Assignment 1 Review of Accounting Ethics Imagine trusting your hard-earned money like your retirement savings to a financial adviser or Certified Public Accountants (CPA) only to lose it all in a fraudulent Ponzi scheme. In today’s world of business many organizations, financial planners and accountants are in the news due to the financial ethical breaches that have affected their customers, employees, and the general public. A CPA has to be responsible for their audits and take any punishments as a result of their mistakes, incompetence or illegal actions.
CPAs are expected to have integrity in their work, confidentiality in their findings, honesty in their decisions, and exemplify professional behavior as a part of CPA ethics. There are standards, regulations and codes that must guide professional CPAs in their jobs to insure companies and investors are protected. One of these is the International Ethics Standards Board for Accountants. If and when professional accounting ethics lines are crossed, CPAs may and should accept the fact that they can lose their jobs and their livelihoods.
They may also find themselves enjoying some quality time in jail depending on the crime like the auditor in the Bernard Madoff case. When Bernard Madoff filed false reports and made misleading statements, his accountant David Friehling backed him 100%. This went on for roughly 17 years and $65 billion in stolen funds. It is during that time the Madoff’s Ponzi scheme went unnoticed affecting the lives of many swindled investors. Mr. Madoff’s financier and longtime CPA Mr. Friehling routinely rubber-stamped Mr. Madoff’s cooked books while reaping millions from their illegal so called investments.
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Ethics and Professional Code of Conduct: Ethics and Professional Code of Conduct Law enforcement officers are the models of society. Everyone looks up to them for guidance on how to maintain the law. The officers are in a unique position in society; whether on or off duty. The actions of the officers should be above reproach from society. A police chief is the official representative of the ...
According to James Clarkson, who is the acting head of the Securities and Exchange Commission’s in the New York office, Mr. Friehling sold his accountant’s license to Bernard Madoff. Mr. Friehling was responsible for auditing financial statements, including balance sheets, income statements and internal control reports. He instead failed to examine a bank account through which billions of dollars of Mr. Madoff’s client funds went to. Mr. Friehling routinely failed to make inquiries about the paperwork or request backup documents. If this CPA had done his job, Mr.
Madoff’s scam and his company’s insolvency would have been obvious. However, since Mr. Friehling was complicit in this crime, as in a lot of cases where the top is completely corrupt there was no way to see through the smoke and mirrors. Also, in a glaring conflict of interest, Mr. Friehling and his relatives had more than $14 million invested with Mr. Madoff two months before his confession to the largest financial fraud in United States history. According to the SEC, since 2000, Mr. Friehling withdrew about $5. 5 million from those accounts.
He also got $186,000 a year from Mr. Madoff for doing nothing except for acting his part. Not once did he conduct a legitimate audit. Not once did he confirm the company’s securities existed and he never examined Mr. Madoff accounts where billions of Mr. Madoffs investor’s dollars were funneled. If just one slightly curious person on their staff had performed a cursory audit it could have exposed Mr. Madoff’s swindle and spared his nearly 5,000 swindled clients. “Mr. Friehling’s deception helped foster the illusion that Mr. Madoff legitimately invested his clients’ money”.
Despite all that’s been written about the Bernard Madoff scandal, what’s remarkable to most is how much we don’t know about the fraud allegedly committed by this respected philanthropist and former chairman of the NASDAQ. Many wonder just how many dollars did Bernard L. Madoff Investment Securities LLC lose? “In a Securities and Exchange Commission complaint against Mr. Madoff, the former NASDAQ chairman says the firm is liable for $50 billion in losses. Investors who have come forward say they had given $35 billion to Mr. Madoff, according to a tally by Bloomberg.
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All of that money is assumed to be gone”. Others try to pinpoint just how did Mr. Madoff lose all of that money? Most really don’t know and can’t say for sure. According to the Wall Street Journal, Mr. Madoff indicated that he traded stocks and options through European counterparties, instead of his own trading firm,. But the records reveal that investigators don’t believe that to be true. There is no evidence that Mr. Madoff lost or made large sums of money on good or bad trades, or that he traded at all. In some recent cases of spectacular losses, the causes were clear.
There were wrong-way bets on oil prices, for instance, or mortgages that turned out to be toxic, but there is no indication that Mr. Madoff made any such bets. Nor are there signs that he simply wasted the money on a lavish life style. While he did enjoy a lifestyle of the rich and famous life, he owned a stock-trading business that could have provided him with enough money to fund it. Many have asked if there is any money left over to repay all of the swindled investors. Since most don’t know if he lost any money or how much he ever had, investigators don’t know what might be leftover, or where it might be.
Investigators in the SEC and in the Securities Investor Protection Corp. are looking for the money by trying to follow the money trail. However it is probably safe to say if he was smart enough to outsmart thousands of investors out of their money, he is probably smart enough to keep it hidden from them as well. Through it all greed is more than likely the motivating factor for not only Mr. Madoff and Mr. Friehling but for the investor as well. This led some to wonder if the investors who withdrew their money before it was too late, knew something was wrong with the Madoff investments and were just waiting for the right time to jump ship.
In an SEC complaint, Mr. Madoff said that the approximately $7 billion of payouts to the accounts that he managed forced him to reveal that the investments were indeed a Ponzi scheme. One would think that those investors suspected that there was a problem with Mr. Madoffs firm. It is possible however that those investors needed cash in those times of economic unrest. A lot of investors were taking money out of their hedge funds, but those hedge funds showed sharp losses. Whereas, Mr. Madoff’s accounts continued to show steady gains which probably indicated warning signs to some of the savvy investors.
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It is very curious how Mr. Madoff could have maintained his fraud for such a long period of time without someone suspecting foul play. Over the years, his investors stated that they were always able to withdraw any or all of their money out on a moment’s notice. This is only possible assuming that Mr. Madoff did not suffer any big losses, and that he was able to continue to attract a steady flow of money. He would always have enough cash to give some of the investors some or if not all of their money back to keep thing going. In the end the big question is why did he do it?
It is the question asked of many criminals that commit crimes with such devastating impact. And it is a big mystery that deserves investigating. This Ponzi scheme scandal has negatively affected his family and his close friends as well as many of their closest friends. It has also devastated beloved nonprofit charities, in Palm Beach, Los Angeles, Boston, and New York. It was said that Bernard Madoff had it all. He had the trust of many, a spotless reputation, the respect of those that knew him or knew of him, and influence over the financial world. Now all that Mr.
Madoff possesses are a money trail of secrets and a jail cell. In the end, to avoid being a victim of the Madoffs and Friehlings of the world you have to dig deep into your common senses. You must put on your gumshoes and find out how long the adviser has been in the business. Ask to see his or her ADV Form, Part II, which a planner files with the Securities and Exchange Commission. It contains information about the adviser’s background, services, and fees. You have to check for complaints filed though your state’s securities regulator. You need to understand the difference between a manager and a custodian.
A custodian, like the Fidelities and Charles Schwab’s of the world, would be in possession of your investment account and issues periodic statements of your transactions. The managers of the world manage those assets and execute the transactions. Always be skeptical of pitches for exotic or obscure products and be especially vigilant if you’re nearing or in retirement. Always remember, if someone promises an investment return that is unnaturally high or steady, the warning alarm should start sounding. If it sounds too good to be true it probably is.
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1. "The distribution of wealth and resources in the world is unequal." Using a recent example which illustrates this inequality explain what Christians might do to support the victims of this situation. You should refer to the writing and thinking of the Roman Catholic tradition to illustrate and support what you say. If we look at our world we can see that there are two extremes. The extremely ...
