Case 5.7 Advanced Audit Essay

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Advanced Audit
Case 5.7
3.) Assurance services for large banks prove difficult, because there are thousands of transactions happening every day. The vastness of financial data that a large bank inputs, stores, manages and monitors makes it impossible to test every account at an equal risk level. This is where control reliance strategies come into place. Instead of running tests on the individual accounts only, auditors test the controls themselves to determine the likelihood of discrepancies. In general, the amount of testing performed was greater on high risk portfolios than low-level, hedge investments, such as Delta One. As a result thereof, the warning signs and alerts that did make it through to management were less of a concern, approving Kervil to ‘fix’ the mistakes, rather than investigating further.
4.) Kerviel’s incentive/pressure stems from his desire to become one of the top high-risk traders of the company, for which he was hired to do ‘boring’, looked-down-upon duties. He rationalized his decisions, because he believed he could prove to them that he was worthy of trading with the big guys, if only he had the opportunity.
Kervil’s opportunity came along after a few years of working Societe General, driven by his obsession to be a big investment trader, he had managed to learn the companies system in-depth. So in-depth, that he knew the timing of the internal system check allowing him to enter into risky trades by offsetting them with fabricated low-risk trades. Kervil strategically removed all fake trades from the system before said system check, and then promptly making them reappear back in the system afterwards.

5.)
1. Lack of control in data input and manipulation
Trades with fake information, such as a maturity date on a weekend, that would seem suspicious to an outsider

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