Audit Report of Madoff Investment Securities LLC: A Detailed Analysis

This report provides an analysis of the audit report issued for Bernard L. Madoff Investment Securities LLC, a Wall Street firm involved in a significant financial scandal. The analysis highlights the deficiencies in the original audit, particularly the failure to identify the Ponzi scheme orchestrated by Madoff. It emphasizes the importance of IT audits and the application of frameworks like COBIT 5 to identify and mitigate IT-related risks. The report suggests that the auditor should have issued an adverse opinion due to the misrepresentation of the company's financial state. Recommendations include implementing robust internal controls, seeking expert help for IT audits, and closely monitoring management actions to prevent future fraud. The document underscores the crucial role of auditors in ensuring the accuracy and reliability of financial statements for investors and stakeholders.

2017

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By student name
Professor
Date: 24 December, 2017.
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Contents
Introduction...........…………………………………………………………………..........…...3
Analysis.......................………………........................................................................................3
Conclusion.......................……………….....................................................................................5
References...................................................................................................................................7
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Introduction
An audit report is a written summary of the opinion of the auditor where they highlight their
findings in relation to the company and present their views with regards to the same. Audit reports are
of various types, investors generally rely on the auditor opinion to take important decisions with regards
to the company. It is thus extremely important that the audit report must be true and there should not
be any falsification in the same. The auditor needs to follow certain auditing standards and accounting
practices while preparing the audit report for the company (Webster, 2017). There are many rules and
regulations that have been framed with regards to auditing and sustainable approach towards the same
that auditors need to keep in mind. In this given assignment an audit report that has been issued by the
auditors for the Bernard L. Madoff Investment Securities LLC, which is a wall street journal founded by
Madoff (Alsagoff, 2010). There was a huge scandal in the company, where the founder and the
accountant paid the investors return out of their own money and not profits. The investors where
tricked to invest millions in the company and that had affected the overall financial health of the
company. The issue was later reported to the SEC and there was a huge downfall in the company post
that. An audit report was issued by the auditors in lieu of it that shows that the company had not
maintained its account properly (Pape, 2017).
Analysis
The audit report is not a completed representation of the company affairs neither proper views have
been presented by the auditors. It was mentioned that this scam was not identified by the auditor but
was reported by other people. It means that the auditor should have adopted certain strategies that
would have helped them in this. The auditors should have conducted IT audit that would have helped
them in taking adequate decisions (Maynard, 2017).
Risks associated with IT related practices
There is certain amount of risks that are associated with IT related audit that the auditor should
keep in mind, for this a new framework has been set that is known as the COBIT 5, it defines risk as
business risk, that is associated with risk of use, ownership, operation, involvement, influence and
adoption of IT within the enterprise for the company. Information technology is a department and there
might be several risks that might crop up due to this, through the operations of IT general controls
(Chron, 2017). Hence the auditor should keep this in mind before conducting the IT related audit and
should see to it that their operations are in sync with the other departments of the company. There are
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also Auditing standards that have been defined that the auditor need to consider conducting the audit
without any issues involved. The auditors can also take help from expert to mitigate the risk and give
best opinion about the current scenario of the company and its practices. In the long run it is important
to know that any kind of risk crops up because there is a deficiency in the IT related practices of the
company and hence to ensure that the system is free from all kind of errors, the companies should set
up effective internal control practices and the role of the auditor should be to analyze these controls and
ensure effective result (Kusolpalalert, 2018).
IT Practices that can be applied
The same findings should be reflected in the audit report of the company, what can be seen here is that
the audit report is very fragmented there is no proper disclosures from the management of the
company and no proper opinion stated by the auditors. In this case because the accounts are not
cleared the auditor should have given an adverse opinion, which means that the books of the company
and it statements are not complete and does not reflect the true state of the company affairs and
