Please R-write ( paraphrasing ) in a same formate with no copy and paste , must be totally changed .

Worldcom (USA)

Background of the case: Worldcom scandal was one of the largest scandals of that time. It lead to a revision in the financial statements to the tune of $3.85 billion shaking all the stakeholders.The business of Worldcom was to provide long distance telephone and data services. Scott Sullivan was the CFO of this incorporation who played a major role in this fraudulent transfers. Current auditors- KPMG & Former auditor- Andersen.

Facts of the case: Worldcom did wrong in the very basics of core financial reporting. That's why people wondered, how this could have been missed by the auditors. The issue with the financial reporting was the misrepresentation of the accounting data. In the financial statements of the year 2001 and that of the first quarter of 2002, the major operating costs (also called as line costs) were accounted as capital expenditure. This treatment is absolutely not in line with the GAAP. This discrepancy was discovered by the Vice President of internal audit of Worldcom and later was confirmed by the auditors.

After effects of the case: This lead to an artificial inflation in the EBITDA of Worldcom. SEC asked the CEOs and CFOs of the large companies to certify the accuracy of the recent financial statements of their respective companies. Some asked for changes in the GAAP as some of the complexities in accounting rules might entice some companies to go around them. Also, the CFO of Worldcom, Sullivan was terminated and the company was charged against fraud.

1) The factors affecting the above failures are-

• Lack of commitment to competences - the CFO was incompetent for the position he was holding in the company
• Lack of transparency- the huge capital expenditure disclosed in the financial statements were not disclosed as a footnote in any financial statement.
• Operating style- no authority existed to verify the work of the CFO.
• Loopholes in GAAP- due to the complexity in the accounting rules and lack of clarity, companies were able to get around it.

2) The entity level control is generally the second level of control in any company. However in this case, there did not exist any level above CFO's control level. There needs to be an authority above the management level employees whom the auditor can address to in case of such discoveries. Worldcom and similar scandals made everyone understand the importance of such controls.

3) The board or the management should have undertaken comprehensive monitoring of the controls of higher level employees, internal auditors. They should have formed a disclosure committee and should have assessed risk related to operating controls and other controls.