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Worldcom Case Sample Essay

Worldcom appeared to be a great success narrative. However. the success began to unknot with the accretion of debt and disbursals. the autumn of the stock market. and long distance rates and gross. It would take 2 old ages for the extent of these jobs to go public. and accounting dirts like that of Worldcom would do history in the finance and telecommunication countries. While the purpose is to do money to profit a individual or a group of people through illegal Acts of the Apostless while masking their illegal beginning. a whistle blower may be skulking amongst you. This history tells us how delicate the monitoring procedure of the company’s fiscal system is. Companies frequently rely on comptrollers to safeguard company moralss. Accountants have a particular duty to do certain that directors act with unity and that information disclosed to clients. providers. regulators. and the populace is accurate. If comptrollers do non take this duty earnestly. or if the company ignores the accountants’ studies. dire effects can follow.

The state of affairs leads to accountancy dirts that hurt investors. employees. and the industries. As the 2nd largest long-distance phone company in the U. S. . Worldcom stock dropped from $ 60 per portion to 20 cents per portion. Seventeen thousand employees lost their occupations. and in 2002 Worldcom filed the world’s largest bankruptcy ( Ulick. 2002 ) . These dirts have left the public with many inquiries sing the manner companies try to retrieve from the dirts particularly when it comes to fair intervention for the injury employees. In add-on to uncovering sloppy and deceitful clerking. the post-bankruptcy audit found two of import new pieces of information that merely served to increase the sum of fraud at WorldCom. First. “WorldCom had overvalued several acquisitions by a sum of $ 5. 8 billion” ( McCafferty. 2004 ) . In add-on. Sullivan and Ebbers. “had claimed a pretax net income for 2000 of $ 7. 6 billion” ( McCafferty. 2004 ) . In world. WorldCom lost “ $ 48. 9 billion ( including a $ 47 billion write-off of impaired assets ) . ” Consequently. alternatively of a $ 10 billion net income for the old ages 2000 and 2001. WorldCom had a combined loss for the old ages 2000 through 2002 ( the twelvemonth it declared bankruptcy ) of $ 73. 7 billion.

If the $ 5. 8 billion of overvalued assets is added to this figure. the entire fraud at WorldCom amounted to a astonishing $ 79. 5 billion ( McCafferty. 2004 ) . There are more also-rans in the wake of the WorldCom wreck. The reemerged MCI was left with about 55. 000 employees. down from 88. 000 at its extremum. Since March 2001. nevertheless. “about 300. 000 telecommunications workers have lost their occupations. The sector’s entire employment: 1. 032 million. an eight twelvemonth low” ( Alexander. 2005 ) . The slaughter does non halt at that place. Telecommunications equipment makers such as Lucent Technologies. Nortell Networks. and Corning. while profiting ab initio from WorldCom’s groundless anticipations. suffered in the terminal with layoffs and down portion monetary values. Possibly most important. in December 2005. the venerable AT & A ; T Corporation ceased to be as an independent company ( Alexander. 2005 ) .

Next. you got to love these companies when it comes to doing these immense errors. The bankruptcy procedure has allowed the company to cut down its debt from $ 41 billion to about $ 6 billion. That will shave $ 2. 1 billion a twelvemonth off involvement payments for a company bring forthing about $ 21 billion a twelvemonth in gross ( AP. 2004 ) . Banks want Chapter 11 bankruptcy because the Bankss that provide the loans will be the first to roll up payments. The $ 2. 6 billion loan WorldCom received from 27 Bankss is unbarred. intending the loaners would hold a claim on WorldCom’s assets in the event of a bankruptcy filing. Without bankruptcy. the Bankss do non hold collateral on the loans they have already given. The Bankss would desire to impart the company more money to maintain it working. anticipating the company to finally be able to refund them. Plus. the Bankss have first shooting at WorldCom’s assets when they go under. Unfortunately. for the 17. 000 WorldCom employees who lost occupations. retirement financess can be lost during bankruptcy. Rupture is typically paid in a ball amount.

