Madoff Securities Case Study

• Bernie Madoff’s son, Mark Madoff committed suicide on December 11, 2010. His suicide may have been influenced because there was an investigation on Mark’s children on grounds that Bernie transferred funds to their accounts.

• Peter Madoff pleaded guilty to his involvement in the Ponzi scheme run by his brother. Peter Madoff served as the chief compliance officer.

• Irving Picard, the trustee in charge of liquidating Madoff’s assets, has asked a New York court for approval to distribute an additional $1.5 billion to investors who lost money in Madoff’s fraudulent investments. It is estimated that Picard has already recovered $9.1 billion but has only been able to distribute $1.1 billion so far.

• In May 2010, about 720,000 Madoff investors outside the United States settled with their banks, receiving about $15.5 billion in all, according to law firms representing them.

• In June 2012, the Supreme Court said it would not take up a dispute over how the claims of victims of Mr. Madoff’s huge Ponzi scheme should be calculated. Without comment, the high court declined to hear an appeal from lawyers for investors who got back all the cash they had invested with Mr. Madoff before his December 2008 arrest.

2.

If a large investment firm had approximately 10 percent of its total assets invested in funds managed by Madoff Securities, the audit procedures that the firm’s independent auditors should look very closely are some procedures that will help the auditor to identify inherent and control risks that contribute to misstatements in balance sheets. He/she should make sure that the detection risk is as low as possible and the key transactions are confirmed for its accuracy. By addressing issues of materiality, the auditor will eliminate misstatements to overstate the investment on the balance sheets.

PCAOB AU Section 329A states that understanding financial relationships is essential in planning and evaluating results of analytical procedures and...