Memo Of Current Auditing Issue – Assignment Example
April 12, Re: Summary of “Accountant Arrested for Sham Audits” I am writing about your request a summary of an article dealingwith auditing in a memo. The article chosen was “Accountant Arrested for Sham Audits” by Amir Efrati for the Wall Street Journal on March 19, 2009. This article is about how Bernard Madoff’s auditor, David Friehling was arrested for legitimizing Madoff’s Ponzi scheme by signing off on fraudulent audits. Mistakes made on Friehling’s part were explored.
Bernard Madoff conducted a Ponzi scheme bilking investors out of billions of dollars. Mr. Friehling audited Madoff’s firm since 1991. According to Efrati, Friehling was the only auditor at the auditing firm. Since Madoff’s firm was worth billions of dollars, one auditor would not have been adequate. Friehling signed off on assets not properly checked. If a true audit had been preformed, maybe Madoff’s scheme would have been caught earlier.
Friehling might have had an ulterior motive in not exposing Madoff. Apparently Friehling and his family had over fourteen million dollars invested with Madoff. If he had known about Madoff’s illegal transactions, Friehling might not have wanted to bring the firm down. According to Efrati, Friehling and his family had withdrawn over five million dollars since 2000. These monies did not include fees for the auditing services. This was a clear conflict of interest.
Friehling is charged with fraud. The FBI and DA do not charge that Friehling knew about the scheme, but that he should have done a real audit instead of signing false documents. If convicted Friehling faces up to one hundred five years in jail.
Suggestions on how Friehling might have avoids being charged with a crime are numerous. The first suggestion would have been to hire more auditors. A billion dollar company cannot be completely audited yearly by one person. In order to view all accounts, assets, and liabilities multiple auditors need to have been used. Even if Madoff had been the only account Friehling handled, which is unlikely, the amount of time needed to audit this company was too much for one man. Secondly, Friehling should not have audited the firm due to conflict of interest. Finally Friehling should have followed auditing rules instead of taking short cuts in order to expedite the job.
I learned that an audit is something that should be taken seriously. Documents have to be signed truthfully, not blindly. An auditor has a great responsibility that has to be taken seriously. If an auditor is not diligent, they can be charged with a crime. Despite the pressure of having a big client, an auditor must be honest. This can be hard to do when the client is paying large amounts of money, but is necessary in order to do an ethical job.
Thank you for taking time to read my summary and suggestions.