The American Institute of CPAs has begun investigating the accounting firm listed as the auditor of Bernard Madoff's investment management business after the firm told the institute for 15 years that it did not perform any audit work.
"I can confirm that we've initiated a preliminary ethics investigation pending a confidential referral to the AICPA ethics committee," said AICPA spokesman William Roberts.
Madoff, who has admitted to losing $50 billion of his clients' money in a giant Ponzi scheme, claimed a three-employee firm, Friehling & Horowitz, as auditor. The New City, N.Y., firm has not answered phone calls.
The firm is managed by David Friehling, whom the AICPA has confirmed is a member. He has enrolled in the AICPA's peer review program, but the firm last completed a peer review in 1993. Since that time, he has regularly checked off a box on a required AICPA form indicating that his firm does not perform audits.
In general, firms that are enrolled in the peer review program are required to tell the state authorities and the AICPA what kind of audits and engagements they perform so the AICPA can schedule and properly structure a peer review. They do that by form letter. Firms are required to check off questions in a number of areas, sign the form and send it back. Among the options on the form is one they can check off to indicate they don't do any audits. If the AICPA receives a form in which the box has been checked off, the institute does not schedule a peer review.
Roberts declined to say what the timeline would be for the AICPA's investigation, but added, "The AICPA is, like everybody else, monitoring the facts in the case as they unfold very, very closely, and we fully intend to take appropriate action as necessary. There are a lot of unknowns here. We don't know what happened yet."
Friehling & Horowitz is also under investigation by the district attorney in Rockland County, N.Y., for potential violation of state laws.
