Financial Fraud or Oversight?

Ernst and Young: False Audits

When companies are in a financial crunch, they are motivated to commit financial fraud. The three things that motivate them are pressure to commit the fraud, opportunity in order to hide the illegal act, and to be able to rationalize the deed. Ernst and Young is a “multinational professional services firm” who performs independent audits on companies. The Ontario Securities Commission allege that Ernst and Young  ignored concerns that they had identified about a Chinese apparel company Zungui Haixi Corporation.  Zungui had its initial public offering on the TSX Venture Exchange in Canada and raised $39.8 million. Zungui Haixi Corporation had an incentive to commit financial fraud as they wanted to raise as much money as possible for their IPO. Regulators claim that Ernst and Young noticed this but either chose to ignore or place minimal value on it. This may have been done out of greed in order to keep Zungui as a client and other Chinese-owned companies. If these allegations are true, Ernst and Young have failed on their fiduciary duties. Owners and creditors believed in Ernst and Young to honestly represent the facts though the auditors may have failed to do so.