Case 7.8 First Securities Company

From the time Ladislas nay arrived to United States at a young age of 18, he learned that this was the land of opportunity, this sense of accept allowed him to achieve success. However, his success led him to not only cheat and steal people out of their currency it similarly led him to steal a life filled with happiness for himself and his family. Living with this guilt, and no overnight could bear the burden of deceiving widowers out of their money he committed suicide, by not only violent death himself but his wife as fountainhead.This all began with Ladislas Nay working in a small securities firm firm he worked hard learning the ropes of the business. From thither he went on to work for a a couple of(prenominal) more businesses before landing his final job working for the brokerage firm of Ryan-Nichols & Company. This is where it all began for Ladislas Nay, by and by a few years of working for Ryan-Nichols and Company he achieved the status of becoming President of the lo dge and had more than 90 percent of the companys outstanding common stock. He was very well kn feature he had many friends and was liked by all his clients.Ladislas Nay began his manipulation by express his clients to invest into a fund that he was in charge of. He then turned near and used the funds to lend to other 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 sharp with this and decided to file a civil lawsuit in ordinate to retrieve their millions of dollars of money they had in vested with Nay. Investors mat that if Ladislas Nays company where investigated properly this whole scam could have been prevented. However, the courts werent hearing this and snarl 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 decided to go after the previous accounting firm. The investors filed suit against Ernst & Ernst, their demur was negligence, investors felt this subject of negligence could have been avoided if only they did their jobs correctly. The accounting firm failed to comply with the General Standards rein 201, which states that agencies must exercise due professional care, professional competence, planning and supervision and having sufficient relevant data.In order for Nay to keep himself from being detected of committing fraud he had established a mail rule, where no one was allowed to open or touch any letters that was for him o r sent to him. Auditors relied on inhering evidence as their source of evidence on documents provided in order to base their opinion. Nays illegal act caused financial statements to be materially stated and external examineors were not aware of his illegal acts. This type of ineffective internal control risk would have been detected by auditors if only they did their job correctly.An audit teams responsibility is to design procedures to provide reasonable assurance that material frauds that might misstate the financial statements are detected. This would have raised a red flag and they would have approached Nay with a professional skepticism. They would have requested all documents as evidence, in order to validate whether what he was truism and stating in fact was true. Auditors would have traced all documents to test whether all events are recorded, which would have established a state of completeness. However, due to false documents, the auditors would have found Ladislas Nay s of committing fraud.The courts felt differently and dismissed the case stating there was no substantive evidence to support the allegation. Investors were unhappy with this and decided to appeal this, the SEC became involved 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 pattern was not of negligence or fraudulent behavior, and decided there was not enough evidence to waiting them liable for this and the court dismissed the case.