If something looks wrong, there probably is something wrong. That was certainly true of Wirecard, a German publicly-traded company that on Monday admitted that “there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist”. As a result, its chief executive was preventively thrown in prison yesterday and the future of the company is now in doubt.
 
Far from coming as a surprise, many wonder instead why this admission took so long. Wirecard has been a target for short sellers and investigative journalists alike since at least 2010. One notable short seller, Matt Earl, started receiving home visits in 2018  from strangers asking about his interest in Wirecard. In February 2019, the Financial Times reported on Wirecard’s dubious accounts, only to be sued by the company months later. Earlier this month, Citizen Lab, an internet watchdog, uncovered the work of a hacking-for-hire group named Dark Basin. Among many of its targets were Wirecard critics.
 
The demise of the company reminded me of the usefulness of short sellers to occasionally spot outright fraud and make markets more efficient. Many of Matt Earl’s initial findings prompted further interest in the company and will potentially be used as evidence by German prosecutors. But it has also raised questions around the hegemony of the ‘big four’ accounting firms.
 
Although EY, Wirecard’s auditor, did not sign off the 2019 accounts; it did so repeatedly in the years prior, even as evidence mounted that all was not necessarily in order. More surprising, however, is that the journalists and short sellers who uncovered the fraud did so researching largely public records while managing personal, cyber and legal attacks.
 
All of which begs the question: how can auditors, who in theory have the power to access every receipt and document they wish to see before signing off accounts, be deceived in this way?