Case 7.8 First Securities Company

From the sentence Ladislas nay arrived to United States at a young age of 18, he rise up-read that this was the land of opportunity, this sense of hope allowed him to gain success. However, his success led him to non exactly cheat and slue people come forth of their cash it also led him to steal a life filled with happiness for himself and his family. Living with this guilt, and no longer could ante up the burden of deceiving widowers out of their funds he committed suicide, by non whole killing himself but his wife as well.This all began with Ladislas nay works in a small securities firm pixilated he worked hard learning the ropes of the business. From on that point he went on to work for a few more businesses before landing place his final line of descent working for the brokerage firm of Ryan-Nichols & Company. This is where it all began for Ladislas nay, after(prenominal) a few geezerhood of working for Ryan-Nichols and Company he achieved the status of tu rn President of the company and had more than 90 percent of the companys expectant common stock. He was very well known he had many friends and was care by all his clients.Ladislas nay began his usage by telling his clients to invest into a fund that he was in germinate of. He then turned just about and used the funds to lend to different companies these companies would pay interest on the money loaned. However, Ladislas nay own company was not aware of him taking peoples money and loaning it to other companies. He was scamming friends and widowers into investing large amount of money into this so called fund. After 30 years this all came to a final end, and Nays scam was exposed.Everyone became aware of Nays so called fund, and how he had achieved in scheming friends out of their money. He left them with nothing, and even left one widower penniless. However, investors were not happy with this and firm to accuse a civil lawsuit in tramp to retrieve their millions of dolla rs of money they had invested with Nay. Investors matt-up that if Ladislas Nays company where investigated the right way this whole scam could adjudge been prevented. However, the courts werent hearing this and matt-up the company was investigated properly.Investors would not give up and pursued in trying to get their money back. They were in and out of court rooms, until finally the investors resolved to go after the previous report firm. The investors filed suit against Ernst & Ernst, their defense was negligence, investors mat this type of negligence could have been avoided if simply they did their jobs correctly. The accounting firm failed to comply with the cosmopolitan Standards rule 201, which states that agencies must exercise ascribable professional care, professional competence, planning and supervision and having sufficient relevant data.In order for Nay to keep himself from being detected of committing imposture he had accomplished a unhorse rule, where no one was allowed to open or touch any letters that was for him or sent to him. Auditors relied on internal narrate as their source of try out on documents provided in order to base their opinion. Nays illegal act caused fiscal statements to be materially misstated and external auditors were not aware of his illegal acts. This type of uneffective internal control risk would have been detected by auditors if only they did their job correctly.An audit teams duty is to design procedures to provide reasonable office that material frauds that might misstate the fiscal statements are detected. This would have raised a red flag and they would have approached Nay with a professional skepticism. They would have put across all documents as evidence, in order to validate whether what he was saying and stating in fact was accepted. Auditors would have traced all documents to experiment whether all events are recorded, which would have established a state of completeness. However, due to i ll-considered documents, the auditors would have found Ladislas Nays of committing fraud.The courts felt other than and pink-slipped the case stating there was no substantive evidence to support the allegation. Investors were sad with this and decided to appeal this, the SEC became complicated 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 auditors intention was not of negligence or fraudulent behavior, and decided there was not enough evidence to hold them liable for this and the court dismissed the case.