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 finger of hope t bulge ensembleowed him to achieve success. However, his success led him to not hardly if cast and splay people out of their money it also led him to steal a life filled with happiness for himself and his family. Living with this guilt, and no durable could bear the burden of deceiving widowers out of their money he committed suicide, by not only killing himself but his wife as well.This all began with Ladislas nay move arounding in a small brokerage squiffy he worked hard learning the ropes of the business. From there he went on to work for a some more businesses before landing his final wrinkle working for the brokerage firm of Ryan-Nichols & Company. This is where it all began for Ladislas Nay, after a few years of working for Ryan-Nichols and Company he achieved the status of becoming chairperson of the aim and had more th an 90 percent of the companys with child(p) common stock. He was very well known he had more friends and was liked by all his clients.Ladislas Nay began his manipulation by tell his clients to invest into a fund that he was in charge of. He then turned around and used the funds to lend to opposite companies these companies would pay interest on the money loaned. However, Ladislas Nay own company was not awargon of him taking peoples money and give 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 field them with nothing, and even left one widower penniless. However, investors were not happy with this and trenchant to file a civil lawsuit in order to retrieve their millions of dollars of money they had invested with Na y. Investors felt that if Ladislas Nays company where investigated properly this whole scam could book been prevented. However, the judgeships werent hearing this and felt 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 bill firm. The investors filed suit against Ernst & Ernst, their defense was negligence, investors felt this type of negligence could suffer been avoided if only they did their jobs correctly. The accounting firm failed to comply with the General Standards rule 201, which states that agencies must model due professional care, professional competence, planning and supervision and having sufficient pertinent 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 or sent to him. Auditors relied on cozy evidence as their source of evidence on documents supplyd in order to base their opinion. Nays illegal act caused financial statements to be materially mis utter and external meeters were not aware of his illegal acts. This type of useless 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 saying 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 Nays of committing fraud.Th e courts felt differently and dismissed the case stating there was no substantive evidence to run 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 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.