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New Bill Seeks to Close Loophole
On March 12, 2009, Bernard L. Madoff pleaded guilty to 11 counts of fraud, perjury, and money laundering connected with the largest Wall Street Ponzi scheme ever recorded a reported $65 billion. Madoff faces a potential prison sentence of 150 years. But since December 2008, attention has turned to David G. Friehling, Madoffs accountant Friehling was arrested on March 19, 2009, and charged with securities fraud and with aiding the investment advisor fraud committed by Madoff.
A civil case was filed by the Securities and Exchange Commission (SEC) against Friehling and his accounting firm, Friehling & Horowitz, CPAs, P.C., on March 18, 2009. The SEC alleges that Friehling (and Friehling & Horowitz) purported to audit and certify the financial statements and disclosures of Bernard L. Madoff Investment Securities LLC (BMIS) from 1991 to 2008, thereby enabling Madoffs Ponzi scheme to go undetected.
Why No AICPA Peer Review?
For the past 15 years, the firm had been telling the AICPA that it did not conduct audits (Alyssa Abkowitz, "Madoffs auditor ... doesn't audit?" CNNMoney.com, December 19, 2008).
AICPA members who are engaged in the practice of public accounting in the United States are required to be enrolled in an approved practice-monitoring program. (The AICPA' s standards do not apply to organizations that are not public accounting firms.) Oversight of audit quality is accomplished via the AICPA' s peer review program. Most state boards of accountancy also require their licensees to undergo peer review (sometimes called compliance assurance) to practice in their states. Prior to the Friehling case, New York was one of only six states that did not require accounting firms to be peer reviewed. On January 27, 2009, New York Governor David Paterson signed the first significant accountancy reform in 61 years into law. Beginning January 1, 2012, New York firms with three or more accounting professionals will be required to undergo a peer review once every three...