Lack of Professional Scepticism

Running head: AUDIT
Audit
Name of the Student
Name of the University
Author’s Note

AUDIT1
Introduction
Auditing is considered as the process to examine as well as assess the financial
statements of the companies in order to assess that whether there is many material
misstatements in them and whether the financial statements have been prepared in fair and
truthful way (William Jr, Glover and Prawitt 2016). It is the responsibility of the auditors to
comply with all the audit standards and to take into consideration all the obligatory factors at
the time to perform the audit engagement program. Over the years, there are many cases of
the collapse of large business organizations all over the world due to their involvement in
fraudulent financial reporting activities and other illegal actions (Byrnes et al. 2018). The
auditors have the responsibility to identify the frauds in financial reporting and report the
same. However, there are many instances where the auditors were involved with the
management of the clients in accounting manipulation; and this raises serious audit and
accounting issues such as independence, valuation, due diligence and many others. This essay
aims at analysing one of the largest corporate collapses occurred in USA which is WorldCom
collapse. More specifically, this essay discusses about three auditing and/or accounting issues
raised during the collapse of WorldCom; and then further sheds light on the relevance of
WorldCom collapse for the Australian auditors.
Three Audit and/or Accounting Issues raised During the WorldCom Collapse
The collapse of WorldCom is considered as one of the major corporate collapse in
USA as well as in the world where the involvement of the auditors was spotted. There are
many auditing and accounting issues raised during the collapse of WorldCom
(chicagotribune.com 2020). The following discussion sheds light on there of those crucial
issues:

AUDIT2
Lack of independence was a major issues that raised during the collapse of
WorldCom. WorldCom’s audit committee, internal auditors and external auditors majorly
lacked the independence required in the auditing profession (apesb.org.au 2020). An audit
committee was developed in WorldCom for conducting relation with the external auditors,
Arthur Andersen. The main responsibilities of the audit committee of WorldCom were to
meet time to time basis with the external auditors, discussing progress of the audit and
findings and resolving any conflict of interest that may take place between the external
auditors and the management. However, the audit committee of WorldCom was gradually
trickled down due to the lack of indepdence of its management and audit committee. Since
the chairman of the audit committee was very loyal to Bernard Ebbers, the co-founder of
WorldCom, the committee was either unaware or aware of the accounting manipulation for
the years 1999, 2000 and 2001 and decided to ignore it. WorldCom was acknowledged as a
‘maximum risk’ client by Arthur Andersen while mentioning that the company misapplied
GAAP in the areas of certain investments, the audit committee decided to ignore the same
and Arthur Andersen went on issuing unqualified audit opinion to WorldCom. This shows the
involvement of Arthur Andersen to breach the principles of independence in the presence of
its personal interest in the audit client which pushed the auditor to issue unqualified opinion
even in the presence of material mistsement due to comply with inappropriate accounting
standards (theguardian.com 2020).
Another major issues that raised during the collapse of WorldCom is lack of due
diligence and negligence in the audit work. There was not any check and balance in the
auditing of WorldCom. The internal audit team lacked adequate number of staffs and the
management of WorldCom restricted them in accessing all the required information; this
prevented them in the appropriate reporting to the audit committee. The audit committee was
also not effective in its operations. In spite of these aspects, Arthur Andersen issues