'Berny Madoff’s Ponzi scheme\r'

'globalization has necessitated the subscribe to develop a codification of ethical motive for different works, overdue to the need to streamline operations across the globe. The bill profession is unmatched of these professions which is regulated by the regulation of ethics. The major project it serves in this profession is to prevent misconduct of bill masters, and develop a standard instruction of presenting accounting information. However, despite the presence of these regulations, unspoi lead s push asidedals such(prenominal)(prenominal) as fraud unbosom occur in legion(predicate) companies.\r\n in that respect has been an increase in financial grunges in various US companies, and most of them can be traced to lack of controls and disregard for the figure of ethics. The inscribe of ethics has been ignored by many professionals, a point which has direct to the emergence of these scandals. The Berny Madoff ponzi shunning is one such scandal, which has ca empl oy huge sackinges to various banks and some other institutions. The paper lead discuss this scandal in relation to the accounting code of ethics, and their authority in preventing such scandals.\r\nBerny Madoff ponzi design. Bernard Madoff masterminded what whitethorn be the largest live source fraud in history committed by an individual. He confessed to having masterminded a ponzi scheme, by means of his hard Madoff Securities, which conduct to losses amounting to oer $50 zillion (Zambito and Smith 2008). A ponzi scheme is a fraud which involves payment to investors, out of cash in hand pay backd from previous investors, rather than moolah. Madoff officed a outline of investment funds called the split-strike strategy.\r\nIt involve purchasing stocks, and simultaneously purchasing options, to safety device against losses, and these were known as ‘puts. In slip-up the cost of the ‘puts went down, Madoff would trade in ‘calls, which problematical trading these stocks to buyers who aimed at profiting from small gains. This strategy run acrossd that he made small profits in suits where sh ars appreciated in observe, aft(prenominal) numerous trades. However, with time, some financial analysts began skeptical the profits that Bernard made from these proceeding.\r\nThey were concerned that his methods of investment were incapable of earning the level of profits he enjoyed, and recommended an investigation on his activities (Henriques A1). In fact, Madoff Securities were investigated for oer eight times by the restrictive bodies. The investigations did non find major problems, since they were non looking at the in-depth operations of the firm. rough analysts actually suspected that it was a ponzi scheme way before it became clear to investigators. They questioned the use of an audit firm with only one auditor and accountant.\r\nThey in any case questioned the unusual strategy which involved avoiding disclosure of SEC ho ldings, by means of selling them for cash after to each one period. In the beginning of 2008, the market downturn revealed that Madoff Securities were in fact dealing in a ponzi scheme (Naidu 2008). This was as a result of some(prenominal) requests by investors to select their money, which amounted to $7 jillion, and Madoff could not honor their requests. He was forced to confess the truth to his sons, who report him to the government activity. He was subsequently indicted in celestial latitude last year.\r\nRole of strict standards in the accounting profession. The accounting profession consumes good guidelines which are used by both the accounting professionals and their clients (Carey and the American Institute of demonstrate Public Accountants 1-5). The strict standards are effective to all stakeholders in a business. We will analyze the role of these ethical standards agree to various stakeholders. Accountants. In these modern times, globalization has transversed b oundaries and connected the world.\r\nThis has led to the emergence of multi-nationals, with branches in different countries. Since the parent order has to regularise its accounting reports across several branches, it is requirement to present a global exchangeable way of preparing and presenting accounting reports to stakeholders. Examples of accounting standards are the IFRS and GAAP accounting standards. This is one purpose that accounting ethics serve, and it enables companies to easily comparing their performance with others.\r\nAccounting ethics also helps accountants to maintain integrity and professionalism in their profession so that it may remain intelligent and profitable. Ethical standards such as professional competence, objectivity and confidentiality help the accountants to pull in entire and complete financial reports. Flouting these standards leads to consequences such as de-registration from the professional body, suspension of the practicing license, crimi nal financial obligation among other consequences.\r\nMadoff flouted these principles through committing fraud, a short letter which led to criminal proceedings universe preferred against him. He now approach the possibility of spending a extensive time in jail, as sanitary as paying heavy fines. Investors. Investors require knowledge about market trends and stock movements before qualification investment decisions, in order to render favorable returns on their investment. After investing in a company, investors are very interested in knowing the performance of the company in order to keep investment decisions.