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Sonya Korshenboym for Quartz
STATE OF PLAY

The way audits work is about to change

When WeWork filed to go public in August, lots of people quickly flagged problems at the company. But the firm that’s supposed to watchdog WeWork’s finances wasn’t one of them.

Investors raised questions about WeWork’s losses, its shaky business model, the founder’s self-dealing, and other issues at the highly touted office-space-sharing company, but Ernst & Young, WeWork’s outside auditor, gave WeWork a clean bill of health before the filing. Auditors must tell investors if they harbor “substantial doubt” about a company’s near-term viability, but EY didn’t express any such concern, even though WeWork later had to withdraw its IPO and needed a big bailout.

EY’s oversight failure is far from isolated. All of the Big Four accounting firms have failed to catch problems at big clients whose finances they audit. KPMG didn’t flag problems at General Electric or Wells Fargo. PricewaterhouseCoopers was involved in problems at Mattel and didn’t catch revenue-booking issues at Under Armour. Deloitte has come under scrutiny over its role in auditing Malaysia’s 1MDB fund.