Author Topic: Interesting Articles...  (Read 2347441 times)

Offline Cheesecake

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Re: Interesting Articles...
« Reply #5820 on: January 05, 2017, 07:11:55 AM »

Offline efflpetzel

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Re: Interesting Articles...
« Reply #5821 on: January 05, 2017, 10:59:11 AM »

Offline henche

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Re: Interesting Articles...
« Reply #5822 on: January 05, 2017, 11:18:38 AM »
Crazy how smart people keep falling for this kind of thing & crazy how easy it is to get away with a ponzi scheme

So, how are they fooling the auditors?  Don't they have a big 4 accounting firm auditing them every year to report to the institutional investors?

Offline Menachem613

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Re: Interesting Articles...
« Reply #5823 on: January 05, 2017, 11:19:31 AM »
So, how are they fooling the auditors?  Don't they have a big 4 accounting firm auditing them every year to report to the institutional investors?

I doubt they would use the big 4.

Offline aygart

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Re: Interesting Articles...
« Reply #5824 on: January 05, 2017, 11:22:15 AM »
I doubt they would use the big 4.
Since we saw with Enron and Arthur Anderson that the big firms would NEVER let such stuff through.
Feelings don't care about your facts

Offline churnbabychurn

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Re: Interesting Articles...
« Reply #5825 on: January 05, 2017, 11:27:28 AM »
So, how are they fooling the auditors?  Don't they have a big 4 accounting firm auditing them every year to report to the institutional investors?
They used cohn reznik . I'll post later how this audit was botched..

Basically, big 4 have internal valuation teams. Conhn reznik definitely also has some kind of "valuation specialist", but probably not one who knows anything at all about oil fields.

Even at big 4, utilizing valuation specialist does not mean that the auditors perform their own independent valuation. - that is prohibitively expensive.
Here they probably assessed that based on the inputs used by management they can say that the valuation is reasonable. - they did NOT audit the inputs though. A common error...

They also documented low valuation risk due to robust controls over valuation, specifically that the fund used an external independent valuation expert etc etc. These memos are long and winding.. But at the end of the day, there is a very very slim chance auditor has liability.
« Last Edit: January 05, 2017, 11:47:37 AM by churnbabychurn »

Offline ExGingi

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Offline churnbabychurn

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Re: Interesting Articles...
« Reply #5827 on: January 05, 2017, 08:26:33 PM »
I doubt they would use the big 4.

Any audit partner who audits dozens of similar funds over the years would know something is up. No funds have such consistent good returns... And the asset mix is an automatic red flag anyway.
So it's not at all hard to imagine some audit partner accepting a bag of cash to just keep things moving.

But im not sure cohn reznik has sufficient experience in the alternative investment space.. They may have really not known what was flying ...

Offline ExGingi

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Re: Interesting Articles...
« Reply #5828 on: January 05, 2017, 08:47:42 PM »

Any audit partner who audits dozens of similar funds over the years would know something is up. No funds have such consistent good returns... And the asset mix is an automatic red flag anyway.
So it's not at all hard to imagine some audit partner accepting a bag of cash to just keep things moving.

But im not sure cohn reznik has sufficient experience in the alternative investment space.. They may have really not known what was flying ...
I used to work for a company that was audited by one of the big 5 (back in the day).

I can tell you first hand that the auditors job is NOT  to look for, or detect fraud. An auditor sample checks reports, asking for backup information. Give them a 1000 page register with all invoices on the A/R and they will never notice if the bottom line on the report adds up to the details (as long as there are thousands of lines of details per customer).

I've been waiting over 5 years with bated breath for someone to say that!
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Offline hvaces42

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Re: Interesting Articles...
« Reply #5829 on: January 05, 2017, 09:11:51 PM »
I used to work for a company that was audited by one of the big 5 (back in the day).

I can tell you first hand that the auditors job is NOT  to look for, or detect fraud. An auditor sample checks reports, asking for backup information. Give them a 1000 page register with all invoices on the A/R and they will never notice if the bottom line on the report adds up to the details (as long as there are thousands of lines of details per customer).
Except if your a government auditor. Then you have all the time in the world to examine every single line item.
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Offline ExGingi

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Re: Interesting Articles...
« Reply #5830 on: January 05, 2017, 09:14:18 PM »
Except if your a government auditor. Then you have all the time in the world to examine every single line item.
-1
Unless it's a forensic audit. Almost any fraud can get the auditors stamp of approval, if perpetrators know what they're doing (and that was even true before photoshop use was so widespread) just read up about what they were doing at some of the junk mortgage lenders before everything collapsed).
I've been waiting over 5 years with bated breath for someone to say that!
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Offline hvaces42

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Re: Interesting Articles...
« Reply #5831 on: January 05, 2017, 09:16:21 PM »
-1
Unless it's a forensic audit. Almost any fraud can get the auditors stamp of approval, if perpetrators know what they're doing.
From my experience, Most audits done by governmental agencies (IRS may be an exception) are forensic in nature.
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Offline MarkS

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Re: Interesting Articles...
« Reply #5832 on: January 05, 2017, 10:30:37 PM »
I used to work for a company that was audited by one of the big 5 (back in the day).

