First Securities Company of Chicago Essay

Read the David Miller case from Chapter 5. After reading the case, describe a reason why someone who has been entrusted with the firm’s assets would commit a fraudulent act against the company. Based upon your understanding of the case and your professional and personal experience, recommend a series of actions that should have been taken in order to pre

If the depreciation method changes from straight-line method to accelerated method then, depreciation expense would be increase and net income would decrease. The EPS ratio would represent a loss of $0.19 per share.

With different industry definitions and viewpoints, fraud can be a tough issue for audit committee members to grasp for oversight purposes. The legal obligations of audit committee members have intensified because their standard duty of care and loyalty to the entity has increased in light of management fraud activities.

Niedermeyer, and Presha Niedermeyer. They performed surveys using internal auditors of public companies and external auditors from large and small firms. The survey questioned how auditors made ethical decisions, and they also wanted to see how internal auditors answered versus how external auditors answered. The result of the surveys showed that there was no difference in decision- making between internal and external auditors in the aspect of how major the effects unethical decisions on victims would be. The only difference between auditors in this study was how they make decisions on what is right and what is wrong. It appears that auditors that work for the Big Four have a stronger sense to determine what is right or wrong as opposed to the other auditors working in large and small firms. The study suggests that each firm adopts policies and special training to combat these

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.”

For purposes of the Statement, fraud is an intentional act that results in a material

Negligence is carelessness amounting to the culpable breach of a duty, ie failure to do something that a reasonable person (ie an average

Negligence is when someone is failing to do something that a reasonable person would do in a similar situation or, doing something that a reasonable person did not do in a similar situation.

Negligence and malpractice fall under the tort laws definition. According to Guido (2010), “Torts are civil wrongs, not based on contracts, but on personal transgressions in that the

This case established that an auditor could be sued by a primary beneficiary for damages from negligence. A primary beneficiary is a party that has a direct benefit from the audit. Non-privity parties could also sue for gross negligence. This increased the auditor’s legal exposure to third parties. The SEC of 1934 reflected these changes and many others; one significant change was that auditor’s had a much higher litigation risk due to their new responsibility to third parties.

Throughout the case, it can be analyzed and expected to say that Deloitte & Touche have committed a breach to its fiduciary duty to Vertical Pharmaceutical at the end. Vertical Pharmaceuticals Inc., realized a huge loss as a result by Deloitte & Touche. Therefore, this shows that Deloitte & Touche did indeed breach their fiduciary duties. All the falsified reports and malpractices that were said to be revealed by Deloitte & Touche would be said to not be real by the forensic audit that was conducted. At the end, the court can rule that Deloitte & Touche did indeed breach their fiduciary duty to Vertical Pharmaceuticals.

AICPA Code of Professional Conduct principles prevents vises such as fraud that are experienced in accountancy field. Audit is the best measure of the effect of the fraud that are imposed to investors by accountants. The relationship of the investors and account holders are supposed to be affirmed through auditing to ensure accounting principles are upheld(Weirich, Pearson, & Churyk, 2010). Improper loss of the funds through propagation of the accountant officer should be treated as fraud and criminal activity that should lead to prosecution. Therefore, the paper seeks to relate two fraud cases that have been audited and presenting AICPA Code of

Similar to the case against E&Y, the accountant may have done a poor audit, but there is not enough information to conclude scienter or even reckless misconduct. Section 18 extends liability to any individual who misleads or fabricates material information in any report or document filed with the SEC under the 1934 Act. Reports can include the 10-K, 8-K, and proxy statements. The requirements for liability include reliance, but unlike for the registration statement, “the plaintiff must have read and relied on the defective statement in the filed document”. Privity is not needed. Cardozo and Co, Inc. had misleading information in both its registration statement and the proxy statement prepared by the accountant. Typically, auditors are not held liable under Section 18, but the accountant can prove his innocence by proving he acted in good faith; unaware of the erroneous information and had no intention to mislead. It is also difficult to prove

For example, an auditor would be committing fraud if it knowingly lied in an opinion, while it would only be negligence for an auditor to unintentionally provide an unqualified opinion after missing a material misstatement. Recklessness is similar to negligence in that it does not describe intentional wrongdoing. Instead, the difference between recklessness and negligence is the extent to which the auditor failed to perform its professional duties. In order for an action to be considered reckless, there must be significant consequences. For example, in Jacobs v. Coopers & Lybrand, LLP, Coopers & Lybrand was considered reckless in its 1995 audit of Happiness Express. One example cited was the failure to confirm the existence of a receivable that constituted 13% of the total accounts receivable for Happiness Express. Negligence is analogous to being sloppy, while recklessness is analogous to being dangerously sloppy. While the differences between these three words may seem arbitrary, they have significant implications for litigation involving

For purposes of this question, assume that the excerpts from the Powers Report shown in Exhibit 3 provide accurate descriptions of Andersen’s involvement in Enron’s accounting and financial reporting decisions. Given this assumption, do you believe that Andersen’s involvement in those decisions violated any professional auditing standards? If so, list those standards and briefly explain your rationale.