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Bernard L. Madoff Investment and Securities: A Focus on Auditor's Legal Liability and Due Care

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Bernard L. Madoff Investment and Securities: A Focus on Auditor's Legal Liability and Due Care
Running Head: " Bernard L. Madoff Investment and Securities: A Focus on Auditor 's Legal Liability and Due Care"

"Bernard L. Madoff Investment and Securities: A Focus on Auditor 's Legal Liability and Due Care"

XNAMEXXX
New England College

Abstract
Friehling & Horowitz were the auditing firm that "audited" Bernard Bernard L. Madoff Investment and Securities (BLMIS) for over 15 years, while Bernie Madoff ran a Ponzi scheme under their noses. This paper addresses the legal liability of Friehling & Horowitz and their lack of due care, that resulted in billions of dollars being stolen from investors. The following 4 questions will be addressed (1) Did Friehling & Horowitz exercise due care and maintained professional skepticism during any of the Audits? (2) What audit evidence should have been vouched , reviewed to determine whether BLMIS had purchased, sold and maintained proper custody of investment Securities? (3) Are there any mitigating factors to help defend the actions of the auditors? and (4) Should the BLMIS auditor Friehling face criminal charges? Based on case information, I concluded that that the auditor David Friehling was indeed liable for fraud with very little mitigating factors.

Keywords: Professional due care, fraud, Madoff, BLMIS

Question 1: Friehling & Horowitz - Due care and professional skepticism
The AICPA, (American Institutes of CPA 's, 2014) on their website under Professional Responsibilities state " CPAs are licensed and regulated by their state boards of accountancy. Additionally, all AICPA members are required to follow a rigorous Code of Professional Conduct which requires that they act with integrity, objectivity, due care, competence, fully disclose any conflicts of interest (and obtain client consent if a conflict exists), maintain client confidentiality, disclose to the client any commission or referral fees, and serve the public interest when providing financial services." ¹
Based on the available case


References: AICPA,"AICPA Professional Responsibilities", 2014, retrieved June 8, 2014 from http://www.aicpa.org/interestareas/personalfinancialplanning/resources/practicecenter/professionalresponsibilities/pages/professionalresponsibilities.aspx AICPA, AU Section 326 Audit Evidence, December 15, 2006 Retrieved June 08,2014 from http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00326.pdf Louwers, T., et al. (2012). MP Auditing & Assurance Service (5th ed.). Module C pages 633-676.
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