I can tell you first hand that the auditors job is NOT  to look for, or detect fraud. An auditor sample checks reports, asking for backup information. Give them a 1000 page register with all invoices on the A/R and they will never notice if the bottom line on the report adds up to the details (as long as there are thousands of lines of details per customer).


So there's this software called Excel. When our client exports their A/R detail from their accounting system to excel, we add up the detail and make sure it agrees to the total. Then we send confirmations to many places to get third party confirmation corroborating the receivable. Then we use sampling techniques with advanced methodologies to ensure that our sampling method gives reasonable assurance as to the lack of a material misstatement in the account. If there was a material misstatement it would likely be caught. 

Can a $10,000 error slip through in a $1,000,000 balance? Sure. But who cares about it. It's not material.
Can a $1,000,000 error slip through in a 100,000,000 balance? Sure. But who cares about it. It's not material.

Offline churnbabychurn

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Re: Interesting Articles...
« Reply #5833 on: January 05, 2017, 10:37:15 PM »


I used to work for a company that was audited by one of the big 5 (back in the day).

I can tell you first hand that the auditors job is NOT  to look for, or detect fraud. An auditor sample checks reports, asking for backup information. Give them a 1000 page register with all invoices on the A/R and they will never notice if the bottom line on the report adds up to the details (as long as there are thousands of lines of details per customer).
One of the first thing auditors have to check off is mathematical accuracy of the reports. - not much fraud happening there anyway.
Valuation issues is where it happens much more often.



Offline ExGingi

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Re: Interesting Articles...
« Reply #5834 on: January 05, 2017, 11:03:27 PM »
One of the first thing auditors have to check off is mathematical accuracy of the reports. - not much fraud happening there anyway.
Valuation issues is where it happens much more often.
I can only attest to the specific case I have seen with my own eyes.

Eventually company collapsed and owners served time behind bars. But for many years things went on with the auditors signing off.
I've been waiting over 5 years with bated breath for someone to say that!
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Online yuneeq

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Re: Interesting Articles...
« Reply #5835 on: January 06, 2017, 12:38:44 PM »
I know nothing about accounting, but what the heck is the point of an audit if it's not looking out for fraud?
Isn't an audit all about showing that investors can trust a company's numbers?

Visibly Jewish

Offline MarkS

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Re: Interesting Articles...
« Reply #5836 on: January 06, 2017, 12:52:58 PM »
I know nothing about accounting, but what the heck is the point of an audit if it's not looking out for fraud?
Isn't an audit all about showing that investors can trust a company's numbers?


The objective of an audit is to express an opinion that the financial statements are free of material misstatement. We do certain procedures to try to look for fraud but the main focus is on the financial accuracy of the financial data. If there is a large scale fraud it would be detected through the financial data. If there is a small scale fraud it is immaterial and who cares.

If a guy is stealing pencils from the stock room who cares. If a guy is stealing $1,000 from a $100,000 company who cares.

If there is a material fraud (something that investors would care about) it would most likely get caught through the financial data.

Offline churnbabychurn

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Re: Interesting Articles...
« Reply #5837 on: January 06, 2017, 03:33:21 PM »
I know nothing about accounting, but what the heck is the point of an audit if it's not looking out for fraud?
Isn't an audit all about showing that investors can trust a company's numbers?

The objective of an audit is to express an opinion that the financial statements are free of material misstatement. We do certain procedures to try to look for fraud but the main focus is on the financial accuracy of the financial data. If there is a large scale fraud it would be detected through the financial data. If there is a small scale fraud it is immaterial and who cares.

If a guy is stealing pencils from the stock room who cares. If a guy is stealing $1,000 from a $100,000 company who cares.

If there is a material fraud (something that investors would care about) it would most likely get caught through the financial data.
Auditors must document their discussions on assessment of fraud risk. Then they must document controls in place that address these risk assessments.
Auditors must be independent. And must utilize professional skepticism throughout the audit.
Auditors are trained to identify and address fraud risks etc etc.


Obviously it is at the core of the audit.

I think what @marks is saying, is that auditors do NOT guarantee the accuracy and freedom of fraud and error in the FS.  they merely express an opinion that they are reasonably sure, based on the procedures performed according to GAAS, that the financials prepared by management are good.....

Offline ExGingi

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Offline churnbabychurn

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Re: Interesting Articles...
« Reply #5839 on: January 08, 2017, 10:51:38 AM »