WorldCom revealed that in addition to the US$3.8bn in expenses improperly recorded as capital, an internal audit discovered that US$3.3bn in profits were improperly recorded on its books from 1999 to the first quarter of 2002. This involved the manipulations of reserves to uncover estimated losses such as uncollected customer payments and judgments in lawsuits and other expected costs.

WorldCom’s chief executive, John Sidgmore, blamed the company’s former chief financial officer, Scott Sullivan, and the former controller, David Myers. The two were fired, arrested, and charged with security fraud, conspiracy, and other charges.

WorldCom’s auditors were Arthur Anderson, the same firm charged with Enron’s fraud, and Tyco, Global Crossing, and Adelphia all hit by financial malpractices and charged with financial fraud in the early 2000. Arthur Anderson charged with negligence, also accused Sullivan of withholding information from them.

Required:

a) Discuss the professional responsibilities and liabilities of the directors of a company and

that of the auditors given the WorldCom case. (5 marks)

b) Analyze five (5) professional Code of Conduct requirements of the external auditors in the

light of the WorldCom case. (5 marks)

c) Discuss five (5) professional ethical considerations Arthur Andersen Auditing firm could haveobserved during the review of the financial statements of WorldCom company. (5 marks)