Title

Internal Control Violations at Thor Industries: What are the Lessons?

Document Type

Article

Publication Date

2020

Keywords

Internal control; ethics; SEC oversight; materiality; control weaknesses

Disciplines

Accounting

Abstract

This article describes the implementation of an “Internal Control Violation/Fraud Case Study” in two auditing classes and an undergraduate business law class. The authors developed an instructional case based on the major (repeated) internal control violations and financial fraud at Thor Industries. This case study exposes students to several auditing and ethics related concepts including: 1) internal control violations; 2) fraud red flags; 3) internal control evaluation (AS 5); 4) design of new controls (COSO 2013); 5) ethical reasoning and utilitarian, justice, and rights principles; 6) SEC investigations and complaints (SEC 2011a); 7) analysis of AAERs (SEC 2011c); and 8) professional skepticism. Different questions were posed in different classes. Students were required to access professional literature (not just the textbook) including Accounting and Auditing Enforcement Releases, SEC complaints in the U.S. District Court in Washington DC, and auditing standards. Student groups found several red flags associated with the fraud perpetrated at Thor Industries and suggested many new internal controls. They also answered questions on ethical issues/theories, materiality determinations, professional skepticism, SEC investigations, risk assessment, governance issues, and regulatory issues. Student opinion surveys also were conducted about the learning outcomes of this decision, and the survey results indicate strong student engagement, group learning, and knowledge enhancement.

Publication Title

Journal of Forensic and Investigative Accounting

Volume

12

Issue

1

First Page

138

Last Page

146

ISSN

2165-3755

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