ACC12: Summary Blog

http://www.foxbusiness.com/story/markets/economy/madoff-accountant-faces-criminal-charges/

Summary

“Madoff Accountant Faces Criminal Charges,” is an article written by Dunstan Prial from FOXBusiness. The article is about David G. Frienhing, an accountant who helped Bernard Madoff in his investment fraud. David G. Frienhing, currently 49 years old, turned himself in to the authorities on March 18, 2009. He is currently facing criminal charges for helping Madoff operate his investment fraud, which is probably the largest investment fraud in the history of mankind. David G. Frienhing isn’t accused for the knowing about Madoff’s investment fraud, but for deceiving investors by falsely certifying financial statements that he audited for Madoff. Madoff had given his clients false financial statements that showed that they were earning money, but in reality Madoff hadnt made a single transaction for the last decade. David G. Frienhing was charged for security frauds, aiding and abetting investment adviser fraud, filing false audit reports and is specifically being charged for falsely certifying Madoff’s audited statements. In accordance with GAAP (Generally Accepted Accounting Principles) David G. Frienhing’s bail was set to 2.5 million dollars plus having his personal recognizance bond secured, which was four pieces of property worth about $800, 000 to $900, 000. He currently has his passport confiscated and his area where he can travel reduced. David G. Frienhing can face up to 105 years in jail for the crime he has done.

Connection

The article, “Madoff Accountant Faces Criminal Charges” has many connections to the accounting 12 textbook. The specific connections that the article and the accounting textbook have are business transactions and GAAP. A business transaction is a financial event that changes the value of certain accounts. Recording business transactions are very important in the business world because it’s what affects the financial position of a business or person. In the article, Madoff gave his clients false statements that showed transactions earning them profit. In reality, Maddoff didn’t make a single transaction for the last thirteen years. The other connection to the article was GAAP. GAAP is the generally accepted accounting principles that all accountants should follow. This is an important part of the article since David G. Frienhing broke these rules in order to certify Madoff’s financial statements. The specific Generally Accepted Accounting Principles that David G. Frienhing broke are the principle of conservatism, the objective principle, and the materiality principle. The principle of conservatism states that accounting for a business should be fair and reasonable. Accounts are required to make evaluations and estimates to deliver opinions and to select procedures in a way that neither overstates nor understates the results. In Madoff's case, he showed his clients false financial statements that overstates earnings they didn't have. The objective principle states that accounting is recorded on the basis of objective evidence. Madoff had showed his clients that they earned money with no real evidence. Since Madoff hadn't made a single transaction for the last thirteen years, the evidence that his clients were all shown are obviously fake. The last specific GAAP that David broke, the materiality principle, states that accountants are required to follow GAAP unless it is expensive or difficult to do so and makes no real difference in the real world. The scam made a big difference in the real world. Many people had lost a lot of money investing in Madoff's investment scam because Madoff and David got greedy and broke the Generally Accepted Accounting Principles. GAAP is an important part of accounting, and breaking it lead to a maximum of 105 years for David G. Frienhing.

Reflection

I think David G. Frienhing deserved what he got. He helped Madoff cause a lot of people to loss their hard earned cash in his investment scam and ignored the generally accepted accounting principles in order to do so. I think Madoff and David probably wanted out of the scam once they had earned a fortune off it, but couldnt because it would get suspesious if a lot of people started losing money in their investments and they were the only ones earning money. I am surprised it took so long for people to find out about this scam. Although this is a terrible event, I think some good came out of it. After reading about this, a lot of people will probably be more careful about their investments and hopefully less people will try to do an investment scam like this. I think GAAP is an important part of accounting, without it the business world will be in chaos. I also think that the people that invested into Madoff’s investments have learned that if it’s too good to be true, then it probably is the hard way.