Accounting auditing and fraud

Presented to

Institution

Madoff was a successiful entrepreneur who made use of computer technology in making trading systems more secure, efficient and cheap. Madoff used to visit Wall Street during early stages of life and wished he would become a leading player in the finance sector. In collaboration with other friends, Madoff organized the NASDAQ exchange, which ended up becoming the world’s largest electronic stock market. Other security agencies, like NYSE were forced to switch to electronic securities trading. Madoff fame came to an end after the federal authorities realized he was operating a 50-65 million U.S. dollars Ponzi scheme. Prior to his confession to the family in 2008, Madoff used the investments made by new clients in pay fictitious returns to fellow clients. This made both Madoff and his independent auditor face fraud charges. The following discussion relates to Madoff Securities International Limited fraud case and its implications on the nation’s financial reporting system (Knapp, 2013; 161-163).

The ineffectiveness of Friehling made Madoff securities sustain the financial fraud for so long. In addition, Madoff’s independent auditor, David Friehling, played a vital role in ignoring fraud checkups for decades. The results of poor audit management by Friehling have made the business fall under heavy scrutiny and face more challenges from the public. Friehling is liable for arrest by the federal prosecutors for flouting the accounting profession’s auditor independence rules. Moreover, Madoff’s independent auditor failed to subscribe to the AICPA code of conduct making him ignore most rules. Freihling failed in correcting the entity’s financial statements that were false when he had the authority to record the entity. In addition, the company violated the rules of performance and profession service by disclosure of confidential client information (International Federation of Accountants, 2013).

Madoff had had issue with Securities and Exchange Commission (SEC) since the financial statements that introduced fraud were stamped. In addition, Madoff had provided false information regarding his employees since the body came to realize that he had only one active accountant. Moreover, the failure by Freihling to disclose the financial audits to AICPA made SEC angrier with Madoff. After December 2008 situation, the Securities and Exchange Commission (SEC) took decisive and comprehensive steps in reducing chances for such frauds as seen at Madiff Securities Limited to occur again. Financial fraud plays a key role in stabilizing a nation’s economy requiring the associate bodies, like SEC, to develop strategies for minimizing or preventing such case in the future. On the other hand, Madoff auditor operated in a tiny CPA firm that brought many questions by the SEC professions as to how such a big company could be operated by one auditor in a small office.

From the following discussing, Madoff’s conduct should not be allowed in the present society since it portrays how selfish a person could be. According to the NASBA (2010), entrepreneurs should portray high degree of ethics towards their clients and avoid misusing their funds for their own benefiters. The SEC in collaboration with AICPA should develop strong systems and rules that govern the actions of auditors to capture the like of Freihling. In addition, firm leaders should stress on the importance of ethical behaviors and encourage members to act towards the public interest. Moreover, Freihling conduct demonstrated employee ignorance of the rules and regulations governing their profession. Freihling should be jailed in order to serve as an example to others.

References

International Federal of Accountants. (2013). Code of Ethics for Professional Accountants.

Retrieved from:

http://www.ifac.org/

Knapp, M. C. (2013). Contemporary auditing: Real issues and cases. Australia: South-Western

Cengage Learning.

NASBA. (2010). Audit Fees and Engagement Profitability: A Threats and Safeguards Approach

to Strengthen Compliance with Standards of Ethical Behavior. Retrieved from:

http://www.nasba.org/files/2011/03/Ethics_and_Strategic_Issues_Discussion-2010.pdf