Obtain the following PCAOB enforcement release.

https://pcaobus.org/Enforcement/Decisions/Documents/105-2016-031-Deloitte-Brazil.pdf

Also, review the clients website relating to this case (Gol Intelligent Airlines) so that you are familiar with its general business model, operations, and financial condition: https://www.voegol.com.br/en/gol/about-gol

Finally, read a summary of the case and associated personnel below.

Fact Sheet Deloitte Brazil Enforcement Orders

The PCAOB announced a settlement with Brazil-based Deloitte Touche Tohmatsu Auditores Independentes that included the largest civil penalty ever imposed by the PCAOB.

Details of the case

The charges stem largely from Deloitte Brazils audit of the 2010 financial statements and internal control over financial reporting of its client - a Brazilian airline (the Issuer).

During the 2010 audit, Deloitte Brazil violated securities laws and PCAOB standards by:

Improperly acquiescing to the Issuers accounting of its maintenance deposit assets

Failing to obtain sufficient evidence of the Issuers reported advance ticket sales and passenger revenue

Issuing materially false and unqualified audit reports on the Issuers 2010 financial statements and ICFR, in violation of Exchange Act Section 10(b), Exchange Act Rule 10b-5, and PCAOB standards.

On May 10, 2011, the Issuer announced an adjustment to revenue as a result of its advance ticket sales accounting issues.

After the 2010 audit was completed, Deloitte Brazil violated PCAOB rules and standards by:

Improperly altering work papers in advance of a 2012 PCAOB inspection which included the 2010 audit and providing those papers to inspectors

Failing to cooperate with a subsequent PCAOB investigation by providing the altered work papers, and other misleading information, to PCAOB enforcement staff

Deloitte Brazil admitted to noncooperation with a PCAOB inspection and investigation. The PCAOB found that, in light of the violations listed above, Deloitte Brazil violated PCAOB quality control standards in numerous ways.

Deloitte Brazil admitted that it failed to maintain a quality control system that provided reasonable assurance that its personnel would act with integrity.

Sanctions imposed on Deloitte Brazil

The firm has agreed to the following sanctions:

An $8 million civil penalty, the largest ever imposed by the PCAOB

Censure

Significant changes to the firms system of quality control

Appointment of an independent monitor to review and assess the firms progress toward achieving remedial benchmarks

Immediate practice limitations, including a prohibition on accepting certain new audit work until the monitor confirms the firms progress in achieving its remedial benchmarks

Additional professional education and training for the firms audit staff

Individuals named in separate orders

The following individuals also were sanctioned. None is currently associated with Deloitte Brazil. Their roles at the firm and sanctions are listed below.

Jos Domingos do Prado, 2010 audit engagement partner, firm audit practice leader Censure and permanent bar on associating with a PCAOB-registered accounting firm

Maurcio Pires de Andrade Resende, firm risk and reputation leader, ethics partner, and policy committee member Censure and bar on associating with a PCAOB-registered accounting firm for five years (sanctions reduced for cooperation)

Wanderley Olivetti, firm national professional practice director Censure and bar on associating with a PCAOB-registered accounting firm for five years (sanctions reduced for cooperation)

Andr Ricardo Aguillar Paulon, 2010 audit senior manager, partner Censure and restriction on serving as an engagement partner or engagement quality reviewer for one year (sanctions reduced for cooperation)

James Roderick Talbot Oram, 2010 audit engagement quality reviewer Censure and suspension from associating with a PCAOB-registered accounting firm for one year

Joao Rafael Belo de Araujo Filho, senior manager, partner Censure, $10,000 civil penalty, and bar on associating with a PCAOB-registered accounting firm for one year

Leonardo Fonseca de Freitas Maia, senior manager, partner Censure, $10,000 civil penalty, and bar on associating with a PCAOB-registered accounting firm for one year

Jos Fernando Alves, audit partner for IT Censure, $20,000 civil penalty, and bar on associating with a PCAOB-registered accounting firm for one year

Renata Coelho de Sousa Castelli, audit manager for IT Censure and bar on associating with a PCAOB-registered accounting firm for three years

Marco Aurelio Paulino Neves, partner Censure, $20,000 civil penalty, and bar on associating with a PCAOB-registered accounting firm for three years

Simone Pacheco Lemos do Amaral, senior manager Censure and bar on associating with a PCAOB-registered accounting firm for one year

Walter Vinicius Barreto Brito Silva, manager Censure and bar on associating with a PCAOB-registered accounting firm for one year

Michael John Morrell, Chairman of Deloitte Brazils policy committee, governing body of Deloitte entities in Brazil Censure, $35,000 civil penalty, and bar on associating with a PCAOB-registered accounting firm for five years

Juarez Lopes de Arajo, CEO and managing partner of Deloitte Brazil Censure and permanent bar on associating with a PCAOB-registered accounting firm

Briefly describe in your own words the nature of the underlying potential misstatements and associated weaknesses in internal control at Gol. For each, articulate how the auditors failed in their duties.

What role did the audit engagement partner, Jose Domingos do Prado (hereafter, Prado) play in leading the Gol engagement and what role did he have in terms of interacting with the inspection team?

Describe the PCAOB rules and standards that the auditors had violated.

Locate AS 3 (using the new numbering convention, this is now AS 1215) on the PCAOBs website. Identify the paragraphs that are most relevant to the judgment errors that Prado made with respect to documentation requirements.

Go to the following website to learn about what stock analysts are saying about Gol: http://www.nasdaq.com/symbol/gol/analyst-research

Why might the client, Gol, have resisted making the proposed audit adjustment?

What is the current analyst consensus earnings for Gol today?

What does the term analyst consensus forecast mean?

What is a negative earnings surprise?

Use online resources to determine the stock market reaction to the PCAOB enforcement filings on December 5, 2016.

The Gol audit was conducted in Brazil, a country very different from the one in which the regulator (the PCAOB) resides.

Use online resources to locate tips for conducting business in Brazil. Also, investigate how culture may play a role in understanding the behavior of Prado.

Locate Sao Paulo, Brazil on a map. Next, research Brazils corruption index and interpret it by comparing it to the United States corruption index. Consider the implications of these differences.

Define the term corruption. Comment on how it relates to this case.

Ultimately, one of the managers on the engagement (Andr Ricardo Aguillar Paulon), who was involved in the audit-related misconduct and the improper document alteration became a whistleblower, secretly recording a senior partner (Mauricio Pires de Andrade Resende) on a cellphone as evidence. Using this evidence, he sought credit for and was granted consideration for extraordinary cooperation with the PCAOB, unlike many other members of the team who were involved in the cover-up.

What is a whistleblower? What risks do they face? Do you think that the cost/benefit to the whistleblower in the Deloitte case was worth taking that risk?

Why should audit firms set up internal whistleblower hotlines?

Locate Deloittes whistleblower hotline and provide the link to it. What are your impressions of the information contained on the website?

Review the PCAOBs policy on cooperation at the following website:

https://pcaobus.org/News/Releases/Pages/04242013_PolicyStatement.aspx

Identify what actions the PCAOB considers to be extraordinary cooperation and how the PCAOB will give credit reflecting such cooperation. Do you think the whistleblower would have come forward without such incentive?

How might you garner the courage to be a whistleblower? Under what conditions would you find that whistleblowing was to your benefit (including the protections that the PCAOB provides for cooperation), despite the risks that it may pose to you?

Finally, it is important to know that Paulon, along with two others involved in the cover-up, were promoted to audit partner during or shortly after the activities outlined in the enforcement actions took place. Reflect in your team about the implications evident in Deloittes corporate culture with respect to these promotions.