Accounting Fraud at Worldcom 3 - 3346 Words

Accounting Fraud at WorldCom 1) What are the pressures that lead executives and managers to â€Å"cook the books?† After the rapid evolution of the telecommunication industry in the 1990s, WorldCom shifted its strategy to focus on building revenues and acquiring capacity sufficient to handle expected growth. Their biggest goal was to be the No. 1 stock on Wall Street rather than capturing the market share. As a result, their Expense-to-Revenue (E/R) Ratio was their measurement for their main objective (increase revenues and become the No. 1 stock on Wall Street). Due to heightened competition, overcapacity and the reduced demand for telecommunication services at the onset of the economic recession and the aftermath of the dot-com bubble†¦show more content†¦Thus, Cooper had the incentive to go along with accounting fraud to continue making a large salary and to not ruin personal relationships. Arthur Anderson, the outside auditor, also had many incentives that prevented the auditing company from reporting WorldCom’s suspicious actions. Anderson considered WorldCom its most â€Å"highly coveted† and â€Å"flagship† client, and wanted to maintain a long term relationship with WorldCom. With these goals in mind, Anderson ignored WorldCom’s many denials for pertinent financial information and meetings and continued to audit WorldCom at a â€Å"moderate-risk† level, instead of a â€Å"maximum risk† level which Anderson’s risk management software program rated WorldCom as. Finally, the board of directors had too little connection with WorldCom to even realize fraudulent practices were occurring. Over 50% of the Board of Directors were nonexecutive members of WorldCom, and had little contact with any WorldCom managers besides board meetings, which occurred four to six times a year. Thus, the board members were fooled by the fraudulent packets of information about WorldCom’s financial health that Ebbers prepared before each board meeting. 3.2) What processes or systems should be in place to prevent or detect quickly the types of actions that occurred in WorldCom? Several systems should have been in place to bothShow MoreRelatedAccounting Scandal of Worldcom940 Words   |  4 PagesMANAGERIAL ACCOUNTING WORLDCOM How did it cook the books? Nguyen Bao Khanh Student ID: FB60162 Class: FB0662 May 19th, 2012 APENDIX 1. WorldCom’s accounting scandal 2. How did WORLDCOM cook its books? 3. Conclusion WORLDCOM headquarter in Virginia, USA. WORLDCOM’S ACCOUNTING SCANDAL WorldCom, established in 1983, whose CEO was Bernard Ebbers, was the second largest long distance phone company in the US after ATT. It could be seen as a pride of America until it got into oneRead MoreAssignment # 3 Worldcom Accounting Scandal1486 Words   |  6 PagesAssignment # 3 WorldCom Accounting Fraud By Mark A. Cowan Strayer University ACC 499- Accounting Capstone May 15, 2011 The purpose of this paper is to discuss the aspects of the WorldCom accounting scandal and the effects that this scandal had on the accounting world as we know it. We will discuss the corporate culture at WorldCom and how it contributed to the accounting fraud, how the CEO’s desire to be the #1 stock on Wall Street contributed to the fraud, pressures on accountants to bookRead MoreRelationship Between Andersen And Worldcom Essay1005 Words   |  5 PagesRelationship between Andersen and WorldCom Andersen was WorldCom’s external auditor from 1990 to 2002. They has shared a good relationship since the time Andersen was found. After MCI had been acquired by WorldCom, Andersen got the position to audit MCI at the cost that WorldCom offered Andersen less amount of auditing service fee than other accounting firms. (ACC guest speaker series presents David Myers.(2009).[Video/DVD] Baylor University). But according to the size of WorldCom, such amount of money couldRead MoreLost insurance benefits as well as retirement benefits tied to WorldCom stock. Shareholders, which1200 Words   |  5 Pagesas well as retirement benefits tied to WorldCom stock. Shareholders, which included many pension funds, lost billions of dollars. The California public-employee’s retirement system, the largest state pension fund in the country, sued in an attempt to regain some of the $580 million it lost in the WorldCom debacle (Ripley 6). The telecommunications industry suffered as well. Industry companies were competing against WorldCom under false pretenses. WorldCom was fraudulently stating its financialsRead MoreWorldCom Notes Essay1015 Words   |  5 Pages[1] What business was WorldCom in? WorldCom was in the business of telecommunications. Where was WorldCom located? WorldCom was located in Clinton, Mississippi. Who was the CEO? The CEO was Bernie Ebbers. Who was the CFO? The CFO was Scott Sullivan. What are the names of the two members of the internal audit staff who worked with Cynthia on their secret investigation? Gene Morse and Glyn Smith What made the internal auditors think that possibly there was a need to investigate WorldCom’sRead MoreThe Ethics Case Study Assignment1343 Words   |  6 Pageser Ethics Case Study Assignment 1. Overview Of the Corporation: †¢ WorldCom is a company built on telecommunications in the United States. WorldCom was invented in 1963 and the MCI WorldCom was established in 1998. During the 1990’s, WorldCom was a fast growing company in terms of their telecommunication services. The company started to supply long distance calling in 1983 and was considered the fourth best phone providing business. It was very effective due to the quality and quantity of servicesRead MoreIndustry Specific Changes. The Telecommunications Industry1697 Words   |  7 Pagesin the telecommunications industry soared. After the successful acquisitions of MFS Communications and UUNet Technologies, the newly formed WorldCom offers long distance, data communication, and local services. In 1997, WorldCom successfully acquires MCI Communication Corporation. The acquisition results in increased revenues for WorldCom. Even though WorldCom acquired MCI, the company fails to merge the client bases. The lack of coordination among W orldCom’s and MCI’s systems leads to increased customerRead MoreWorldcom Case1078 Words   |  5 Pages3) Roots of the scandal The roots of the fraud and the role of internal auditors As explained above, the fraud was implemented by the former CEO Bernard Ebbers and commited by his financial director Scott D. Sullivan. The technique used by Worldcom was pretty simple; indeed, he cooked the books by saving pure operating expenses such as maintenance network in capital expenditure instead of expenses in order to hide its decreasing earnings and to maintain the price of Worldcom’s stock. In summaryRead MoreAccounting Fraud at Worldcom 21405 Words   |  6 PagesAccounting Fraud at WorldCom Vanessa Gail Woods Strayer University Connor-Green/ACC 576 March 21, 2010 Accounting Fraud at WorldCom The break up of ATT opened the long distance service market to small companies during the mid- to late-1980s and 1990s. Long Distance Discount Service (LDDS) opened in 1983 with moderate growth until its stock went public in 1989. CEO Bernie Ebbers decided to grow the organization through acquisitions (70 companies over the course of its lifetime)Read MoreWhat Are Five Elements Necessary For Commit Fraud?1739 Words   |  7 PagesIntroduction Elements There are five elements needed to commit fraud: (1) a false statement containing material fact, (2) the defendant possesses the knowledge that the statement is untrue, (3) the false statement’s intent is to deceive the intended victim, (4) the intended victim justifiably relies on the statement, and (5) the ending result is financial injuries to the intended victim. All false statements do not constitute for fraud; they need to contain a material fact. The materiality of the