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Worldcom and enron 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.
At the time, under U.S. GAAP all majorities owned subsidiaries must be consolidated except when the subsidiary is in legal reorganization or bankruptcy or the subsidiary operates under severe foreign restrictions. Enron loophole to seize this one, from operating profits, losses and liabilities were transferred to some obscure related businesses。
Congress to shield shareholders and the overall population from bookkeeping mistakes and deceitful practices in the venture, and in addition enhance the precision of corporate divulgences. (Rouse, n.d.)The Eron scandal was one of the reason for the establishment for Sarbanes Oxley Act. Now, all businesses are required to obey with the Sarbanes Oxley Act. The demonstration is not an arrangement of business practices and does not determine how a business ought to store records. It characterizes which records ought to be put away and for to what extent. Best rehearses demonstrate that companies safely store all business records utilizing the same rules set for open bookkeepers. (Rouse, n.d.)The third control alludes to the kind of business records that should be put away, including all business records and interchanges, including electronic correspondences. (Rouse, n.d.)
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
The use of insider information is illegal in the United States. Insider information is stock related information that can be obtained many ways to gain large, abnormal gains in the stock market. A popular way to gather inside information is from direct employees of the company. Information on stocks can either be illegal or legal. If the information is publicized for all current or future investors to use, then it isn't illegal. Illegal information becomes unlawful when it becomes privatized from the public, and to be only used by investors in the stock market. The action of using insider information isn’t considered illegal until the information is used in a stock market located in the United States, most commonly the New York Stock Exchange, or NYSE. Investors shouldn't need to worry about whether the information they’re given is illegal. Instead, the government should become lenient and abolish the act that prohibits investors to use insider information. Investors need to come together to protest against congress. If we abolish the act that forbids investors to use inside information, then the economy in general will grow from the freedom given by the government.
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...
Sunbeam is an American home appliances maker all the way from 1910. Over their long years of operating, they have created some of the best most widely used products in the market such as electric iron and a pop-up toaster. Even though the company was well known, it was no secret that it has been running into financial problems. So it was decided to fix it. In July 1996, they hired a new CEO and a chairman of board , Albert Dunlap. He was Nicknamed Albert ,, Chainsaw’’ Dunlap because of his ruthlessness in the business field and willingness to do whatever it takes. He was best known as a turnaround specialist and professional downsizer but his reputation was ruined after he engineered a massive accounting scandal at Sunbeam corporation and
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"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.
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
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