Professional Responsibility

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Presentation transcript:

Professional Responsibility Case 2.3 WorldCom: Professional Responsibility Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

WorldCom Case Relevant Technical Knowledge PCAOB Ethics and Independence Rule 3520 “a registered public accounting firm and its associated persons must be independent of the firm's audit client throughout the audit and professional engagement period.”

WorldCom Case Relevant Technical Knowledge PCAOB AS #13 - Paragraph #7 “auditor's responses to the assessed risks of material misstatement, particularly fraud risks, should involve the application of professional skepticism in gathering and evaluating audit evidence.”

WorldCom Case Relevant Technical Knowledge PCAOB AS #15 - Paragraph #13 There are two primary ways of conducting substantive tests: 1) substantive analytical review and 2) test of details.

WorldCom Case Relevant Technical Knowledge PCAOB AS #5 – Paragraph #14 the auditor should evaluate whether the company's controls sufficiently address identified risks of material misstatement due to fraud and controls intended to address the risk of management override PCAOB AS #5 – Paragraph #A8 controls over financial reporting may be preventive controls or detective controls

Psychology Literature - How to Best Acquire Knowledge Feature Repeated Case Experiences with Feedback; and Teach Technical Concepts within Real-Life Contexts Consider the following additional cases: Enron: Independence The Fund of Funds: Independence Sunbeam: Due Care Waste Management: Due Care

Epilogue - WorldCom CEO Bernard Ebbers sentenced to 25 years in prison CFO Scott Sullivan pardoned from paying $13 million settlement due to having no significant assets remaining after selling $11 million mansion and surrendering his IRA

Epilogue - WorldCom SEC set up a $150 million fund to compensate investor losses WorldCom emerged from bankruptcy as MCI, which was later bought by Verizon Communications

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