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178. Andersen violated GAAS General Standard No. 2, which requires the
auditor to maintain an independence in mental attitude in all matters relating to the
audit.
179. Andersen violated GAAS General Standard No. 3, which requires the
auditor to exercise due professional care in the performance of the audits and the
preparation of the audit reports.
180. Andersen violated AU section 722, which requires the auditor to
ensure that the Audit Committee of the Board of Directors is aware of, and
responds appropriately to, any irregularities that the auditor discovers as part of a
review of the interim financial information to be filed with a regulatory agency,
such as the SEC. Andersen knew, among other red flags, that WorldCom had
changed its accounting procedures for Line Costs, that the company had no
documentation for the change and that capitalizing of Line Costs was contrary to
GAAP, but failed to so advise the Audit Committee.
181. Andersen violated GAAS Reporting Standard No. 1 which requires
the audits reports to state whether the financial statements are presented in
accordance with GAAP. Andersen represented in its unqualified audit opinions
that WorldCom’s financial statements complied with GAAP when in fact it knew
that these representations were false.
182. Although it knew that WorldCom was a maximum audit risk and that
there were numerous red flags, Andersen violated GAAS Field Standard No. 1,
and the standards set forth in AU sections 310, 320, 327, and others, by failing to
adequately plan its audits, including failing to adequately plan for auditing
whether WorldCom had properly accounted for revenues and expenses of the
merged companies, and failing to properly supervise the work of assistants so as to
establish and carry out procedures reasonably designed to search for and detect the
existence of errors and irregularities which would have a material effect upon the
financial statements.
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COMPLAINT