opinions (Delone & Mclean, 2004). Audit is one of the most precise activities that is conducted within
the company to understand whether the statements are correct and are reflecting true and fair view of
the company and its activities. Thus, it is important that the audit report should be clear and precise and
the auditor should have taken the necessary steps that would reflect what the company is doing in true
sense (Lubensky, 2017). COBIT 5 practices is one of the most widely regulations that have been stated to
overview the IT realted work in an organization. It is followed widely to conduct the overall IT analysis
with respect to any organization. The overall processes with repsect to COBIT have been divided into
two areas known as governance and management areas. Overall there are 5 processes in case of COBIT.
It can be applied in the organization for better implementation of IT practices.
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Conclusion and Recommendations
IT related new practices and regulations
There are various accounting and auditing standards that have been set by bodies that states the steps
the auditors must keep in mind while conducting the audit and the relevant scenarios that they must
considered. It is the duty of the auditor to find any error and issue in the financial statements of the
company that might be present in the books of the company (Pereira, 2014). So, in this case also the
auditors should have conducted the audit accordingly and should have stated all the negative scenarios
that are present in the company. Few steps that the auditor could have taken would be –
 Ensure that the internal controls are in place. They play the most important part in any
organization to ensure that the management is functioning to the best of their ability. It also
reduces the chances of errors and frauds in the future.
 Taking expert help- Conducting of IT audit requires specific knowledge and that the auditors of
the company can take help from experts who have knowledge of IT related practices. This would
help in conducting the audit in a better manner and making the company more secure to IT
related frauds that are very much evident in today’s time. Overall the actions of the company
are also hugely responsible on how the IT department functions and the kind of results that it
generates. This is a basis that management should keep in mind. There are various IT related
software present in the market that serves multiple purpose (Heuvel & Wagelman, 2017).
 Keeping a check on the management- Sometimes the management is only responsible for the
fraud that occurs in the system. In this case we see how the owners were only responsible in
causing harm to the investors, hence it is important that specific check should be done on their
approach towards the company (Ghofiqi, 2018).
Role of IT Auditor
The investors depend upon the opinion of the auditor to take important decisions with relation to the
company. If there is any falsification in the audit report that will affect the auditors only, it is thus
important to keep in mind that the audit report is the mirror that showcases the opinion of the auditor
and that is extremely important for the investors and people and other stakeholders (Heuvel &
Wagelman, 2017). Highest level of precision must be maintained by the auditor in preparing the reports
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and giving an opinion on the same. This is how a company can be successful in the long run and there
would be less fraud and errors and the investors will get due return from the management for their
investment (Elimam, 2017).
References
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Alsagoff, N. (2010). Microsoft Excel as a tool for digital forensic accounting.
Chron. (2017). five-common-features-internal-control-system-business. Retrieved december 07, 2017,
from http://smallbusiness.chron.com/five-common-features-internal-control-system-business-
430.html
Delone, W., & Mclean, E. (2004). Measuring e-Commerce Success: Applying the DeLone & McLean
Information Systems Success Model. International Journal of Electronic Commerce, 9(1).
Elimam, H. (2017). The Role of Small Businesses (Small Scale Economic Projects) in Alleviating the Acuity
of Unemployment. International Business Research, 10(3).
Ghofiqi, M. (2018). FORMATION OF VIEWS AND INTERESTS TO THE ACCOUNTANTS PROFESSION IN
MASTER OF ACCOUNTING STUDENTS OF JEMBER UNIVERSITY FORCE OF 2016 USING
STRUCTURATION THEORY ANALYSIS. THE 3RD INTERNATIONAL CONFERENCE ON ECONOMICS,
BUSINESS, AND ACCOUNTING STUDIES.
Heuvel, W., & Wagelman, A. (2017). A note on “A multi-period profit maximizing model for retail supply
chain management”. European Journal of Operational Research, 260(2), 625-630.
Kusolpalalert, A. (2018). The relationships of financial assets in financial markets during recovery period
and financial crisis. AU Journal of Management, 11(1).
Lubensky, D. (2017). A model of recommended retail prices. The RAND Journal of Economics, 48(2), 358-
386.
Maynard, J. (2017). Financial Accounting, Reporting, and Analysis (SECOND ed.). NewYork: Oxford
University Press.
Pape, T. (2017). Value of agreement in decision analysis: Concept, measures and application. Computers
& Operations Research, 80, 82-93.
Pereira, A. C. (2014). Analytical Processing for Forensic Analysis.
Webster, T. (2017). Successful Ethical Decision-Making Practices from the Professional Accountants'
Perspective. ProQuest Dissertations Publishing.
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