Mr. Friehling – a Future Auditing Case Study

In: Business and Management

Submitted By windrazor
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David Friehling will quite possibly be a future case study in auditing textbooks and courses throughout the United States. Mr. Friehling was the auditor for Bernard Madoff, who was recently convicted of running the largest Ponzi scheme ever uncovered through his business, Bernard L. Madoff Investment Securities, LLC (BMIS). Mr. Madoff claimed to actively oversee more than $65 billion in private investments (it was later revealed that roughly $823 million remained of the more than $170 billion that went through his accounts over the years).(1) Mr. Friehling flagrantly and purposely violated provisions of the American Institute of Certified Public Accountants’ Code of Professional Conduct,(2) Generally Accepted Auditing Standards,(3) promulgations of the Public Company Accounting Oversight Board and Securities and Exchange Commission, and other applicable laws, regulations, rules, and guidelines.

Mr. Friehling is a former Certified Public Accountant in New York State; he had a modest office with a total of three employees in suburban New City, NY. Mr. Madoff claimed to manage $65 billion in resources…how could what was essentially a one-person practice audit financial statements of that magnitude? The blatantly obvious answer is that Mr. Friehling could not. After accepting an engagement, the initial task for any CPA firm would be to establish an audit plan, which would plainly show that many auditors would be required for that type of engagement. There were countless opportunities for numerous governing bodies to uncover this scam and potentially save investors billions of dollars. The fact that so many egregious violations occurred over such a lengthy period of time without any meaningful investigations is astounding to the average person, let alone professionals in the industry.
The AICPA’s Code of Professional Conduct specifically states that members…...

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