Essay about Case 1.12:Madoff Securities

1263 Words Nov 22nd, 2012 6 Pages
Case 1.12:
Madoff Securities
Questions:
1. Research recent developments involving this case. Summarize these developments in a bullet format.

2. Suppose that a large investment firm had approximately 10 percent of its total assets invested in funds managed by Madoff securities. What audit procedures should the investment firm’s independent auditors has applied to those assets?

3. Describe the nature and purpose of a “peer review.” Would peer reviews of Friehling & Horowitz have likely resulted in the discovery of the Madoff fraud? Why or why not?

4. Professional auditing standards discuss the three key “conditions” that are typically present when a financial fraud occurs and identify a lengthy list of “fraud risk factors.”
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Also he may conduct bank reconciliations on pertinent accounts to make sure no discrepancies or misstatements are found. The auditor should also perform vertical 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 management by asking questions on the process of the transactions and operational activities. He may discuss with management the process of some transactions from beginning to end and then test it by using sample testing. Also he/she should make sure that there is proper control of activities; policies and procedures for adequate 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 another’s work and make 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 discovery 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

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