Rogue Trader essay sample

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THE ROGUE TRADER

Financial auditors faces a real challenge in this era where many financial managers have taken to “cooking the books” and “Error-rizing”. The two aspects are very common and are now part of the financial vernacular. Currently, it is very clear and seemingly unbelievable that numerous global institutions with unimpeachable reputation have collapsed into bankruptcy as a result of the ethical improprieties of individual employee (Saxena et al. 23-4). Barings Bank in the United Kingdom’s employee, Nicholas Leeson was directly involved in causing the collapse of the bank by covering up a $1.4 billion in losses back in 1995 (Moon, 12).

The report covers an overview for the events leading up to the collapse of Barings Bank in 1995 and how the fraud and its lead up relates to our firm. Mr. Leeson messes up the commodities trading, through a proper and detailed assessment of the inadequacies that exists the internal controls at Barings Bank. The analysis of the lessons learned and all the steps taken in preclusions and recurrences of the events in the future followed by a summary of some additional research in the body and conclusion for the report.In financial audit, COSO recommends a four pronged approach to all institutions. First, it urges the firms to take care of the control environment, then assess all risks and analyze them. Next, the organizations are asked to assess all the control activities like policies and procedures because they are what help them develop and help in protecting the organization’s assets.

Control Environment

The control environment establishes the tone of the company and it also influences the control awareness of all the employees. The control environment is the foundation for all the other internal control components it provides the discipline and structure for the entire business operation (Krauß, 31). Auditing generally accepts that within the financial industry, the key component for all successful management for any firm, big or small, is strong and effective risk management and controls in the structure within each securities firm. Barings failed in effecting the controls in the business environment. The key players in the big financial cover up went against all the tenets of a sound and effective system of risk management and controls. The suggested benchmarks that Barings UK and its supervisors in every financial jurisdiction, were not used to test the adequacy of the control environment for securities business activities. As a firm, Barings failed to see the need to establish the mechanism that would ensure that they have an ideal internal accounting controls and risk management controls. The supervisors, like Ash Lewis did not pay a close attention in conducting regular audits and therefore never established a proper mechanism that would ensure that all the entities the firm had set up would be effective in regulating or installing ideal internal accounting controls and risk management controls. The entire supervisory mechanism needed not prescribe specific and detailed controls because these are well laid out in the …

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