Madoff was a successful entrepreneur who made use of computer technology in making trading systems more secure, efficient, and cheap. During the early stages of life, Madoff used to visit Wall Street and wished to become a leading figure in the finance business. Madoff, in partnership with other colleagues, founded the NASDAQ exchange, which ultimately became the largest electronic stock market in the world. Other security agencies, such as NYSE, have had to switch to electronic securities trading. Madoff fame came to an end when the federal authorities learned that he was running a Ponzi scheme of 50-65 million US dollars. Madoff used the investments made by new investors in pay fictional returns for fellow clients before his disclosure to the family in 2008. This has led both Madoff and his independent auditor to face allegations of fraud. The following review discusses the case of Madoff Securities International Restricted fraud and its consequences for the financial reporting system of the nation (Knapp, 2013; 161-163).
Friehling’s ineffectiveness has made Madoff securities sustain the financial fraud for so long. Madoff’s independent investigator, David Friehling, also played a crucial role in for decades avoiding fraud check-ups. Friehling’s results from poor audit management have caused the business to fall under heavy scrutiny and face more public challenges. Friehling is accountable to Federal Prosecutors for detention infringing the auditor independence rules of the accounting profession. Madoff’s impartial investigator refused to adhere to the AICPA code of ethics, leading him to ignore certain laws. Freehling died in correcting the entity’s financial statements that were false when he had the authority to record the thing. Also, the company violated the rules of performance and professional service by disclosure of confidential client information (International Federation of Accountants, 2013).
Madoff had had an issue with the Securities and Exchange Commission (SEC) since the financial statements that introduced fraud were stamped. Besides, 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 Freehling to disclose the financial audits to AICPA made SEC angrier with Madoff. Following the situation in December 2008, the Securities and Exchange Commission (SEC) took swift and thorough action to minimize the likelihood of these frauds happening again, as seen at Madoff Securities Limited. Financial fraud plays a crucial role in stabilizing the economy of a country, requiring associated bodies such as SEC to establish strategies for potential minimization or prevention of such cases. Madoff auditor, on the other hand, worked in a tiny CPA firm that posed several concerns from the SEC professions as to how one auditor might use such a big business in a small office.
From the following discussion, 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 define a high degree of ethics towards their clients and avoid misusing their funds for their benefit. The SEC should develop strong systems and rules in collaboration with AICPA, which govern auditors’ actions to capture Freehling’s likeness. Also, firm leaders should stress the importance of ethical behaviors and encourage members to act towards the public interest. Moreover, Freehling’s conduct demonstrated employee ignorance of the rules and regulations governing their profession. Breitling should be taken to jail to serve others as an example.
- 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