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Pages:
4 pages/≈1100 words
Sources:
7 Sources
Level:
APA
Subject:
Accounting, Finance, SPSS
Type:
Case Study
Language:
English (U.S.)
Document:
MS Word
Date:
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Briefly summarize the WorldCom scandal (Case Study Sample)

Instructions:
WorldCom Briefly summarize the WorldCom scandal Did the capitalized assets recorded on WorldCom's books "faithfully represent what they claimed to represent"? Were they really assets? Describe the substantive audit procedure that an auditor could use to determine whether financial statements are misstated by capitalizing expenses. Identify analytical procedures that could have helped the auditor identify the risk of fraud at WorldCom What's the role of the auditor (Arthur Andersen) in this scandal? source..
Content:

WorldCom
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Scandals in the cooperate sector have taken place from time to time some of which are discovered as soon as they start whereas others take time before they come to light. These fraudulent activities have negative effects in the product market like reduction in value of share. (Johns 2010)
The telecommunication fraud is a major scandal that will always be talked about for a long time. The following is a case study on the fraudulent activities behind the doors of WorldCom, the second largest telecommunication firm in the USA. Questions on why, how, where and who was involved in this scandal always cross the minds of business and common people at large. The top management of WorldCom initiated and fuelled the scandal. It was headed by Bernard Ebbers, the CEO, Scott Sullivan , the Chief Financial Officer, and David Myers, the Comptroller.
After the economic boom, WorldCom was affected by the economic meltdown across the globe and could not generate the sales they had projected. Customer demand declined hence WorldCom could not sell its surplus telecom products. They had to pay a third party distributors for long distance telecom lines that were not utilized properly as they should be. Furthermore, the high cost of line capacity plus the declining customer demand decreased the net revenue. (Jeter 2003). Pressure had also mounted for them to generate more revenue and increase profit levels. This was what was perceived to have led to the scandal.
There was a lot of inconsistency in WorldCom`s books of accounts. The accountants did not expense the cost of the balance sheet but rather capitalized it. This was a tremendous mistake as it led to the falsifying of line costs. It therefore, leads to the notion that expenditure was low and hence incorrect valuation of their assets. The fraud was also accomplished through inflating revenues with falsified accounting entries. These were unallocated acco...
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