financial reporting process such as management, internal auditors, the audit committee and regulators? In the history of fraud cases, there are a number of famous cases including Enron in the US, Parmalat in Italy, Lernout and Hauspie in Belgium, Satyam in India. But also more recently, there were a number of high-profile cases (including Wirecard in Germany) where "the fraud triangle" nicely applies. Assignments: Assignment 1 In June 2020, another large financial reporting shocked the (finance) world. It involves the German payment firm Wirecard, the audit firm EY and a missing 1.9 billion Euros in cash. Wirecard was long seen as the new rising "tech-star" in the German market. Founded in 1999, Wirecard operated as a payment processor and financial services provider. The company grew rapidly, almost always reporting revenue growth that far exceeded the growth of other operators in the industry. It was part of the TecDax (Germany's 30 largest publicly listed companies in the tech sector) as of 2006 and moved up into the DAX (Germany's 30 largest publicly listed companies) in 2018. But their rapid success did not come without any doubts. The first red flag was raised as early as 2008, when allegations were made about irregularities on Wirecard's balance sheet. In 2015, the Financial Times published a series of reports "The House of Wirecard", ralsing further questions about inconsistencies in Wirecard's accounts. However, Wirecard's audit firm "EY" issued clean opinions for Wirecard year after year, thereby reducing investors' concerns that the allegations may actually be true. But it was not until April 2020 that the full story began to unfold. Following another Financial Times article in late 2019, KPMG was appointed to conduct a special audit investigating the allegations of reporting higher consolidated revenues based on fictitious customer sales and other accounting irregularities at Wirecard. KPMG published its report on April 27th, 2020, stating that, amongst other issues, "substantial doubts exist over the existence and validity of the reported third-party revenues". In the end, it turned out that a total of 1.9 billion Euros was missing, ultimately leading to the downfall of Wirecard, the arrest of its CEO Markus Braun and parliamentary inquire into the case of Wirecard and the wrong-doings of the auditor, EY. a. Briefly summarize what happened at Wirecard. How did they perpetrate the fraud? Two types of misstatements are relevant to auditors' consideration of fraud. What type of misstatement should the auditor be concerned with in the case? b. Apply the fraud triangle to the case. c. Discuss the role of the audit firm, EY. What should be EY's role in preventing and detecting fraud? What other parties involved in the financial reporting process have a responsibility for preventing and detecting fraud? d. Bazerman, Loewenstein and Moore (2002) discuss different unconscious biases that auditors need to be cautious about. Do you think EY's auditors might have been influenced by any of these biases