Discussion Study Case 1 Reply to Boeing Study Case by Chad
Liberty University, School of Business
Mike Jones
February 6, 2022
Introduction
Hello Chad, you provided an excellent undertaking in this assignment for our Advanced
Accounting course. After successfully reading the case study in the course book and evaluating
your post you effectively applied your understanding in this case study. Chad summarized and
answered the related questions to Case 3.8: The Boeing Company. I believe that Chad did a good
job of summarizing the case. He presented the major individuals and the facts related to them
and to the company was thorough in his presentation without presenting more information than
was necessary. I did not have to read the case to understand and answer the problems included
after the case. You displayed a thorough apprehension of the theory covered in this case.
Comprehensive cases included in our coursebook provides a vast assortment of key theories
auditors use to evaluate financial statements and processes of businesses.
Questions
1.The COSO internal control framework identifies five internal control components. Which
of those components is most relevant to the procedures that SOX mandates public
companies establish to enable, if not encourage, whistleblowing by corporate employees?
I agree with Chad’s assertion that communication is the most relevant to the procedures that
SOX mandates public companies establish to enable if not encourage whistleblowing my
corporate employees. I also believe that the control environment component of the COSO
internal control framework is extremely relevant as well. “Control activities are the actions
established through policies and procedures that help ensure that management’s directives to
mitigate risks to the achievement of objectives are carried out” (Deloitte, 2022). Enacting,
implementing and encouraging a whistleblowing program would be one example of a control
activity which would contribute to the control environment as a whole, that would help the
organization to ethically achieve its objectives. I also agree with Chad’s identification of the five
internal control components.
2.Explain the difference between a “significant deficiency” and “material weakness” in
internal control. Provide an example of each.
I agree with the definitions and notions that Chad provided for significant deficiency and
material weakness. I found some research that supports Chad’s viewpoint for both theories. As
noted, “A material weakness is defined in SEC rules as a deficiency or combination of
deficiencies that raise a reasonable possibility that a material misstatement will not be prevented
or detected timely.” (Whitehouse, 2016) With regards to significant deficiencies, “auditors also
must identify “significant deficiencies,” which are less severe than “material weaknesses” and do
not result in an adverse opinion. Significant deficiencies are privately communicated to the audit
committee and do not appear in the audit opinion” (2014, DeFond & Zhang).
3.Assume that the PwC contract auditors did, in fact, exert “managerial authority” over
Boeing employees. What internal control problems or issues would that have posed for
Boeing?
I agree with Chad’s assessment that audit independence would be affected by PwC contract
auditors exerting managerial authority over Boeing employees. As noted, “Audit committees
play a vital role in the financial reporting system through their oversight of financial reporting.”
(Shehdan, 2022) is completely spot on. The services provided by PwC contract auditors were
non-audit in nature. Furthermore, the standard for non-audit services is based on two essential
principles] auditors which on being they should not perform management functions. The PwC
contract auditors’ nonconformance with this standard affects the independence of the audit.
“Audit independence is determined by many factors, for example, institutional arrangements; the
social and ethical environment the audit firm/office, the client organization, and auditors face;
competition among auditors; and auditor and auditee characteristics” (2016, Xiao, Yang, Zhang
& Firth). Thus, this institutional arrangement between Boeing and the PwC contract auditors
ultimately negatively affected their audit independence.
4.Would it have been unethical or otherwise inappropriate for Neumann and Tides to have
directly communicated their concerns regarding Boeing’s IT controls to the company’s
Deloitte auditors? Explain. Assuming that Neumann and Tides had done just that, how
should the Deloitte auditors have responded?
I agree with Chad in his assertion, “as part of the internal audit process, and the employees who
have appropriate knowledge of the company, the culture, and the relevant processes their job was
to spot these concerns and communicate them.” (Shehdan, 2022) Furthermore Nuemann and
Tides provided negligence in not discussing the error in controls to the outside accounting
agency. If Neumann and Tides had communicated these concerns to Deloitte these errors could
have been corrected.
5.Why do you believe that SOX does not provide legal remedies for corporate
whistleblowers who are punished by their employers after communicating with members
of the news media?
I agree with Chad’s belief as to why SOX does not provide legal remedies for corporate
whistleblowers who are punished by their employers after communicating with members of the
news media. However, I do believe that Neumann and Tides’ behavior is understandable, though,
not acceptable. Although the whistleblowing provisions of SOX are in place, Neumann, Tides,
and others may continue to believe that they will face retribution from their employers.
Nonetheless, whistleblowers must trust in the provisions of SOX and believe that they will be
protected. Communicating with members of the news media breaks their confidenceand
undermines the purpose of this provision altogether.
6.Was it ethical for Boeing to monitor the computers and email of Neumann and Tides
during the investigation to determine whether one or more employees were
communicating with members of the news media? Defend your answer.
I agree with Chad’s stance on whether it was ethical for Boeing to monitor the computers and
email of Neumann and Tides during the investigation to determine whether one or more
employees were communicating with members of the news media. One of the primary functions
of management is to monitor the behaviors of employees within the organization up to a certain
extent. This helps reduce egal risks, including those resulting from hostile work environment,
sexual harassment, theft of intellectual property, and security threats that may be exacerbated by
the use of electronic communications. I believe Boeing was within its ethical rights to monitor
the computers and email of employees. Furthermore, I believe that they have a moral
responsibility to protect the resources of the organization to which the employees were entrusted
with.
Christian Worldview Statement
Neumann and Tides knew that they needed to report what they found to someone who would
have taken notice. They were having trouble being heard within the organization, and thus, they
knew that they needed to turn to external groups. God calls us to pursue honesty and truth, even
when it is difficult and requires us to venture into the unknown, and I believe that this is what
Neumann and Tides did in this case. One quite verse that helps support this is, “finally, brothers
and sisters, whatever is true, whatever is noble, whatever is right, whatever is pure, whatever is
lovely, whatever is admirable—if anything is excellent or praiseworthy—think about such
things.” (Philippians, 61 AD)
References
Defond, M. L., & Zhang, J. (2014) Research Gate, article titled, “A Review of Archival Audit
Research”
Deloitte, (2022) Article titled “COSO – Control Activities” retrieved from
https://www2.deloitte.com/za/en/nigeria/pages/audit/articles/financial-reporting/coso-control-
activities.html
Philippians 4:18 (61) The Holy Bible retrieved from https://thegrio.com/2014/12/21/worlds-
most-popular-bible-verses-2014/
Shehdan, C. (2022) Liberty University, research paper titled, “Boeing Audit Case”
Whitehouse, T. (2016) An article titled, “Spotting the difference between ‘significant deficiency’
and ‘material weakness’” retrieved from https://www.complianceweek.com/accounting-and
auditing/spotting-the-difference-between-significant-deficiency-and-material-
weakness/3019.article
Xiao, J. Z., Yang, S., Zhang, X., & Firth, M. (2016). Lingnan University, article titled
“Institutional Arrangements and Government Audit Independence in China” retrieved from
https://commons.ln.edu.hk/sw_master/6748/