WorldCom has elected to distribute it out into multiple payments. If a company files bankruptcy before paying rupture bundles. employees will be bumped to the dorsum of the line with other low-ranking creditors and could perchance see their rupture capped ( Romero ) . Hearers must recognize that the processs by and large can non supply the positive confidence that is required of chief substantial trial processs. However. APs play an of import function in an audit. In planning and reappraisal. they can alarm the hearer to unusual or unexpected behaviour in informations ; nevertheless. they can non be relied upon to make so in a substantial trial because of the possibility of direction override of controls. as WorldCom revealed. In the instance of estimations of commissariats and allowances. APs are the lone processs available to the hearer. Positive confidence that material misstatement does non be may be unachievable at any degree. regardless of the audit processs employed to prove an estimation.

Therefore. an hearer may be showing sentiments on a fiscal statement that are needfully a mixture of positive and negative confidence. The audit hazard theoretical account conveys a false feeling that hazard of making an wrong audit decision is governable. To rectify this feeling. criterions compositors must supply a clearer apprehension of the nature of confidence. including a distinct definition of positive confidence. every bit good as the conditions that distinguish between positive and negative confidence processs. Standards compositors should besides break inform users of fiscal statements of the intrinsic restrictions of an audit. Simply to province that hearers give “reasonable” confidence is no longer sufficient. Auditing criterions must be revised to reflect the obvious worlds illuminated by such dirts as WorldCom and to necessitate the application of more strict audit trial processs.

Otherwise. more audit failures will follow ( Hitzig ) . In the instance of WorldCom. the company underreported many of its operating costs by non including them in its operating disbursals and fancied beginnings of gross to blow up its net incomes statements. In the terminal. WorldCom’s assets had been inflated by an estimated $ 11 billion dollars ( Grill ) . During the class of WorldCom’s legal proceedings. its accounting house Arthur Andersen lost its privileges to execute accounting services due to felony charges stemming from its activities with Enron. The accounting house. considered one of the “Big Five. ” was revealed to hold wilfully participated in the fraud and misrepresentation of both Enron and WorldCom and was ne’er able to retrieve to offer accounting services once more ( Grill ) .

Then came Sarbanes-Oxley to the deliverance. The Sarbanes-Oxley Act. besides known as the Public Company Accounting Reform and Investor Protection Act. was passed in 2002 with the end of making a more responsible environment for the revelation of fiscal information. As a consequence. the creative activity of the Public Company Accounting Oversight Board is to modulate and implement honest accounting activities ( Grill ) .


Alexander. Steve. Star Tribune. “Former Holders of MCI Stock Miss Out: The command war for MCI will enrich the firm’s stockholders – the current 1s. ”1 May 2005. Web. hypertext transfer protocol: //www. highbeam. com/doc/1G1-132098938. hypertext markup language
Associated Press. MSNBC. MCI Emerges from Bankruptcy. April 2004. Web. hypertext transfer protocol: //www. msnbc. msn. com/id/4785653/ns/business-corporate_scandals/t/mci-emerges-bankruptcy/ # . T8urSI4gKfQ Grill. Bennet. ( n. d. ) Gaebler Ventures. Web. hypertext transfer protocol: //www. gaebler. com/The-Sarbanes-Oxley-Act-An-Introduction. htm Hitzig. Neal J. ( n. vitamin D ) . The Accounting Journal. The Hidden Risk in Analytical Procedure: What Worldcom Revealed. Web. hypertext transfer protocol: //www. fraudlaw. org/Fraud/Fraud % 20by % 20Type/Public % 20Companies/World % 20Com/How % 20auditors % 20failed % 20WorldCom. htm McCafferty. Joseph. CFO Magazine. “Extreme Makeover: How Robert Blakely and an Army of Accountants Turned Fraud-ridden WorldCom into Squeaky-clean MCI. ” July 2004. Web. hypertext transfer protocol: //www. chief financial officer. com/printable/article. cfm/3014763? f=options Romero. Simon and Riva Atlas. The New York Times. Worldcom’s Collapse: The Overview ; Worldcom files for Bankruptcy ; Largest U. S. Case. 22 July 2002. Web. hypertext transfer protocol: //www. nytimes. com/2002/07/22/us/worldcom-s-collapse-the-overview-worldcom-files-for-bankruptcy-largest-us-case. hypertext markup language? src=pm Ulick. Jake. CNN Money. Worldcom’s Financial Bomb. 26. June 2002. Web. hypertext transfer protocol: //money. cnn. com/2002/06/25/news/worldcom/index. htm

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