Case Questions

$1-$ Consider the principles, assumptions, and constraints of Generally Accepted Accounting principles $($GAAP$).$ Define the revenue recognition principle and explain why it is important to users of financial statements.

$2-$ Provide one specific example of how WorldCom violated the revenue recognition principle in this situation.

$3-$ Consult paragraphs $0607$ of Au Section $319.$ Do you believe that WorldCom had established an effective system of internal control over financial reporting related to the revenue recorded in its financial statements?

$4-$ Consult paragraph $25$ of PCAOB Auditing standard No$.5$ and $/$ or AU section $319\mathrm{.}34.$ Define what is meant by control environment. Next explain why the control environment is so important to effective internal control over financial reporting at an audit client like WorldCom.

$5-$ Explain what is meant by a top $$ side adjusting journal entry. If you were auditing WorldCom, what type of documentary evidence would you require to evaluate the validity and propriety of a top $$ side journal entry made to the revenue account?

$6-$ Consider the roles of Ron Lomenzo and Lisa Taranto, assuming that these employees knew that the entries being proposed by Scott Sullivan were fraudulent, do you believe that Lomenzo and Taranto should have recorded the journal entries as directed by Sullivan? Why or why not? $$