Ethicality of Accounting Activities Worldcom was a telecommunications company that merged with MCI in 1997 and was renamed MCI Worldcom. Worldcom was the United States second largest long distance phone carrier, until the accounting scandal in 2002. In 2002, a lady named Cynthia Cooper found discrepancies in their accounting. Someone was cooking the books by moving money around and recording it in places it should not be. The main accounting activities involved in the Worldcom case are auditing. If it was not for Cynthia Cooper reading an article “Accounting for Anguish” that was written in the Fort Worth Weekly on May 16, 2002, about a former financial analyst with the company they would never have found the fraud that Worldcom was doing. After she read this article Glyn Smith suggested they do an internal audit immediately (Mintz & Morris, 2011). The AICPA Code of Professional Conduct is to keep CPA’s responsible for their actions they take. They need to be honest, have integrity, and stay objective. In the case of Worldcom, the CPA’s did not stay to the AICPA rules of conduct. The CEO or CFO did not let an accountant know what they were doing with the funds, and this made the accountants lie on their financial statements. This is why a business needs to be audited every few months, it helps to see if a company is following the rules and doing what they need to do. Using financial statements for a business will tell them what is coming in, if there is any money missing, and how much money the company is putting out. Financial statements will also prove if the business will stay afloat or will go bankrupt. Worldcom wanted to make more money and stay afloat so they cooked their books to make it look like they ... ... middle of paper ... ... unethical when he did not believe Cooper when she had the proof there was something wrong. He would rather ignore it than deal with it. Once she got a higher up boss involved he decided to do the ethical thing and deal with what was happening to the business. If it was not for her actions it could have been worse for the stakeholders who were investing their money into the business. When Cynthia Cooper decided to look into why Worldcom books were showing why two accounts disagreed on the amounts, I do not think she realized how big of a problem they had at the time. If every company had someone like Cynthia Cooper I do not think they would go bankrupt or cheat other stakeholders. References: Mintz, S. M., & Morris, R. E. (2011). Ethical obligations and decision making in accounting. (2nd ed.). New York, NY: McGraw-Hill/Irwin. .
While the widely exposed and discussed trials of WorldCom's and Tyco's top executives were all over the media, one of the most interesting cases of securities fraud was happening without any public acknowledgement.
While Enron was the complicated fraud, WorldCom fraud was the simplest one to commit. WorldCom which is now known as MCI and acquired by Verizon Communication since 2006 was founded in 1983 to create a discount long-distance provider. The company grew very rapidly in the 1990s because of several large acquisitions (Beresford, Katzenbach, & C.B. Rogers, 2003) WorldCom completed 3 mergers in 1998 and one of the merger was the acquisition of MCI Communications Inc for $40 billion, the largest merger at that time. WorldCom also merged with Brooks Fiber Properties Inc for $1.2 billion and CompuServe Corp for $1.3 billion (The rise and fall of WorldCom, 2008). WorldCom announced the merger with Sprint Corp. in 1999 and its shares’ price went up for more than $64 but, the merge was blocked by regulators in both the U.S. and Europe because they concerned that it would create a monopoly in 2002 (The rise and fall of WorldCom,
Ferrell, O.C., Fraedrich, J., & Ferrell, L. (2009). Business ethics: Ethical decision making and cases (7th ed.). South-Western College Pub;
In the year 2002, Adelphia Communications Corporation faced a massive accounting scandal that led to company’s bankruptcy and later reorganization. This paper will attempt to identify, analyze and evaluate the consequences of misrepresentation of financial accounts on a company, industry and economic level. Moreover, it will attempt to examine factors influencing the corporate failure from an auditor’s point of view, and consider the measures that auditor could have taken in order to enable quality and completes of information communicated to external users.
Scharff, M. (2005). WorldCom: A Failure of Moral and Ethical Values. Journal of Applied Management and Entrepreneurship .
The auditors were more concerned with keeping the WorldCom account and should have been unbiased and independent in their decisions. Andersen even undercharged WorldCom as he looked at is as a bond in their long term relationship. Andersen’s “more efficient” method of auditing after WorldCom’s operation expansion skipped detailed individual transactions for
They contacted the CFO of Cendant Mr.Monaco and explained to him the “breathtaking fraud”. And it was Mr.Monaco who delivered this news to Cendant’s Chief Executive Henry R. Silverman. (WSJ) Those two men were the whistleblowers that brought Cendant to its knees. As mentioned in the sworn affidavits the managers explained what was happening at Cendant, they said that they were told to record millions of dollars of orders that never occurred and were told to do what was necessary in order to increase the income on the books and decrease the expanses. In their statements they named two people whom have been responsible for putting pressure on their employees and ordering the accounting irregularities, these two people were Cosmo Corigliano, the former chief financial officer of CUC, and Anne Pember, CUC 's former comptroller. (WSJ) Though it was known at the time that Walter Forbes the former CEO and Chairman of Cendant had some part in everything that was going on, it wasn’t until the new auditors came and started working that his true purpose and place in the fraud came out to the light of day. Forbes was the one that led the laissez-faire environment at the company. (CNNMoney) But even though this could be proven Forbes insisted that he was innocent and had no part in any of this till the day he was sentenced. After the news of this was announced Cendant was forced to restate their financial statements for the year 1997 and had to cut their earning for the year by over $100 million to around $115
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
This essay will talk about the ethical standards and code of conduct in the accounting profession, in particular for CPA Australia, the importance of ethical education for accounting students, the importance for ethical financial reporting and also addresses ways to deal with conflicts that arise from ethical issues in the
"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business. As these things come out, it just continues to build up"(CBS MarketWatch, Hancock). The memories of the Frauds at Enron and WorldCom still haunt many investors. There have been many accounting scandals in the United States history. The Enron and the WorldCom accounting fraud affected thousands of people and it caused many changes in the rules and regulation of the corporate world. There are many similarities and differences between the two scandals and many rules and regulations have been created in order to prevent frauds like these. Enron Scandal occurred before WorldCom and despite the devastating affect of the Enron Scandal, new rules and regulations were not created in time to prevent the WorldCom Scandal. Accounting scandals like these has changed the corporate world in many ways and people are more cautious about investing because their faith had been shaken by the devastating effects of these scandals. People lost everything they had and all their life-savings. When looking at the accounting scandals in depth, it is unbelievable how much to the extent the accounting standards were broken.
Betty Vinson, on the other hand, made the decision to partake in the unethical behavior because she didn’t want the company to go out of business and risk losing her job. By following through with that act, however, she has dramatically damaged her image as a business professional and people will now think negatively of her personal character, which “is critical to sustainable success because it is the basis of trust and credibility. Both of these essential assets can be destroyed by actions which are, or are perceived to be unethical” (Josephson, M.,
Lyke, B and Jickling, M. (2002). WorldCom: The Accounting Scandal. CRS Report for Congress, p2.
“In fact, ethics has everything to do with management. Rarely do the character flaws of a lone actor fully explain corporate misconduct. More typically, unethical business practice involves the tacit, if not explicit, cooperation of others and reflects the values, attitudes, beliefs, language, and behavioral patterns that define an organization’s operating culture. Ethics, then, is as much an organizational as a personal issue. Managers who fail to provide proper leadership and to institute systems that facilitate ethical conduct share responsibility with those who conceive, execute, and knowingly benefit from corporate misdeeds”(Paine, 2016).
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.
Business ethics is part of today’s society whether you like it or not. There are many things happening in today’s corporate world that needs to be opinioned.