WorldCom Accounting Scandal Fraud- Topic Topic above must be researched and discussed. Such as paper discussing how modern audit practices and sound business practices may have prevented or at least...

Running Head: WORLDCOM ACCOUNTING SCANDAL FRAUD ANALYSIS 1
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WORLDCOM ACCOUNTING SCANDAL FRAUD ANALYSIS 2
Introduction
WorldCom was the second-biggest long-distance phone company during late 90’s and
early 2000’s that filed bankruptcy during 2002 due to $11 billion of asset-inflated. There were no
stringent regulators to govern the operations of the company and the external environment. It has
esulted in the formation of Sa
anes-Oxley Act that has enhanced the overall quality of the audit
and the financial statement. In this paper, there are a discussion and the WorldCom accounting
fraud, cu
ent audit practices to mitigate such fraud and cu
ent business practices in mitigating
such fraud.
WorldCom Accounting Fraud
WorldCom was the second-biggest long-distance phone company during late 90’s and
early 2000’s that filed bankruptcy during 2002 due to $11 billion of asset-inflated through the
dodgy accounting (Kottasova, 2015). Between 1999 and 1st quarter of 2002 there was an
identification of profit misappropriation of $3.3 billion at the time of internal audit and $3.8
illion of expenses was improperly reported as capital investment. The revised financial
statement for 2000 will reduce the profit by $3.2 billion for the company (The Guardian, 2002).
The main fraud happened in the appropriation for operating expenses. Operating
expenses should be charged in the year they are incu
ed, and they cannot be spread over the
period unlike the cost of capital that can be spread over a period. WorldCom spread the operating
expenses over the period and inflated the profits that resulted in better market position among the
others (Accounting Degree, n.d.). Arthur Andersen was the external auditor for WorldCom who
was the auditor for Enron and other companies that were penalized due to fraudulent accounting.
WorldCom was involved in creating fraudulent revenues and fake accounting entries to boost the
overall performance of the business.
WORLDCOM ACCOUNTING SCANDAL FRAUD ANALYSIS 3
The company made about $9 billion worth of non-supported accounting entries, and the
CEO Bernie E
ers was the key person behind the fraud. WorldCom was focusing on more
acquisitions, and it ended with MCI communication as due anti-trust CEO has to stop his game
of acquisition (Stefano, 2005). Acquisitions were comfortably used as the mode for spreading the
operating expenses as capital expenses over the period. The inclination of growing personal
wealth by E
ers has resulted in not disclosing the actual financial condition of the company.
Lack of transparency in the disclosure and the accounting policies has created more trouble for
the company.
Cu
ent Audit Practices to Mitigate Such Fraud
Audit practices that were undertaken by Arthur Andersen were insufficient, and they
never provided any signal about the accounting fraud that was taking place in the company to the
investors and to the Securities Exchange Commission (SEC) which is their primary duty. The
Sa
anes-Oxley Act of 2002 which established various rules that govern the roles and
esponsibilities of a public auditor (Mcconnell & Banks, 2003). The SOX 2002 focuses on
strengthening the audit committees and the corporate governance of the company.
Before the establishment of these rules, there were no restrictions on the services that
were rendered by the auditors to the company for which they conduct an external audit. The
independent auditors should not provide any non-audit services to the audited companies. Public
Company Accounting Oversight Board (PCAOB) is set by the SOX-2002 (Sox Resource, n.d.)
and they will have the responsibilities to set the standards that will govern as how the external
auditors have to conduct the audit of the company. They have the responsibilities in setting the
ethics and in protecting the independence of the auditors.
WORLDCOM ACCOUNTING SCANDAL FRAUD ANALYSIS 4
PCAOB are active in conducting a various audit to check whether the independent
auditors are discharging their duties as per the requirement and monitors for any violation in
their practices on a regular basis (EY, n.d.). SOX demand the audit committee to have a financial
expert for making them discharge their duty in an efficient manner. The external auditors have
the responsibilities to communicate to the audit committee about the discussion of all the critical
accounting policies and practices that were...