The Most Shocking Cases of Accounting Fraud

Running head: QUESTIONS 0
ACCOUNTING FRAUD
MARCH 9, 2020
STUDENT DETAILS:

QUESTIONS 1
Answer 1:
The revenue development got slow and prices of stock starts to fall in 1990. The expenses of
WorldCom as the percentage of the total revenue enhanced due to the fall in earning’s growth
rate. This also meant earnings of WorldCom could not meet expectations of Wall Street analyst.
These conditions pressures managers and executives of WorldCom to fraudulently report. For
increasing the revenue, Ebbers forced the workers to enhance revenue. Ebbers put pressure on
them to build revenue and get capability for handling development even though long-run cost
exceeds short-run profits. The revenue development was essential for increasing market value of
company. Because of the demand by Ebbers, the manager as well as executives required to state
rise in revenue that they started cooking the book. WorldCom took entry in long-term fix rate
lease of networking capacity for meeting anticipated rise in demand of consumer. WorldCom can
ignore lease payment only by paying heavy termination fee. In a case when customers failed to
meet expectation, WorldCom will make payment for line capacity that it was not utilising. The
telecommunication sector started to fall apart as outcome of higher competition together with
lower demand at the onset of the financial downturn. As new entrants began to enter the market,
it resulted into price to reduce more and WorldCom forced for matching. For this
reason, WorldCom faced high pressure to enhance revenue. In addition, WorldCom made
struggle to keep similar E/R ratio, closely reviewed by analyst along with industry observer. It is
facing pricing pressure related to pricing and higher committed line cost. Moreover, the investors
cannot be attractive to the consumers (Annunziata, 2018).
Ebbers (chief executive officer) handled senior manager by explaining that they would lose the
whole thing. Ebbers addressed top-level management that how they will lose everything in case
of non-improvement of the enactment. It has motivated manager to do whatever it consider for
boosting revenues and stay at workplace. Therefore, Sullivan took decision to entries to get
targeted enactment. Sullian fined that the only manner that he as well as two team members
utilised major accounting strategies that accrual release as well as capitalization of line-cost for
manipulating figures for showing that entity is in best position. In conclusion, the pressure or
factors like fulfilling expectations of marketplace, downturn in economy and extreme
competition in sector has lead manager and executive to fraudulently report.

QUESTIONS 2
Answer 2:
The actions taken by WorldCom managers were not noticed previously. The factors are
categorised into external factors as well external factors. These factors are discussed below –
External factors
There is significant role of external auditor in the organisation. They perform like watchdogs and
express opinions of financial report. The auditors are required to adopt principles such as
independence, integrity, objectivity, due care as well as confidentiality. They are also required to
follow technical standards along with professional. However, it can see that Arthur Anderson
(auditor of WorldCom) did not follow most of the principles. In this provided case, there were
certain indications and signals related to fraud. However, auditors did not find fraud as well as
issues for the unqualified audit report for the periods. These facts state that Arthur Anderson
performed audit work with unawareness and ineffectiveness (Panikkar, 2016).
Internal Factors
The senior managers are considered as heart of the organisations. The top level management are
responsible for conducting business operation. In addition, they are also liable to make correct
decision for an entity. In relation to WorldCom, the wrong or fraud people were the people from
top level administration such as Chief financial officer, regulator as well as chief executive
officers. In a case when senior managers were engaged in fraud, then they will utilise influence
in organisation or abuse the powers for getting personal interest as well as cover up track.
Further, if senior managers have involvement in fraudulent activities, there are restricted sources
for assistants for reporting related to fraud. The organisational culture of contributing element for
WorldCom. It is evident that corporate culture is defective or faulty. It resulted into the fraud. In
WorldCom, the workers are proscribed to enquire the supervisor and require them to adopt
provided instructions. On the other hand, the operations are not costumed in the entity. The
different departments have different management styles as well as regulations. In this way, the
communication is significant for organisation. Therefore, the departments can share data and get
more with the help of effective communication. It is also helpful in updating and taking decision
by the reporting. The absence of proper communication was the negative factor in WorldCom. It
is evident that through the relation between supervisor and workers, and between board of
directors and external auditor as well as external auditors. There was limited data to present

