It has been noticed that during the accounting scandal of WorldCom, journal entries in the amount of $150 million and $771 million, respectively, were made by two General Accounting employees – Dan Renfroe and Angela Walter—without detailed support. Although, this was not out of the ordinary at WorldCom, this is not a correct accounting practice as it is against the basic principles of bookkeeping and accounting. This is because detailed support in the form of documentation is the key element in providing support to a journal entry and explains the reason or purpose why the journal entry was created in the first place. Such support is very important and relevant from the point of view of the persons reviewing the journal entry and those intending to approve the journal entry. Most importantly, it is extremely relevant and essential from the point of view of external auditors of the company or business. Thus, such support or related documentation enables the reviewer or approver to assess and acknowledge the completeness, reasonableness, accuracy, and appropriateness of the journal entry.
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The company released $150 million in line cost accruals in the Wireless division over Deloris DiCicco’s objections, without any proper support for the entry. Since, there was no proper support, it is not clear whether the accruals were released with or without any analysis of whether the company had any excess accruals in its accounts. In other words, it is not clear if there was any proper basis in reducing line costs. Also, these accruals were not released in the period in which they were identified, but rather in the period in which these were considered needed by the management.
Further, these line costs were reduced by transferring $1...
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...ing only on operational audits and totally avoiding financial audits. On the pretext of cost-saving, it clearly avoided any and every function which could overlap with the role of the external auditors. It carried out various “special projects’ assigned to it by Mr. Sullivan; and such projects were purely operational in nature and had no audit purpose.
Works Cited
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WorldCom and The Mississippi Scheme are both large financial scandals that have occurred. WorldCom was a telecommunication company that overstated their cash flow by reporting $7.6 billion in operating expenses as capital expenses. WorldCom is the largest accounting scandal in US history as of March 2002. The Mississippi Scheme was a business scheme that destroyed the economy of France during the 1700’s. The scheme involved the loss of paper money’s purchasing power as a result of asset inflation. Both WorldCom and The Mississippi Scheme were frauds involving manipulation to create higher stock prices and dubious practices within the organizations to keep the public unaware.
Assignment One – WorldCom, Inc. WorldCom was an American telecommunication business founded in 1989 which has bankrupted through accounting scandal in 2002. For a time, WorldCom was the United States’ second largest long distance telecommunications corporation after AT&T. The Long Distance Discount Service (LDDS) was created by Bernard Ebbers former baseball coach and manager of motels along with two friends in 1983. In 1992, LDDS bought Advanced Telecommunications to become the fourth largest long distance communication company in the US, and in 1994 the company bought IDB WorldCom, which gives its name to the group. In 1996, MFS communication. In October 1997, WorldCom acquired MCI Communications, and the transaction totaled 37 billion dollars
Australian bookkeeping gauges are set by the Australian Accounting Standards Board (AASB) and have the power of law for Corporations law elements under s 296 of the Corporations Act 2001. They should likewise be connected to all other universally useful monetary reports of reporting elements in general society and private parts.Australian Accounting standards board oversee process of accouting standards if all companies registerd with ASIC complying with these standards and their financial reports are maintend with standards to keep public share holders money in safe hand in past many auditors companies used to ignore accounting standards to give companies actual financial figuers lower or higher to keep their shares prices or investors intact this lead to so many financial crises and collapse of comapanies.The case analyses the high standards required by the accounting profession in line with the requirements of the Australian Standards Board prescription. Further, the case is analyzed technically in line with the accounting standards prescribed by the institute. Here, an employee accountant of a company is asked to iron out the
One of the most debatable topics in the accounting industry today is the extent in which we should make the financial statements understandable to the general population. The FASB currently gears its reporting standards toward...
The utilization of the concept of materiality in auditing dates many years. Varying definitions of materiality during the preliminary stages of utilization prove that auditors recognized a need for this concept but did not have a standard for defining the term. The recognition by the Financial Accounting Standards Board (FASB) of the need for this concept prompted a decision to determine a universally recognized definition of materiality. In the book, Auditing Concepts for a Changing Environment, the FASB defines materiality as, “the magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement” (Rittenberg and Schwieger 2001, 92). In essence, the concept helps auditors determine the financial information that...
