Developing Student Abilities to Assess the Control Environment: A Case Study

• In Event: Teaching Resources for Financial and Audit

Abstract

This case provides students with the opportunity to assess the control environment of a company during the time period in which an actual fraud occurred by completing and using a Control Environment audit program as a tool for identifying indicators of the fraud. The case addresses the COSO report’s seven factors of an effective control environment, which were used to develop the audit program. Students will learn about HealthSouth, the fraud that occurred there, key elements of the Sarbanes-Oxley Act and the 2013 COSO report, and how to assess the control environment of a company using methods that have been implemented since the passage of SOX Section 404. A key purpose of this case study is to ensure that students understand that auditors need to ask the right questions when assessing the control environment, as required by SOX Section 404. This case is suitable for upper-level accounting and /or graduate students in fraud examination or auditing classes, as well as a training tool for practitioners.
Keywords: HealthSouth, fraud, internal controls, control environment, Sarbanes-Oxley, COSO

Authors

• James D Byrd, University of Alabama-Birmingham

• Arline Savage, University of Alabama-Birmingham

• John C Gardner, University of New Orleans

• Amanda Reidy, UAB