Research Proposal on Auditing
The following case is an example of the importance of internal and external auditing and controlling consistency. It is of crucial importance to abide by the stated rules of the Securities and Exchange Commission as they are placed there for the protection of parties involved. Even the most creative ways to manipulate information or failing to report information is highly punishable. Moreover, it is important to realize that internal fixes eventually leak out in external activities and it is the auditors’ responsibility to disclose all gaps and inconsistencies.
This case is of interest to the auditing class, as it demonstrates that forensic auditing and the discovery of fraudulent activity lead to consequences. The specific case being discussed deals with a company that was discovered to be manipulating trading rules, to make greater commission so that accumulating operational cost could be settled. All the allegations were stated in the Complaint filed with the Securities and Exchange Commission. Tuco and its principle Douglas G Frederick neither admitted nor denied the allegations of the Commission’s complaint, and the Commission along side with the court of Justice forbid all trading and froze all the firms’ assets with further actions to be taken later on.
The complaint involves manipulating the trading rules to make larger commission in order to cover growing operational expenses. According to the complaint filed, this was achieved through incremental alteration that bent the rules. The firm began by allowing trading to take place by 250 traders who had $10.2 million in reported equity balances with Tuco. Moreover, for each trader an account was created at Tuco, permitting traders to day-trade in Tuco’s own brokerage. Traders were also provided with services that were not permitted at a registered broker-dealer. Furthermore, trading took place without meeting the $25 000 minimum equity requirement under NASD, and the buying power of the traders was 20.1 while the typical allowance in 4:1.
It would seem that trading circumstances were made simpler by enhancing certain aspect leading to all the actions that the firm took to generate substation commissions which the firm then used to cover the firm’s operation costs.
Aside from all the ethical issues involved in all of the proceeding discovered, the firm was also accused of failing to accurately report to the traders their equity balances, again using $3.62 million of the traders $10.2 million in total equity to pay the firm expenses.
In summary, Tuco attempted creatively to manipulate trading to cover their financial pit-holes; however, as several wrong steps never accumulate to a fixed problem, but rather simply creates a bigger problem. The importance of auditing in such cases like this is to track snowballing problems such as on described above. Perhaps, there were other measures that the firm could have taken that would be law and ethics abiding, but perhaps the strain of staying afloat always pulls the less then favorable choice closer. From the perspective of the auditing side, in this as in every other case, one must not overlook any fragment of inconsistency.
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