Case 3.3– Worldcom – Significant Business Acquisitions

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Case #3.3 – WorldCom – Significant Business Acquisitions I. Technical Audit Guidance To maximize the knowledge acquired by students, this book has been designed to be read in conjunction with the post-Sarbanes-Oxley technical audit guidance. All of the post-Sarbanes-Oxley technical guidance is available for free at http://www.pcaobus.org/Standards/index.aspx. In addition, a summary of the Sarbanes-Oxley Act of 2002 is also available for free at http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm. II. Recommended Technical Knowledge PCAOB Auditing Standard No. 5 Paragraph #9 Paragraph #11 Paragraph #33 Paragraph #46 Paragraph #B10 (in Appendix B) III. Classroom Hints This case provides students with an opportunity to apply their technical knowledge about inherent risk and fraud risk to WorldCom’s changing business model during the late 1990's and into 2000. By providing details about WorldCom’s business model during this time, students are able to see the relationship between an audit client's business strategy and inherent risk assessment. In addition, this case provides students with an opportunity to see an example of how the assessment of fraud risk can change as a result of changes to an audit client's business strategy. To meet these objectives, this case illuminates a number of relevant issues about WorldCom’s development as a leading company in the telecommunications industry. In particular, the case focuses on the change in industry regulation and the impact that such change had on WorldCom’s business model. Importantly, by showing the impact of the changing industry regulation, the case provides an example of how an external environmental factor can impact a company’s strategy to achieve competitive advantage and ultimately impact an auditor's assessment of inherent and fraud risk. We

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