Worldcom Accounting Scandal

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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.

2.

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...

... middle of paper ...

...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

http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/sec500.aspx

2.

http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175822892635&blobheader=application%2Fpdf

3.

http://www.ifrs.org/Home.htm

4.

http://fl1.findlaw.com/news.findlaw.com/wsj/docs/worldcom/bdspcomm60903rpt.pdf

Lynne, W. Jeter, (2003). Disconnected: Deceit and Betrayal at WorldCom.Wiley. 272 pages.

Swanson,D., (2010). Internal Auditing: Raising the Bar.IT Governance. 301 pages.

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