Question

In spite of his assertions that he carried-out fraud alone, convicted investment advisor Bernard

Madoff's independent auditor is now under investigation. The auditor is accused of not doing his
job. Rather than verify Madoff's company records, the F.B.I claims that he "rubber-stamped" the
records. Knowing what you have learned about the importance of auditing, which of the
following statements do you understand to be most accurate?
O Investment firms should always hire private accountants. Public accountants do not have enough
information about the firm to prepare audits.
O Independent auditors only prepare audits for not-for-profit firms. Madoff hired the wrong professional for
the job.
O Independent auditors must follow strict rules, including new rules put in place by the Sarbanes-Oxley Act.
O The Sarbanes-Oxley Act does not institute rules of practice for independent auditors. Independent
auditors follow strict rules created by the AICPA, American Institute of Certified Public Accountants.

Answer 1

The most accurate statement is that independent auditors must adhere to strict regulations, including those instituted by the Sarbanes-Oxley Act, designed to protect investors and enhance the reliability of financial reporting.

Step-by-step explanation:

In response to the question regarding the role and rules for independent auditors in light of Bernard Madoff's fraud case, the most accurate statement is that independent auditors must follow strict rules, including new rules put in place by the Sarbanes-Oxley Act. The Sarbanes-Oxley Act was instituted to increase confidence in financial information and protect investors from accounting fraud, following major scandals at corporations such as Enron, Tyco International, and WorldCom. It imposes rigorous requirements on auditing processes to ensure the integrity and transparency of financial reporting by public corporations.

Research in the field has emphasized the responsibility of researchers and auditors to ensure proper methods are followed. The investigation into Stapel's fraud highlighted the significance of being familiar with statistical analysis in spotting irregularities. Additionally, the board of directors, the auditing firm, and outside investors form the three institutions of corporate governance to oversee the company's financial integrity, as evident in the failure revealed by the Lehman Brothers case.

Answer 2

O Independent auditors must follow strict rules, including new rules put in place by the Sarbanes-Oxley Act.

Step-by-step explanation:

The most accurate statement in this scenario is that independent auditors must follow strict rules, including new rules put in place by the Sarbanes-Oxley Act. The Sarbanes-Oxley Act was enacted in response to major accounting scandals and is designed to increase confidence in financial information provided by public corporations, protecting investors from accounting fraud. Independent auditors play a crucial role in verifying the accuracy of a company's financial records and ensuring compliance with these rules.