Beyond spotting misconduct: the Mattel case as a workpaper task

An auditing class reaches a clear verdict: the auditor should not have acted that way. Then you ask students to write a workpaper explaining the evidence, the relevant requirement and what should happen next. Would their reasoning be as convincing on paper as it sounded in discussion?

That is the teaching opportunity in Toying with the Numbers: Unpacking the Mattel Auditing Scandal, by Mahendra R. Gujarathi, Caitlin M. Landy and Shankar Venkataraman, published in Issues in Accounting Education. Its most useful classroom feature is not simply the account of misconduct. It is a structured task requiring students to connect an identified adjustment with materiality, internal controls, communication and further work.

The full paper provides six case requirements, a workpaper template and implementation guidance. It also reports favourable student feedback from four accounting-course implementations at two institutions. This is direct accounting-education evidence, although the evaluation principally measures students’ perceptions rather than improvement in independent audit competence.

This article draws on the supplied full paper and exhibit. Underlying regulatory records, company filings, audit files and cited studies were not independently reviewed.

Correction is not the end of the task

The central documentation exercise concerns a $129 million error in Mattel’s valuation allowance calculation. According to the case, PwC identified the error during its Q3 2017 interim review, and Mattel corrected it before filing the quarterly financial statements. The team did not document the error or the associated control deficiency in the interim review workpapers.

Requirement 2 asks students to go back and prepare that documentation as members of the engagement team. They must complete the supplied template using case facts and support their conclusions under PCAOB AS 1215, Audit Documentation. The task specifies that an experienced auditor with no previous connection to the engagement, or a PCAOB inspector, should be able to understand the work and conclusions from the workpapers alone.

That creates a more demanding question than “Was the error corrected?” The template asks how it arose, whether the problem concerned control design or operation, whether other controls might have detected it, and how large a related potential misstatement could be. Students must then justify their assessment of control-deficiency severity, consider communication with those charged with governance and document follow-up for the year-end audits.

For teaching, the value is the connection between these decisions. A student might correctly identify the adjustment yet offer little support for a control conclusion. Another might recommend “more testing” without explaining what the testing would investigate. The workpaper gives a lecturer a way to examine those gaps.

A useful proposed question for the debrief (the discussion after completing the task) is: “What remains unresolved after management records the adjustment?” Students could distinguish the known error from the possible scale of related errors, then explain how their proposed procedures address that uncertainty. Root-cause analysis, investigating why an error occurred rather than merely describing it, should similarly rest on evidence. Where the facts do not establish a cause, students could identify the information they would need instead of inventing an explanation.

The case also requires careful separation of events. Requirement 2 concerns the corrected $129 million adjustment. Requirement 3 concerns a separate $109 million error discovered later and explicitly excludes violations relating to the earlier adjustment. Keeping those tasks distinct matters: identifying an error, correcting it, documenting the response and deciding what further action is needed are different decisions.

Students valued it, but what did they learn?

The classroom evaluation covered one graduate and three undergraduate implementations, with reported samples ranging from 25 to 40. Two were taught by case authors and two by other instructors. All used the six requirements, although the final implementation used a revised version.

Survey respondents rated the case favourably. On a five-point scale where 1 meant strongly agree and 5 strongly disagree, mean ratings for a useful learning experience ranged from 1.38 to 1.73. Ratings for the statement about recognising the importance of documenting adjustments ranged from 1.32 to 1.77. Selected comments valued the workpaper’s connection to internship tasks and the requirement to explain an appropriate response, not just identify what went wrong.

These findings support perceived usefulness and professional relevance. Enrolment totals and survey response rates were not reported, so it is unclear how fully the responses represent the participating classes. Without a baseline, comparison group or independent later task, they do not establish that the case improved documentation skills or audit judgement. The reported assignment averages, about 85, also cannot show what each student could subsequently do without support.

Professional review adds a different kind of assurance: two practising auditors reviewed the template and confirmed its comprehensiveness and usefulness as a reference tool. That review concerns the resource, not its educational effectiveness.

Plan for a substantial assignment

This is not presented as a quick scandal discussion. The authors recommend written work followed by class discussion, allowing one to two weeks for completion, a five-to-ten-minute introduction and a 30-to-45-minute debrief. These are practical recommendations, not tested optimum timings.

Students should already be familiar with audit procedures, standards and auditor responsibilities. The authors suggest using the case towards the end of an auditing course. A deferred-tax primer is included, but its temporary-difference examples need correction and its valuation-allowance illustration needs additional assumptions. Review and amend it against the applicable authoritative requirements before distributing it to students.

Reported completion times offer a planning reference: about 6.4 hours for graduate individual work and about 4.5 hours per undergraduate student in the revised paired implementation. Differences in cohorts, formats and case versions prevent a clean comparison of efficiency. These figures also say nothing about lecturer preparation or marking time.

Before assigning the case, check access to instructor resources. The paper references Teaching Notes and a supplemental slide deck, neither reviewed for this article. The paper states that Teaching Notes are unavailable while the article is online but not yet assigned to a journal issue. They become available when the issue is published, subject to subscription restrictions.

The US reporting and PCAOB standards context also needs checking against your course’s jurisdiction. If using the regulatory-response requirement, verify the status of the proceedings against engagement partner Joshua Abrahams: the narrative reports dismissal, while the question refers to a sanction.

A documentation-only first use could offer a manageable adaptation, but it would differ from the full six-requirement implementations evaluated. Whatever scope you choose, consider assessing evidential support, standards application and follow-up reasoning separately rather than rewarding completion alone.

A later individual task with different facts could then investigate whether students can make those connections without the original template. The useful classroom question becomes not simply “What went wrong?”, but “What can you document, justify and propose next?”