Worldcom Scandal Summary

1986 Words 8 Pages
SUMMARY
Originally founded in 1983 as LDDS Communications, today, MCI, Inc. is known as the American telecommunications company that was originally formed as a result of the merger of WorldCom. Currently, MCI, Inc. is headquartered in Ashburn, Virginia but originally WorldCom was headquartered in Clinton, Mississippi (Reardon, 2006). WorldCom’s growing success through acquisitions of other telecommunications firms led it to become the second largest long distance telecommunications company in 2001. However, on June 21, 2002 the aspiring company filed for bankruptcy protection after disclosures displayed accounting regularities. On June 25, 2002, they announced that it had overstated earnings in 2001 by more than $3.8 billion (Lyke & Jickling,
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If there is no trust in the system and financial statements, it will simply be unable to operate. Immanuel Kant helps us understand this through the universalizability principle that states, “Act so you can will the maxim of your action to be a universal law.” In other words, consider the actions you choose and how the corporate world would be affected if everyone chose similar actions. Auditors are known as the watchdogs of accounting. Their primary responsibility is to guard the best interest of the public. “The auditor’s obligations are to certify that public reports depicting a coronation’s financial status fairly present the corporation’s financial position and operations” (Duska, Duska, & Ragatz, 2011). During the WorldCom scandal, Arthur Anderson, originally one of the big five accounting firms, failed their duty as auditors and overseers of the accounting profession. As external auditors, they have a duty to detect any fraud and irregularities and fell short of that duty. Instead, the well-known accounting firm simply stated that it “was unaware of a break in accounting rules” (Accounting Web, 2002). After a $3.8 billion fraud, Andersen responded by saying, “Our work for WorldCom complied with SEC and professional standards at all times. It is of great concern that important information about line costs was withheld from Andersen auditors by the chief financial officer of WorldCom. The WorldCom CFO did not tell Andersen about the line cost transfers nor did he consult with Andersen about the accounting treatment. Upon recently learning of the transfers, Andersen conferred with the WorldCom audit committee and new management, and advised the company that WorldCom’s financial statements for 2001 should not be relied upon” (Accounting Web, 2002). Andersen lost their independence, violated the trust of the public and breached several ethical violations. WorldCom was a very profitable client and Andersen

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