Case 2.3

WorldCom:Professional Responsibility

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WorldCom CaseRelevant 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.”

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WorldCom CaseRelevant 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.”

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WorldCom CaseRelevant 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.

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WorldCom CaseRelevant 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

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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

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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

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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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