Madoff’s Accountants Lied To Industry Regulators


The three-person auditing firm said to have audited the books of Bernard Madoff’s investment firm Investment Securities is under investigation by the American Institute of Certified Public Accountants. The head of the AICPA says Friehling & Horowitz told them it hasn’t been performing audits for fifteen years, a lie that allowed the firm to avoid mandatory peer reviews by other auditors.

“It appears that he (Friehling) did an audit of Madoff’s investment advisory, while he was telling us that he didn’t do audits and therefore wasn’t subject to the normal professional reviews that audit firms are required to have,” AICPA head William Roberts said.

The prestigious trade organisation that sets the standards for U.S. accountants has begun an ethics investigation into the firm.

From Reuters:

AICPA’s Mr. Roberts said Friehling & Horowitz told AICPA that it was not doing audits for any company. Mr. Roberts said that although the firm was enrolled in the peer review program, it has not undergone a professional review in 15 years.
The AICPA requires accounting firms to undergo peer review if they are performing audits, to ensure the firms are meeting applicable professional standards.

David Friehling is the only active certified public accountant at the three-person firm, according to New York state records. The records show that Jerome Horowitz, the other partner in the firm, is inactive and living in Florida.

The AP gives additional context:

Some 33,000 firms enroll in the AICPA’s peer review program, in which experienced auditors assess each firm’s audit quality every year. 40-four states require accountants to undergo reviews to maintain their licenses to practice.

Friehling & Horowitz is enrolled in the program but hasn’t submitted to a review since 1993, says AICPA spokesman Bill Roberts. That’s because the firm has been informing the AICPA — every year, in writing — for 15 years that it doesn’t perform audits.