William White Accounting Information Systems COSO Control Violations Rogue Trader Essay The movie Rogue Trader deals with a man named Nick Leeson whose careless buying and selling of stock causes Barings Bank, the bank for which he works, to go bankrupt. Nick lost hundreds of millions of dollars by gambling on stock prices to move in his favor when they continually let him down by moving in a way which was unfavorable to him. He uses a fake error account to hide his large losses by convincing management that the account belongs to a customer and that he actually is bringing in large profits to the bank. The reason this was able to happen is because of management’s decision to allow Nick to manage both the trading floor team along with the back office facilities. Nick was able to make for his losses by finding a new client, avoiding management, and requesting funding, but his fraud caught up to him in the end, for which he was fired and thrown in jail. 

Though Nick Leeson committed fraud and performed many illegal actions on his own accord, the company’s internal controls and standards allowed him to do so which ultimately brought the company down in the end. The Control Environment is one part of the COSO framework that was violated more than others throughout the movie. Early on, Nick became intoxicated and exposed his bottom in public. Because of this, he was arrested and went through a trial. Rather than addressing the issue, management decided to brush it off and act as if nothing had happened because he was such a major asset to the company. When Nick was audited and questioned about the paperwork behind the transaction of 7.78 million Yen, he was easily able to forge documents and get them sent over to the auditor. This act of fraudulent financial reporting makes it seem as if the company did not place much importance on the issue. Then, after executives heard that there was a brief hiccup during the audit and that the auditor had in fact helped them by not reporting issues with the fax Nick had sent to the IRS, they were ultimately relieved. 

One would think that the executives would have investigated whatever the issue with the fax and the missing paperwork but nothing was done, showing that they were happier it was done and over with than actually figuring the issue out. Nick’s freedom to make whatever decision he wanted was never dealt with by management which caused the downward spiral of loss to continue. When upper management came to visit him, all they asked him was if he understood the effect it was having on the company’s debt. He confirmed that he did understand his borrowing’s effect and that was the end of it. No questions on what exactly was going on, just a simple confirmation was good enough. There were no references to any sort of code of conduct or training at all throughout the film, in fact, 

it almost seemed as if the company did not care about that at all. Nick was told to bring back positive results for the company, without much instruction on how he was to do this. His incentive of receiving a bonus ultimately led to him hiding his losses in the account 88888, something the company had most likely never expected yet didn’t do much in order to prevent from happening. Another aspect of the COSO framework that was heavily violated by Barings Bank and Nick’s actions was Risk Assessment. Allowing Nick to manage both the trade floor and the back office was very risky for the company. 

This allowed him to create a fake account to cover his losses and move money around however he pleased in order to adjust numbers for reporting. When an audit team was sent out to Leeson’s office, they were soon called back to the headquarters in order to resolve issues which arose after they left, preventing them from performing the audit. Though the risk of going deeper into debt in order to fund Nick’s office was recognized by executives, very little was done in order to verify whether or not it was worth it. When the executives went to visit Nick and see how he works, he just told them he was busy and walked away so that they would leave and were able to fully understand what he was This study source was downloaded by 100000773266144 from CourseHero.com on 06-13-2021 07:40:07 GMT -05:00 https://www.coursehero.com/file/8891158/Rogue-Trader/ This study resource was shared via CourseHero.com Powered by TCPDF (www.tcpdf.org) William White Accounting Information Systems COSO Control Violations actually doing. The company never assigned anyone to watch over Nick and fully understand what he was doing. Nick’s boss was only there to verify that business activities were running smoothly, but never seemed to know what exactly was going on. The only person who had any idea was the lady who assisted Nick in the back office and had very little connection and communication to anyone else in the company.

 The head of the Barings Financial Products Group in London called Nick, explaining what he had to do in order to receive his bonus, and told Nick he doesn’t know what needs to be done in order for that to happen, but just knows than Nick has to make sure it gets done. Later, when that executive is working out with another employee, he shows that he really doesn’t know what Nick is doing when he tries to explain the process to the other employee. 

When Nick’s boss received a letter from SIMEX regarding the suspicious 88888 account, he just handed the letter to Nick and told him to take care of it, rather than personally investigating the account to figure out what it was. The lack of checks and balances in the company allowed for Nick to cover up the risky behavior which he was involved in. The movie Rogue Trader displays the effect that one employee can have on a company, especially when proper precautions aren’t taken by upper management. Nick Leeson was able to single handedly bring down Barings Bank because of the lack of regulations that company had. The company focused more on the profits he was bringing in, and less on the methods and activities involved in generating these profits. Because of the company’s focus on profit and negligence of regulation, Nick was able to act however he pleased and make whatever decision he felt was best for him. In the end the combination of these actions forced Barings Bank into bankruptcy.

1. List the main mistakes in the organization of the internal control system in the bank.

2. Describe the scheme of the broker’s work on the exchange and list the main violations of the rule of internal control 3. Your suggestions on the behaviour of the trader after reaching the stock index of 18000. Pls the make answers following questions.