Compromising Financial Arrangements in Worldcom and Other Corporations Essay

Compromising Financial Arrangements in Worldcom and Other Corporations Essay

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Compromising Financial Arrangements - Personal financial troubles drove the need for success as well as financial gratuities: Bernie Ebbers had obtained multiple loans to support other personal business ventures. He was in financial trouble and was not able to cover margin calls on his WorldCom stocks. He eventually persuaded the board to provide him with corporate loans. To drive loyalty, Bernie Ebbers in turn provided loans to the COO, Ron Beaumont. The CFO, Scott Sullivan also provided personal checks (bonus) to key managers involved in fraudulent accounting activities.

Business Environment - Sudden downturn in industry and incorrect company strategy: By the year 2000, WorldCom was facing a consumer price war with an overcapacity of bandwidth coverage. The rise in mobile usage was another factor that the company neglected to foresee . Failure of the dotcoms industry in 2000 and the expectation for the company to perform based on the Stluka's model for exponential growth were all pressures the company faced.


Limited Regulations and industry demand
SEC, at the time of the event, lacked the means and resources to prosecute individuals to hold them accountable for the actions of those directly responsible for violating requirements. Previously, company insurances would cover any liability and it was rather unusual to go after personal assets. Company transactions were not transparent prior to the SOx Act and no legislation addressed corporate Ethics. The industry had not dealt with major corporations intentionally falsifying accounting records in the billions of dollars.

Inadequate check and balance - Normal internal and external audits were insufficiently in identifying compliance. The Internal Audit is usually the first l...


... middle of paper ...


...hat high ranking officials be held accountable for criminal offenses.
Based on the contributing factors and catalyst in the "Problem Statement" section, few companies have the ability and foresight to address changes in the Business Environment. Though having a good strategy does enable companies to prepare and possibly brace for changes, our goal is to prevent similar reoccurrences from impacting the industry as opposed to a single company. With the many facets of interpreting "good" strategies, it would probably be more beneficial to evaluate other contributing factors before attempting to predict the ever changing climate of the business environment.
Further modifying and prescribing detail black and white boundaries for GAAP may not necessarily work since it will help define limits for extending accounting principles. "Aggressive accounting" is not illegal .


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