We have to discuss about fraud with ethical values In an effort to emphasize the need for ethics in the accounting function and in business in general, each of you will be required to write a paper on an accounting fraud involving an accounting fraud. Chapter 2 gives examples of some very public accounting fraud schemes that have occurred over the past years.

Your paper should briefly describe the fraud that you researched last week and tell what parts of the "ethics awareness test" as outlined in the syllabus was violated in this scheme. Discuss how at least TWO (2) of the following questions were violated in the scheme by the perpetrator that you discovered in your research. Be prepared to discuss in class the following week.

ETHICS AWARENESS TESTS ADDRESS THE FOLLOWING QUESTIONS:

1. SMELL: Does it smell right? When you consider the situation in the light of commonly accepted ethical principles and your own moral compass, is the decision or action something you would feel completely comfortable in carrying out? Alternatively, would it make you since, as if there was a bad smell in the room?

2. APPEARANCE: Does it look right? How would this action or decision appear to other people of sound ethical principles? Would they be likely to condone or condemn it?

3. REPUTATION: Would you tell your loved ones about this? Is this an action or decision that you would be proud to tell your loved ones you had taken, or something you would prefer they didnt know you had done? Would this action or decision enhance your reputation as a person of high integrity, or would it be damaging?

4. FRONT PAGE: Could you live with this as a front page of a newspaper? Would you want your action or decision announced to the world in this way? Would you be proud for everyone to know what you had done, or would you be embarrassed about what people would think Worldcom Accounting fraud

First Scam in worldcom:

Soon after Kim Emigh was hired as a a budget analyst at WorldCom in 1996, Emigh witnessed unscrupulous business practices, such as close personal relationships between company executives and the vendors to whom they awarded contracts and contractors who were paid exorbitant rates. By 2000, business was slowing down for WorldCom, but the cost-cutting measures some managers requested were frequently improper. Emigh pushed back against bad business directives, such as not paying vendors timely. But in late 2000, he and others were asked to do something Emigh believed to be outright illegalmisclassify costs in the accounting books. The gist of the plot is this: by shifting labor expenses from one category to another, WorldCom could artificially boost its bottom line to show a profit, rather than a loss. In the kindest possible terms, thats misleading to investors; in actuality, its fraud. Emigh balked at carrying out the order and blew the whistle to the chief operating officer. The order was halted before it was carried out but, soon after, Emigh was fired.

Second Scam :

But this isnt the scandal that brought down WorldCom. In fact, no one outside of his division had heard of Kim Emigh until Cynthia Cooper, head of WorldComs internal audit department, caught wind of Emighs allegations and decided to investigate. With sales plummeting, some WorldCom execs devised another idea for cooking the books. Under the made-up term prepaid capacity, company accountants were instructed to book certain costs, such as the leases of network lines, as capital expenses, instead of as operating expenses. Capital expenses are for assets and can be spread out over a period of years, while operating expenses must be recognized in full when they occur. Similar to the previously concocted plan, this change resulted in fiscal reports that showed a healthy, profitable company; in truth, WorldCom was careening towards bankruptcy.

When Cooper and her auditing team looked into Emighs claims, they stumbled over $1.4 billion in capital expense entries for prepaid capacity. Cooper had never heard the term before; neither had any of the accountants she asked for an explanation. Furthermore, there was nothing to back up those entriesno invoices, receipts, or supporting documentation of any kind.

All told, auditors uncovered $3.9 billion in operating expenses that had been transferred to capital expense accounts. When word of the investigation reached the executives who had ordered the deceitful entries, Cooper was asked to drop it. She didnt. Instead, Cooper went to the chair of WorldComs boards audit committee and blew the whistle on the companys fraudulent accounting.

Ethics Awareness test address the following questions :

1. SMELL: Does it smell right? When you consider the situation in the light of commonly accepted ethical principles and your own moral compass, is the decision or action something you would feel completely comfortable in carrying out? Alternatively, would it make you since, as if there was a bad smell in the room?

Ans: Yes it was like a bad smell in the room. Worldcom Accounting fraud was done using the loopholes by US Securities and Exchange Commission This kind of action is not comfortable to anyone

2. APPEARANCE: Does it look right? How would this action or decision appear to other people of sound ethical principles? Would they be likely to condone or condemn it?

Ans: This kind of fraud is not right in anyway. This action is completely against ethical principles so they likely to condemn this kind of act because of various reasons done by both fraudsters

3. REPUTATION: Would you tell your loved ones about this? Is this an action or decision that you would be proud to tell your loved ones you had taken, or something you would prefer they didnt know you had done? Would this action or decision enhance your reputation as a person of high integrity, or would it be damaging?

Ans: I will feel proud to tell my loved ones about my action done in this scenario. This kind of decision enhance my reputation as a person of high integrity because of suggesting the people not to give the opportunities of doing this kind of fraud.

4. FRONT PAGE: Could you live with this as a front page of a newspaper? Would you want your action or decision announced to the world in this way? Would you be proud for everyone to know what you had done, or would you be embarrassed about what people would think?

Ans: I can live with this as a front page of newspaper by supporting SEC latest act in the history of America in the period of 20th century. I would like to suggest the people not to give the opportunities of doing this kind of fraud. I will feel proud for everyone to know what I have done in this scenario.