4 professional auditing standards discuss the three

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4. 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.” Briefly explain the difference between a fraud “condition” and a “fraud risk factor” and provide examples of each. What fraud conditions and fraud risk factors were apparently present in the Madoff case?
In the Madoff case his firm had the opportunity to bring in large amounts of capital from large investors, pressure to deliver high returns for clients, and rational that he’d become super rich in carrying out this ponzi scheme. Some risk factors that relate to the case include the risk of competition among other investment firms, the market has been bull for quite some time, and the risk of being bringing in new clients to pay interest for the current clients. 5. In addition to the reforms mentioned in this case, recommend other financial reporting and auditing-related reforms that would likely be effective in preventing or detecting frauds similar to that perpetrated by Madoff. I noticed that there was a lot of “feeder accounts” transferring money from bank accounts to Madoff. Banks should set up regulations for transfer of funds to hedge funds and investment companies. There should be required documentation when wire money to an investment firm. Also I’d recommend quarterly audits by high net worth firms. This will allow for more transparency in the industry.

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