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The Definition of an Asset

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Presentation on theme: "The Definition of an Asset"— Presentation transcript:

1 The Definition of an Asset
Case 1.11 WorldCom: The Definition of an Asset

2 WorldCom Case Relevant Technical Knowledge
Definition of an Asset According to GAAP, an asset must provide an organization with a right to enjoy future benefits (e.g., by providing future cash flows for the organization). The organization must have control of this future benefit and the transaction that allowed this future benefit to exist for the organization must have occurred for an asset to exist.

3 WorldCom Case Relevant Technical Knowledge
PCAOB AS No. 5 – Paragraph A5 “Internal controls provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.”

4 WorldCom Case Relevant Technical Knowledge
PCAOB AS No Paragraphs 5 & 6 Sufficiency “is the measure of the quantity of evidence” needed. The quantity of evidence needed will depend upon the risk of material misstatement and the quality of evidence obtained. Indeed, the appropriateness of the evidence obtained relates to its appropriateness. Specifically, is the evidence that has been obtained both relevant and reliable “in providing support for the conclusions on which the auditor's opinion is based.”

5 WorldCom Case Relevant Technical Knowledge
PCAOB ET #102 - Paragraph #1 “in the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.”

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: The Matching Principle Waste Management: The Definition of an Asset WorldCom: The Matching Principle

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

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