This analyse contains four parts, which will start with the strategies and practice that exposed the Worldcom, the second part will be the accounting analysis of the company, the third part will be the financial analysis and the last part will the prospective analysis.
One of the most popular business bankruptcies and collapses known to date is that of the Enron Corporation. Enron, once known as "America's Most Innovative Company" by Fortune Magazine six straight years from 1996 to 2001. Enron seemed to be doing very well until the summer of 2001 generating a lot of cash and new businesses, but in October of 2001 Enron was forced to disclose that their accounting practices had been very creative, and failed to follow generally accepted accounting principles. Profits that had been soaring sky high were wiped away and replaced with enormous losses and charges that were never recorded properly. Unfortunately, Enron executives who were responsible for the shady accounting practices, were able to escape this debt by selling off most or all of their shares in the company (valued at over 10 million dollars) before the stock price fell greatly. They also froze employee's pension plans, and many people lost their jobs in the wake of the collapse and found out their retirement was history (Anonymous, 2002).
From the time of WorldCom’s inception there always seemed to be a tradition in management as if the company was only 100 or so employees. There was a “good old boys” mentality among the limited few running the company and if you were outside that circle then were told only what they wanted you to hear. An unspoken rule among employees was to do what you were told without questions or risk the consequences. One example of this situation occurred when senior management member Gene Morse told an employee “If you show those damn numbers to the f****ing auditors, I’ll throw you out the window” (Kaplan, R.S., & Kiron, D., 2007, p. 3).WorldCom showed no concern regarding an employee’s need and obligation to voice concerns on matters related to their job function. “Employees felt they did not have an independent outlet for expressing concerns about company policies or behavior” (Kaplan et al., 2007, p. 3). This treatment created a climate of fear among employees and reinforced the management team’s ability to keep knowledge and decision making within their grasp.
In 1983, while in a small coffee shop in Hattiesburg Mississippi, Bernard Ebbers developed the business concept that would eventually become the second largest long distance telephone company in the United States, WorldCom (Romar and Calkins). In 2002, the company that Bernard Ebbers grew from the ground up declared the largest bankruptcy in United States history. The unethical and illegal accounting treatments that WorldCom participated in eventually led to the demise of the company and a new company, MCI, rising from the rubble of what was WorldCom.
Over the years materiality has changed and evolved in various ways to reach the point where it is today. We will now take a look at some of the major changes in materiality over the past century. With respect to events prior to 1950, it is important to know that Generally Accepted Auditing Standards (GAAS) were publicized in October 1947; however, they were not yet elabo¬rated upon (Selley 2010). This means that while the standards were created they were not well researched or very specific at this point. Next we will talk about one of the largest changes in the history of auditing with respect to materiality. Starting in the U.K. in 1900 the use of the phrase “true and correct” was changed to “true and fair” (Selley 2010). This was a big turning point for auditing because not on...
...ent expense the year it incurred. Due to the reporting error, in 2001 $3.055 billion was misclassified and 4791 million in the first quarter of 2002 (Law Maryland). In order to avoid getting caught, WorldCom was trying to be slick by leaving some line costs as current expense so that the error in classifying would not be easily detectible. This error in classifying expenses cause WorldCom to increase net income and assets. This fraud was found by the companies internal audit, Cynthia cooper, on May 2002. This detection was not good news to Arthur Anderson as they were the outside auditors of WorldCom. Anderson had already been affected by Enron scandal and neglecting to do to their job correctly. But with WorldCom they claimed that the chief financial officer Scott Sullivan did not tell them about the line costs being capitalized and they were unaware of this fact.
Sandberg, J., Solomon, D., & Blumenstein, R. (2002, June 27). Accounting Spot-Check Unearthed A Scandal in WorldCom's Books. Retrieved from The Wall Street Journal: http://online.wsj.com/article/SB102512901721030520.html
The recording of accounting history allows for research of a high calibre and quality to be developed. If developments and research of the past were not recorded
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.
The Resources Group, 2012, Components Of A Computerized Accounting System. Available at: . [Accessed 12 November 2013]