QUESTIONS 3
proper image of the organisation. Finally, it was affected by perception and consciousness of
workers. The perception of workers of employees was to follow instructions of supervisor. It was
not for questioning the provided instructions and own work. They do not challenge the manager
or report about doubtful things because of their fear about inevitable consequences. Beyond, the
mindfulness related to fraud is not high. The workers have no knowledge about handling the
situation while the fraud taking place in entity and being wronged by administration (Danescu,
Oncioiu and Spatacean, 2019).
Recommendations
It is recommended that the procedure or system is required to be in place for recognising types of
actions that took place in WorldCom such as increasing corporate governance standards,
implementing whistle blowing policy, increasing efficiency of communication as well as
conducting proactive auditing, in the entity. It is required by the company to follow corporate
governance code. It can see that the corporate governance is a method to review the actions,
approaches as well as decision of the corporations. The obedience of corporate governance code
will increase effectiveness as well as transparency of the performance of company. It will be
helpful in reducing risk of misbehaviour as well as fraud from taking place. Furthermore,
corporation also can use whistle blowing policy in organisation. The workers of company are
delicate to make modifications in the organisation. Additionally, they have knowledge about the
present condition of organisation. The application of whistle-blowing approach will
permit administration to search the flaws in the organisation. In this way, the actions may be
initiated instantly. The information in relation to whistle blower must be kept confidential as well
as reward can be provided in view of that if data provided by whistle blower considers as
appropriate for encouraging whistle-blowing (O’shea, 2019).
Because of critical nature of business, the organisation can ask the auditors to conduct audit on
per annum basis or quarterly basis. This may be regarded as the preventive dimension. The
proactive audit enables auditor to reduce risk or preventing fraud from occurring fraudulent
activities earlier. In addition, it is also required by the organisation to increase communication in
the organisation. The company can establish connection between audit committee, external
auditors, and internal auditors through communication that permits them to share data, state
opinions as well as free from interference of third person. It is also required that the board

QUESTIONS 4
meeting should involve outside directors. In this way, board will be able to do work as per the
decision of management. In addition, audit committee of organisation is also required to conduct
annually review auditor. Review should be conducted on the basis of basic core competencies as
well as performance of entity. The company should also terminate the auditor if he or she does
not fit longer for the post. In this way, it is also required to appoint new auditor (Dan, 2017).
Conclusion
In conclusion, the action initiated by managers is incapable to be noticed in early period for the
reason that the senior management was performing in conspiracy with auditors in hiding the
fraudulent acts. The flawed organisational culture, mind-set, ineffective communication along
with consciousness of workers were also the elements of contribution. The actions like
increasing as well as obeying corporate governance, applying or motivating whistle blowing
approach, increasing communication, seeing performance of auditors will prevent or discover
rapidly categories of actions, which took place in company.
Answer 3:
Board of directors:
BOD is responsible in this matter. The board of directors did not take active participation in
board’s meeting. It is because outside BODs do not see Ebbers, Sullivan or workers outside
of the meeting. An only manner that outside directors can have communication with inside
directors is board meeting. Board meeting is also a good way to know about culture as well as
functions of the company. On the other hand, the number of board meeting is lesser. The meeting
was held only for 6 times in a year. In addition, the meeting only contains short series of
shorter presentation from compensation’s chairman along with stock option committee general
counsel that made discussion about judicial along with administrative issues. It also contains
CFO Sullivan who discussed about economic problems only for 30 minutes (Yow and Tong,
2019).
Further, the duties are not assigned between CEO and Chairman. In the provided situation, Bert
Roberts was the Chairman of BOD. However, Bert Roberts fails to perform his duties or
accountabilities as Chairman (Donelson, Tori and Yust, 2019). The reason is that Roberts gave
his powers to Ebbers (CEO). In this way, Ebbers is Chairman of board in indirect manner. It can

QUESTIONS 5
see Ebbers was at two positions at a same time. It means Ebbers has unencumbered powers. It
shows absence of awareness of board in relation to the matters of financial fraud in the company.
Moreover, the competency is essential to be considered by board in solving the issues. For
overcoming the issues, the Board is required to attend training such as continual professional
development (Thudium, 2018).
External auditors:
As per the ISA 200, it is required to conduct audit in a way to render reasonable assurance of
detecting material frauds as well as errors in financial statement. The auditor of WorldCom,
Arthur Andersen failed to perform his duty in relation to the fraud due to certain reasons. The
main reason is of professional uncertainty (Hengmuhle, 2019). Professional scepticism is
considered as behaviour that involves interrogative mind as well as deep evaluation of audit
service. It can see Arthur Andersen did not apply his investigative mind in considering orderly
corporate general ledger made by General Accounting. It is assumed by him that data recorder by
General Accounting was legal. The auditor’s approach was limited to test account balances.
However, the internal control was unproductive that permitted auditor to overlook severe
shortcomings in internal atmosphere. Additionally, the independency was also absent for Arthur
Andersen. In addition, the company applied limitations on external auditors to access data and
yet they did not record matters to audit committee that they rate obedience of company with
request for data as ‘fair’ (Bedendo, Cathcart and El-Jahel, 2018). These conditions stated that
auditor has interest’s conflict wherever Andersen has wish to establish long-term relation with
company. For that reason, the auditor should utilise professional uncertainty to discover
uncovered fraud. For additional investigation, the auditors should follow some procedures. The
auditor is not required to have communication with a fraud person directly. The reason is that it
can render opportunity to cover the fraud. Henceforth, auditor should develop understanding in
relation to condition. The auditors should with management about the fraud. It is also possible
that they can directly communicate with audit committee if top management is the alleged
committer. It is also required by them to get more evidence and advice of legal counsel as well as
audit committee. Finally, they should resign from engagement depending based on fraud’s
extent. The external auditor should be objective and impartial. They should conduct audit

