1. Case Studies In Audit Failure and Remedies Presented by: Gary H. Barnes Gary H. Barnes, P.A. Primmer Piper Eggleston & Cramer, PC Burlington, Vermont North Venice, FL Copyright © 2010, Gary H. Barnes, PA. All Rights Reserved.

2. Introduction Why Accountants Should Lose Sleep At Night What We Can Do About It. –Understand The Situation –Have A Plan Of Action –Focus On The Objective

3. Today’s Environment Aftermath of Enron Impact of Sarbanes-Oxley –Registration –Annual Inspection –Disciplinary Proceedings/Referrals to State Boards

4. Today’s Environment AICPA: Increased Ethics Enforcement Aftermath of Madoff Aftermath of Rosenfeld

5. Some Impacts SEC-PCAOB Lender Expectations State Boards of Accountancy State Societies AICPA Judging Accountants What Jurors Will Do.

6. Risk Management For The Accountant Sharing Responsibility For Accuracy Of Financial Statements –Reliance on Client Records, Client Controls, Client Integrity Describing Inherent Limitations of An Audit –Not A Green Eyeshade Audit –Risk of Non-Detection of Fraud

7. Risk Management For Accountants Pre-Suit Defense Opportunities –Engagement Letters –Transmittal Letters –Management Representation Letters –Third Party Inquiries/ Responses

8. Watch For “Something Wrong” –The Document Dump –Client “Playing Games”  Client Does Not Accept Responsibility  Client Demonstrates Lack of Integrity

9. Client Dishonesty & Financial Statement Fraud –Personal Expenses charged to Business for tax deductions –The Workplace Romance –Late Reconciliations & Disregarded Recommendation Letters –Unexpected Tax Extensions

10. Client Dishonesty & Financial Statement Fraud –“Write Down” Resistance –Deposits In Transit (Cutoff Issues) –Powerful, Wealthy Client with Strong Personality.

11. Embezzlement The gambling CFO Inadequate Cash Controls / Lax Bank Reconciliations

12. The Elegant Ponzi Scheme How the Auditor Got Hooked How the Audit Was Conducted How The Fraud Was Perpetrated How it All Came Down Lessons Common To All Ponzi Schemes

13. Know & Respect Your Limitations Tax and audit engagement with new offshore subsidiary Lesson: Stick to your expertise or associate with colleague with expertise

14. Remedies: Resource Management Goal: Detect Embezzlement and Financial Statement Fraud Before Issuance of Audit Opinion Establish a risk management culture amongst your staff (resource management) Engage in periodic in-house training

15. Remedies: Protect Workpapers Goal: Enhance your defensive position if you are sued Importance of Protecting Workpapers –Workpaper “Cleanup” Litigation Holds And Electronic Discovery To Title Page