\r\nIn order to facilitate this, it is important to prepare accurate financial landed estatements which enable investors to make proper adjustments in investment. The accounting code of ethics helps in achieving this purpose through enabling accountants present the true(p) state of affairs of a company. In the case of Madoff Securities, the disregard of the code of ethics has led to the apparent loss of over $40 billion by investors who include companies, banks and individuals. somewhat investors, such as Martin Roseman who lend Madoff $10 million, hold up sued him in order to get back money they are owed.\r\nFinanciers. to begin with a company can receive a loan from a financier such as lending institutions, there are various aspects which are analyzed. unity aspect is the financial performance of the company. If a firm performs financially well, then the financiers are confident that they will be paid back, with minimal risks. However, firms which perform poorly have higher chances of defaulting on payments and are slight likely to receive loans from financial institutions. As a result of this, firms may be tempted to misrepresent their financial position in order to obtain financing.\r\nMadoff Securities can be said to be one firm which engaged in this practice, since the firm could not survive without additional funds from tender investors, in line with operations of a ponzi scheme. The code of conduct comes in, in such a case, to discourage these practices. Accounting principles such as prudence requires that firms do not understate their expenses or overstate their assets, in contrast to operations of ponzi schemes. This is beneficial to financial institutions since it enables them to finance companies with minimal risk.\r\nAccounting principles answerable for Madoff Securities collapse. Several accounting principles which were broken, were responsible for the financial collapse of Madoff Securities. One principle, prudence, requires that accountants anticipate losses and make provisions for them early full (Kwok 30-38). It also requires accountants not to overstate the value of their assets (Marriott et. al. 221-223). Madoff Securities did not provide for the losses traceable to fraud, and actually screened them over several years, through the use of subsequent investor deposits.\r\nWhen they were in the end revealed several stakeholders were affected, among them some charitable organizations which had to block down due to reliance on this firm (Storm 2008). According to Warren et. al. (34-35), another(prenominal) principle of accounting is the twin(a) invention. This concept states that expenses which are incurred in the course of generating tax revenue should be recognized during this period. This is done to ensure that comparison between revenues and expenses of a convertible accounting period can be achieved (Eskew and Jensen 40-42).\r\nThis is very important in making business decisions. In the case of Madoff Securities, expenses which the company incurred were matched with future revenues in order to conceal the fraud. This means that the accountants did not follow the matching concept, which was responsible for the accrual of huge expenses over the years. Accounting standards require that the accountants present the true state of affairs of a company. refutal of th e state of affairs is a irreverence of these standards.\r\nMadoff Securities misrepresented the financial position of the company, presenting it as a profitable firm, yet it had operative liabilities. This misrepresentation attracted new investors, which led to the company owing over $50 billion to investors at the time of collapse. Conclusion and recommendation. Bernard Madoffs ponzi scheme has been seen to have affected very many local and international investors. The ignorance of the code of ethics and accounting principles that have been discussed was a major factor which caused this scandal.\r\nThe code of ethics in accounting helps to protect the interests of all stakeholders of a company. It also makes it easier for companies to compare performance, due to standardisation of accounting report preparations and presentation. Madoff forgot one fact about ponzi schemes; they eventually collapse due to the inability to handle sudden withdrawals by investors. The economic meltdo wn played a role in exposing this scheme. It is important that the role of the market regulators with regards to the scheme be well investigated, since several warnings were given prior to signal detection of the scandal.\r\nIf the authorities had acted sooner, the loss would have been land than it currently is. The stock regulatory authorities need to establish measures that deter such practices. One of them would be to scrutinize trans implements of companies with the aim of detecting irregular and wrong accounting practices. The next course of action would be to investigate the detected shadowy trends, even if the actions are not all in all illegal. This will minimize the risk of loss attributable to fraud, by investors in the stock market.\r\n'