Nextbank
NextCard Fraud
Muna Rodriguez
Advanced Auditing
Mrs. Ashley Braun Harper, MS, CPA
April 28, 2013
Abstract
In the late 1990 's the internet boom was taking off, and many new company 's were being formed in Silicon Valley adding to the buzz. One such company was NextCard, Inc. Founded by Jeremy Lent and his wife, the company offered credit cards with 30 second approvals with very lenient credit stipulations. They marketed on the internet and used a business model that would reduce the cost to gain a customer and targeted internet savvy consumers with large credit balances. In 1999 the company went public, and by 2000 they had nearly 1 million customers extending close to a billion in credit to those customers. Even with this success, the company did not make a quarterly profit and had over 80 million in losses. As this information began to make it to public knowledge, serious investigations began to occur, prompting their auditors, Ernst and Young of Silicon Valley, to take a serious look at their 2000 audit. Thomas Trauger, the lead on the audit in 2000, called a meeting with a staff member and another audit manager. They began to tamper with the audit by pulling it out of the archive and altering it to look as if they had called attention to the issues going on with the financials. The main issues with their financials was that NextCard had not accounted for enough in Bad Debt losses. Since the customers that used their services were high credit risk, they were required to write off several millions in bad debt losses. Once the investigation focused on the audit, the three auditors were brought to justice, as well as the executives with NextCard. In this paper, I will discuss the PCAOB and the AICPA code of conduct and how it applies to this case, as well as explore the intentions of the auditors. We will explore the auditors point of view and look at the implications of their actions.
Introduction
As auditors, there is
Muna Rodriguez
Advanced Auditing
Mrs. Ashley Braun Harper, MS, CPA
April 28, 2013
Abstract
In the late 1990 's the internet boom was taking off, and many new company 's were being formed in Silicon Valley adding to the buzz. One such company was NextCard, Inc. Founded by Jeremy Lent and his wife, the company offered credit cards with 30 second approvals with very lenient credit stipulations. They marketed on the internet and used a business model that would reduce the cost to gain a customer and targeted internet savvy consumers with large credit balances. In 1999 the company went public, and by 2000 they had nearly 1 million customers extending close to a billion in credit to those customers. Even with this success, the company did not make a quarterly profit and had over 80 million in losses. As this information began to make it to public knowledge, serious investigations began to occur, prompting their auditors, Ernst and Young of Silicon Valley, to take a serious look at their 2000 audit. Thomas Trauger, the lead on the audit in 2000, called a meeting with a staff member and another audit manager. They began to tamper with the audit by pulling it out of the archive and altering it to look as if they had called attention to the issues going on with the financials. The main issues with their financials was that NextCard had not accounted for enough in Bad Debt losses. Since the customers that used their services were high credit risk, they were required to write off several millions in bad debt losses. Once the investigation focused on the audit, the three auditors were brought to justice, as well as the executives with NextCard. In this paper, I will discuss the PCAOB and the AICPA code of conduct and how it applies to this case, as well as explore the intentions of the auditors. We will explore the auditors point of view and look at the implications of their actions.
Introduction
As auditors, there is
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