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Accounting scandals at Luckin Coffee and Wirecard have caused investors billions of dollars. How can we prevent such a situation from happening to us?

Accounting scandals have been in the spotlight in recent months. Companies Externnal as Wirecard and Luckin Coffee are two of the more recent high profile cases that have cost investors billions of dollars. Worryingly, both companies were given a pass from reputable auditors before their respective cases blew up. One major example that comes to mind is the accounting scandal of Waste Management Inc. Then CEO, A.

But the case that truly shocked the world came a few years later in Enron. Enron was a US energy, commodities, and services company. In that year, it was discovered that the company had been using accounting loopholes to hide billions of dollars of bad debt, while inflating earnings. Its auditor was again Arthur Anderson, which by then had Importany so much of its reputation that it was forced to dissolve.

You would thought that the demise of Arthur Anderson would have brought a swift change to the industry. And yet, more than two decades later, we still hear of major scandals rocking the financial world.

Recent scandals

The other big-name scandal this year was Wirecard, a high flying payment solutions company that is headquartered and listed in Germany. Although the vast majority of companies are free from accounting fraud and investors can Extenal trust whatever they see on the financial statements, these recent accounting scandals cast a shadow of doubt for investors.

Both Wirecard and Luckin Coffee were audited by reputable auditors and yet both managed to distort their financial statements.

I professional investors such as GIC and Softbank were badly burnt. Most worryingly, Wirecard reportedly managed to hide the missing cash from auditors for years. As investors, we often look at the cash statement as the most reliable piece of information because cash is traditionally the hardest to manipulate. They are supposed to be our neutral insiders.

Nothing new

Even big-name investors may end up betting on the wrong horse. The best we can do is to look at trends and market data. For instance, investors should look at the past track record of the company, the background of the managers, and where the company is audited and listed.]