Reference no: EM133253482

Abstract

Driven by advancing their career opportunity in a large aerospace company, Mathew Neumann and Nicholas Tides joined the 10-member audit team monitoring Boeing's information technology (IT) in the year 2007. The main mission for Neumann and Tides was to assist the managers to comply with the internal control mandates for public companies included in the Sarbanes-Oxley (SOX) Act of 2002. Boeing contracted with auditing the firm named PricewaterCoopers (PwC) to provide a further workforce needed for Neumann and Tides' audit team mission. As mandated by SOX, the Deloitte firm was appointed to prepare the financial reports for Boeing independently.

Deloitte's report concluded one or more "material weaknesses" for the year 2006, which raised a concern for Boeing's managers, and caused tension to soar over Neumann and Tides' team. By 2007, Neumann and Tide decided that there were major problems in Boeing's IT financial reporting controls. These problems included two major violations of SOX Mandates. The first violation was by giving PwC managerial authority over Boeing employees. The second violation according to SOX mandates was undermining the annual SOX-mandated assessment of the company's financial reporting. Despite these major concerns, both Boeing's management and Deloitte rated the company's internal control over financial reporting for the fiscal years 2006 and 2007 as effective and with no indication or material weaknesses.

Neumann and Tide took their findings to the press, eventually resulting in their jobs' termination. Regardless of numerous lawsuits and appeals, the courts failed to protect Neuman and Tide and did not get their jobs and reputation back under the protection of SOX ACT (Knapp, 2021).

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?

2. Explain the difference between a "significant deficiency" and "material weakness" in internal control. Provide an example of each.

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?

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?

5. 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.