Case 1.12:Madoff Securities

Case 1. 12 Madoff Securities Questions 1. Research new-fangled developments involving this case. Summarize these developments in a sluggard format. 2. Suppose that a whopping coronation tauten had approximately 10 percentage of its total assets invested in funds managed by Madoff securities. What scrutinize procedures should the enthr unrivalledment firms autarkic tenders has applied to those assets? 3. Describe the spirit and purpose of a equal review. Would coadjutor reviews of Friehling & Horowitz have likely resulted in the disc all overy of the Madoff bilgewater? Why or why non? 4.Professional auditing standards discuss the three light upon conditions that argon typically pay when a pecuniary caper occurs and identify a lengthy list of snake oil attempt factors. Briefly explain the difference amongst a stratagem condition and a dissembler risk factors, and provide examples of each. What fraud conditions and fraud risk factors were app arntly present in the Madoff case? 5. In plus to the reforms menti nonpareild in this case, recommend other financial reporting and auditing-related reforms that would likely be sound in sustaining or detecting frauds mistak satisfactory to that perpetrated by Madoff. Answers 1.Recent developments involving the case Madoff Securities Bernie Madoffs son, go under Madoff confideted suicide on declination 11, 2010. His suicide whitethorn have been influenced because at that place was an investigation on Marks children on grounds that Bernie transferred funds to their sexual conquests. ray Madoff pleaded guilty to his involvement in the Ponzi final cause run by his brother. Peter Madoff served as the chief compliance officer. Irving Picard, the trustee in charge of liquidating Madoffs assets, has admited a forward-looking York court for approval to distri exclusivelye an excess $1. 5 billion to investors who lost capital in Madoffs fraudulent investment fundss.It is estimated that Picard ha s already recovered $9. 1 billion but has only been able to distribute $1. 1 billion so far. In whitethorn 2010, approximately 720,000 Madoff investors outside the United States settled with their banks, receiving most $15. 5 billion in all, according to law firms representing them. In June 2012, the absolute Court said it would not paying back up a dispute over how the claims of victims of Mr. Madoffs huge Ponzi scheme should be calculated. Without comment, the high court declined to hear an appeal from lawyers for investors who got back all the cash they had invested with Mr.Madoff before his December 2008 arrest. 2. If a large investment firm had approximately 10 percent of its total assets invested in funds managed by Madoff Securities, the audit procedures that the firms independent tenders should look very closely ar some procedures that leave help the hearer to identify inherent and gibe risks that present to misstatements in balance sheets. He/she should contact sure that the detection risk is as low as possible and the tell transactions are patronageed for its accuracy.By addressing issues of materiality, the attender will eliminate misstatements to overstate the investment on the balance sheets. PCAOB AU share 329A states that understanding financial relationships is essential in planning and evaluating results of analytical procedures and generally requires knowledge of the client industry. The attendee, by understanding the temperament of the telephone line can identify and reason the types of risk that can be assessed. The meeter will have to do search about the business and how transactions are dish outd and sufficeed.Knowing about the clients business the auditor will better run sufficient, reliable, and relevant evidence to achieve his audit objectives. Analytical procedures are used as a solid interrogation where the auditor considers the level of assurance he/she wants from the substantive test for audit objective . The independent auditor main goal is to be able to establish the accuracy of major accounts and confirm that the assets the firm has recorded actually exist. For instance, the auditor should to take key transactions of the assets and create sure that those transactions are ideal and recorded properly.Also he may select bank reconciliations on pertinent accounts to fake sure no discrepancies or misstatements are found. The auditor should also perform unsloped and horizontal analysis for the income statements and balance sheets by the use of ratios. Moreover, the auditor should preform test for effectiveness of internal controls. He may interview precaution by postulation questions on the process of the transactions and working(a) activities. He may discuss with trouble the process of some transactions from initiation to end and then test it by using sample testing.Also he/she should puddle sure that there is proper control of activities policies and procedures for adequa te segregation of duties are met. 3. A peer review is a process of subjecting research methods and findings to the study of others who are experts in the same field. The purpose is designed to prevent dissemination of irrelevant findings, unwarranted claims, unacceptable interpretations, and personal views. It relies on colleagues that review one anothers work and base an informed decision about whether it is legitimate, and adds to the large dialogue or findings in the field.A peer review of Frieshling & Horowitz would result in the stripping of the Madoff fraud because questions would have been raised about the resource capability of the firm to handle such a large account given that it only had one accountant. Moreover, the Standards for execute and Reporting on Peer Reviews prick 1000 states that purpose is to provide standards for administrating, planning, preforming a fair monitoring of the CPA firms invoice and auditing practice to supercharge good quality to serve th e human beings interest. 4.The SAS 99 describes three conditions of fraud incentives/pressures to commit fraud, opportunities that circumstances provide opportunities to commit, and attitudes/rationalizations which is an attitude, a grammatical case or set of ethical value exists that allows management or employees to commit deceitful act. Some of the fraud risk factors in Madoff Securities case include Incentives/Pressures Greenness- Madoff always wanted much. He wanted to maintain a rich lifestyle for him and his family, as substantially as to stay as one of the top investment firm.Opportunities Madoff firm did not have proper monitoring controls as well as the ineffective accounting system, internal audit and information engineering science staff. Attitudes/Rationalizations No one understood his strategy no one could communicate with him about investments SAS 99 requires the auditor to assess whether fraud risk factors exist. Fraud risk mover that the likelihood of commi tting the fraud is high. For instance base on case some of fraud risk factors are high percentage point of competition or market saturation, ac come with by declining margins. assets, liabilities, revenues, or expenses based on significant estimates 5. Other reforms recommended are for the victims of the fraud would be that the victims need to be more aware of whom they are investing their bullion with. The victims should perform more research the company in which they would like to invest their money. They should ask them self-questions if the business owner has a good reputation, is he/she have a malefactor record, and if he/she has experience in operating(a) a business. Also, today the economy is punishing and if a return on an investment seems too good to be honest probably here is something wrong tone ending on (fraud class, prof. Edward Mann). Moreover, the other ways that would in effect prevent or detect fraud similar to Madoff are organizing the enforcement division that will monitoring unusual investment returns, up(p) fraud detection procedures for examiners, recruiting staff with specialize experience, expanding and targeting training to improving internal controls procedures, face firms with whistleblower program increasing educational request for specific licenses oversight management and employees