1. Case 4.3 The Baptist Foundation of Arizona: The Whistleblower Hotline Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. BFA Case Relevant Technical Knowledge PCAOB AS No. 12 – Paragraph #24  “obtaining an understanding of the control environment includes assessing: 1) Whether management's philosophy and operating style promote effective internal control over financial reporting; 2) Whether sound integrity and ethical values, particularly of top management, are developed and understood; and 3) Whether the Board or audit committee understands and exercises oversight responsibility over financial reporting and internal control.” 2

3. BFA Case Relevant Technical Knowledge SARBOX Section 301  requires that the “audit committee of an issuer shall be directly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firm employed by that issuer.” 3

4. BFA Case Relevant Technical Knowledge PCAOB AS No. 12 – Paragraph #56  According to this paragraph, the auditor should make inquiries of both the management team and the audit committee about whether either group had received tips or complaints regarding the company's financial reporting through the whistleblower program. 4

5. BFA Case Relevant Technical Knowledge PCAOB AS No. 10 – Paragraph #5  The engagement partner should “direct engagement team members to bring significant accounting and auditing issues arising during the audit to the attention of the engagement partner or other engagement team members performing supervisory activities so they can evaluate those issues and determine that appropriate actions are taken.” 5

6. BFA Case Relevant Technical Knowledge SARBOX Section 401  Section 401 of SOX requires that each set of financial statements (and related disclosures),in accordance with U.S. GAAP, shall disclose all material “off- balance sheet transactions” and “other relationships” with “unconsolidated entities” that may have a “material current or future effect on the financial condition of the issuer.” 6

7. 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: Waste Management: Top-Side Adjusting Journal Entries WorldCom: The Internal Audit Function Enron: The Control Environment 7

8. Epilogue - BFA  BFA filed for Chapter 11 bankruptcy protection  BFA filed suit against Arthur Andersen for negligence, causing the accounting firm’s bankruptcy 8

9. Epilogue - BFA  Arthur Anderson paid $217 million to settle investor lawsuits  Former president William Pierre Crotts and chief legal counsel Thomas Grabinski convicted of three counts of fraud 9