Question

Wirecard's auditors are being faced with legal action after the collapse of the scandal-hit German payments firm. The German shareholders' association SdK said Friday that it had filed a criminal complaint against auditors at Ernst & Young (EY).

The accountancy firm, EY last week refused to sign off Wirecard's 2019 books after discovering 1.9 billion euros (US$2.1 billion) of cash had gone missing from its balance sheet. Munich-based Wirecard filed for insolvency on Thursday, marking a tumultuous fall for the group. Wirecard, which is still listed on the DAX 30, has seen its share price capitulate since the accounting black hole was revealed last week.

EY told CNBC late Thursday that there were "clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with a deliberate aim of deception." In attempt to defend its reputation, the group added that "even the most robust and extended audit procedures" couldn't uncover what it called a "collusive fraud."

(Adapted from cnbc.com, 26 June 2020)

In recent years, we have witnessed the sudden collapse of large corporations such as Hyflux in Singapore and Wirecard in Germany despite auditors expressing an unmodified audit opinion (i.e. true and fair view).

Required

• What is the key focus/purpose of the essay, i.e. identify that the essay is a discussion on the importance of external auditors' independence and professional scepticism in planning and performing an audit?
• Identify and explain the threats to independence faced by the auditors of Wirecard which might have impaired their objectivity and professional scepticism, resulting in the audit failure.

• Provides overview of fundamental principles of the Code of Professional Conduct and Ethics as well as the characteristics of professional scepticism. (Where appropriate, highlight latest developments or recent case studies illustrating the concepts or principles.)
• Apply the concepts of ethical threats to independence which might have impaired their objectivity and professional scepticism, resulting in the audit failure. Quote relevant case studies and examples to support your arguments.

• Provide an informed conclusion which is justified by supporting arguments in your report.