Analyzing WorldCom to the Audit Function & WorldCom Implications

Analyzing WorldCom to the Audit Function

 

 

WorldCom did not disclose all of the material facts to Arthur Anderson, LLP. The auditor should have reported that to its superiors. The auditor should have not given an unqualified opinion in the report but instead it should have given a disclaimer of opinion since all the evidence was not obtained to support the financial statements.

 

 

 

 

 

 

 

 

 

 

Implications of WorldCom

Politically, President Bush was already in the process of presenting a corporate governance bill to the Senate proposing stricter rules and regulations regarding corporate fraud in lieu of the recent scandal with Enron and other corporations.  The WorldCom scandal helped grow support for the Sarbanes Bill.  It was under this bill that the PCAOB was to be formed by the SEC.  On July 15^th 2002, the U.S. Senate passed the Sarbanes Bill 97-0.  It was unanimously passed!  President Bush was quoted saying he was “pleased the Senate has now acted on a tough bill that shares my goals and includes all of the accounting and criminal reforms I proposed.”  (U.S. Senate Unanimously Passes Corporate Governance Bill, 2002)

 

Another political impact of the WorldCom scandal and other scandals prior was that it was unfolding so close to another election year and the 2002 congressional races.  This issue of corporate scandals could have been viewed as a threat to the candidacy of President Bush in 2004 because it was under the Republican watch that this scandal and others occurred.  (MacDonald, 2002)

 

Economically; the impact of the WorldCom scandal was staggering.  Tens of thousands of WorldCom employees lost their jobs as a result of the company going bankrupt.  Not to mention the competition between other telecommunication companies that thought WorldCom was actually profiting during a soft market.  Those companies, including AT&T fired thousands of people in the late 90’s to compete with WorldCom’s low costs.   Other companies like Global Crossing and Qwest ended up committing fraud themselves to try and compete with major companies like WorldCom.  All because one major corporation failed to exercise its responsibility to adhere to generally accepted accounting principles. WorldCom was allowed to file for bankruptcy and was allowed to keep most of its assets.  As a result they are still a nemesis to other telecommunication companies in respect to low costs because they have less debt. (Colvin, 2005)

 

 

Another economic perspective looks at the impact that the WorldCom scandal had on the stock market.  The scandal caused the company stock to plummet.  Shareholders lost billions of dollars when the stock value seemed to go from gold to pennies overnight. (Colvin, 2005)

 

 

Socially, WorldCom was not acting as a responsible company.   WorldCom had a responsibility to uphold ethical business practices.  By committing accounting fraud the company had lost the trust of investors, employees, other countries that were in business with WorldCom and the American public.  The scandal within WorldCom was another reason for people to not trust corporate America and all during a time when we needed to be trusted the most. (Corporate social responsibility, 2012)

 

Colvin, G. (2005, August 8). The other victims of Bernie Ebbers's fraud. Retrieved from CNN Money: http://money.cnn.com/magazines/fortune/fortune_archive/2005/08/08/8267650/index.htm

Corporate social responsibility. (2012, September 29). Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Corporate_social_responsibility

MacDonald, S. B. (2002, June 26). Life Among the Ruins: The Impact of WorldCom. Retrieved from KWR International: http://kwrintl.com/library/2002/worldcom.htm

U.S. Senate Unanimously Passes Corporate Governance Bill. (2002, July 18). Retrieved from Facts on File World News Digest Database: http://proxy1.morainepark.edu:2058/wnd_story.aspx?PIN=2002255530&bts=1