Respond 1:

The code of professional conduct provides both general standards and specified enforceable rules of conduct of CPA’s and Non-CPA Accountants. There are four parts to the code of professional conduct of CPA’s; principals, rules of conduct, interpretation of rules of conduct, and ethical rulings. Both CPA and Non-CPA accountants are also obligated to comply with certain fundamental principles such as integrity, objectivity etc. There are major ethical issues that arise from the mergers of public accounting firms with Non-CPA firms. The ethical issues arise because CPA firms have higher obligations to discharge their duties.

Respond 2:

 

The WorldCom scandal of 2002, when a publicly traded telecommunications company inflated assets by as much as $11 billion. Andersen and WorldCom developed a close, long-term business relationship. Andersen served as WorldCom’s independent auditor from at least 1990 through April 2002 and had a professional relationship with the Company for more than twenty years.

I believe the Public Company Accounting Oversight Board (PCAOB) should levy sanctions against the CPA firm (Arthur Andersen LLP) for issuing the unqualified report due to the fact auditors are supposed to provide a disinterested and objective view of the financial statements and internal control of a company. Section 404(b) of the Sarbanes-Oxley Act requires the auditor of a public company to report on the effectiveness of internal control over financial reporting. Andersen knowing it was receiving less than full cooperation, failed to bring this to the attention of WorldCom’s Audit Committee. Andersen limited its testing of account balances in favor of relying on the adequacy of WorldCom’s control environment, but did not adequately test that control environment. Andersen overlooked serious deficiencies in documentation and controls that were in fact exploited in WorldCom’s fraud. This negligence allowed Andersen to miss several opportunities that might have led to the discovery of the capitalization of line costs, management’s misuse of accruals, and the improper recognition of revenue items. By ignoring such behaviors, Andersen did not follow the PCAOB Auditing standard 5, requiring the audit of internal control to be integrated with the audit of the financial statements. Andersen should have included the unmodified opinion audit report with emphasis-of-matter paragraph or nonstandard report wording with his financial statements. Under the AICPA and PCAOB audit standards Substantial doubt about going concerns are important causes for the addition of an emphasis-of-matter paragraph or modification in the wording of the standard unmodified opinion audit report. Many of the non-audit services that Andersen had provided WorldCom are now restricted or prohibited by Section 21(a) of the Sarbanes-Oxley Act and the SEC’s rule enhancing auditor independence.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *