2 WorldCom Case Relevant Technical Knowledge PCAOB AS #5 – Paragraph #A5 An internal control system is “a process designed by, or under the supervision of, the company's principal executive and principal financial officers..., to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.”
3 WorldCom 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.”
4 WorldCom Case Relevant Technical Knowledge AU Section 322 – Paragraph #7 makes clear that there can be relevant activities completed by internal auditors in their work related to the internal control system. AU Section 322 – Paragraph #8 makes clear that the external auditor may find the work of internal auditors to be beneficial on the audit.
5 WorldCom Case Relevant Technical Knowledge PCAOB AS #5 – Paragraph #18 “the auditor should assess the competence and objectivity of the persons whose work the auditor plans to use to determine the extent to which the auditor may use their work. The higher the degree of competence and objectivity, the greater use the auditor may make of the work.”
6 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 The Baptist Foundation of Arizona: The Whistleblower Hotline Enron: The Control Environment
7 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
8 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