The accounting firm failed to comply with the General Standards rule 201, which states that agencies must exercise due professional care, professional competence, planning and supervision and having sufficient relevant data. In order for Nay to keep himself from being detected of committing fraud he had established a “mail rule,” where no one was allowed to open or touch any letters that was for him or sent to him. Auditors relied on internal evidence as their source of evidence on documents provided in order to base their opinion. Nay’s illegal act caused financial statements to be materially misstated and external auditors were not aware of his illegal acts. This type of ineffective internal control risk would have been detected by auditors if only they did their job correctly. An audit team’s responsibility is to design procedures to provide reasonable assurance that material frauds that might misstate the financial statements are detected. This would have raised a red flag and they would have approached Nay with a professional skepticism. They would have requested all documents as evidence, in order to validate whether what he was saying and stating in fact was true. Auditors would have traced all documents to test whether all events are recorded, which would have established a state of completeness. However, due to false documents, the auditors would have found Ladislas Nays of committing fraud. The courts felt differently and dismissed the case stating there was no substantive evidence to support the allegation. Investors were unhappy with this and decided to appeal this, the SEC became involved and also stated that the investors were entitled to documents that were of true statements, and the duty of the auditor is to provide this. The courts felt the auditor’s
The accounting firm failed to comply with the General Standards rule 201, which states that agencies must exercise due professional care, professional competence, planning and supervision and having sufficient relevant data. In order for Nay to keep himself from being detected of committing fraud he had established a “mail rule,” where no one was allowed to open or touch any letters that was for him or sent to him. Auditors relied on internal evidence as their source of evidence on documents provided in order to base their opinion. Nay’s illegal act caused financial statements to be materially misstated and external auditors were not aware of his illegal acts. This type of ineffective internal control risk would have been detected by auditors if only they did their job correctly. An audit team’s responsibility is to design procedures to provide reasonable assurance that material frauds that might misstate the financial statements are detected. This would have raised a red flag and they would have approached Nay with a professional skepticism. They would have requested all documents as evidence, in order to validate whether what he was saying and stating in fact was true. Auditors would have traced all documents to test whether all events are recorded, which would have established a state of completeness. However, due to false documents, the auditors would have found Ladislas Nays of committing fraud. The courts felt differently and dismissed the case stating there was no substantive evidence to support the allegation. Investors were unhappy with this and decided to appeal this, the SEC became involved and also stated that the investors were entitled to documents that were of true statements, and the duty of the auditor is to provide this. The courts felt the auditor’s