QUESTIONS 6
with integrity as well as individuality. In this way, Athur Andersen is guilty in this situation
(Fernandes, da Silva and Sartori, 2018).
Conclusion
In conclusion, the BOD as well as auditors are culprit because they did not get success to play
the part in organisation. They should be accountable for occurring fraud in WorldCom.
Answer 4:
In general, the victim is believed to be the person or person’s group who has agonized as the
concern of values of someone, and as outcome of unfriendly situations. In the meantime, the
villain is a person who purposely harms other individuals or violates the provisions of law to
fulfil his desires. In this relation, the question is that whether Betty Vinson is villain or victim
in WorldCom scandal (Qazi and Kashif, 2018). To answer this question, two viewpoints can be
considered like, ethical consideration as well as legal consideration to judge whether Betty
Vinson is villain or victim. The ethical as well as legal considerations are also helpful to know
whether the criminal charge should be imposed (Kumar, 2019). It is clear in this case, Betty
Vinson (Director of Management Reporting) firstly has worried by David Myers, Yates, and
Sullivan to help in getting economic results and to create prohibited entry to the profit at one
time. Being a senior manager, Betty Vinson did work under management. Vinson had faith in the
words of Sullivan. Betty Vinson did work according to the instructions of superior authorities.
Betty Vinson continued to do similar things for the longer period. Therefore, it states that Betty
Vinson was ethically accountable fraud activities in company. In this way, as per both
viewpoints Betty Vinson may be regarded as villain because of her ethical responsibility for the
deceitful activities and for commitments of misconduct or deceitful actions in company.
Henceforth, Vinson must be charged on criminal fraud charge. The additional factors can also be
considered as she begged guilt-ridden (Agbude, et. al, 2017).
Answer 5:
As per the case of WorldCom, the board of directors as well as external auditors should apply
questioning mind at the time of conducting audit and implementing internal control system. They
should be aware about the frauds, mistakes, as well as errors. They should follow ethical
standards and auditing standards (Shen, 2017). Moreover, the workers should have knowledge

QUESTIONS 7
about the steps to be taken to solve the dilemma that are in against of the ethical values. They
should know that what they can do when they feel disrupted for doing something that ordered by
the manger. In the meantime, the workers are required to be careful in following the regulations
as well as regulations like whistle blowing as it is not a subject of unawareness. Firstly, the
workers are required to consider future assured actions to confront ethical dilemma. They should
follow the code of ethics as per the guidelines. In case of WorldCom, there were no in written
policies for administration practices and rules itself yet code of ethics. Additionally, the workers
should take ethical decision that involves “right v. wrong” decision as the one where there is
correct (moral) choice and wrong (immoral) choice. Further, the employees can use whistle-
blowing policy to state misconduct, alleged deceitful or unlawful activities taking place in
company (Chang, Seow and Tam, 2019).

QUESTIONS 8
References
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Existentialist Assessment. Covenant International Journal of Psychology, 2(1).
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University press
Bedendo, M., Cathcart, L. and El-Jahel, L. (2018) Reputational shocks and the information
content of credit ratings. Journal of Financial Stability, 34, pp.44-60.
Chang, S.A., Seow, G. and Tam, K., (2019) Debugging Debugging. Journal of Multidisciplinary
Research, 11(1), pp.51-64.
Dan, A.K., (2017) Creative Accounting–a Creation for Destruction: with Reference to Some
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FASB Reporting for Public Corporations. USA : Routledge

QUESTIONS 9
Qazi, I. and Kashif, S., (2018) Investment Inertia: A Choice Overload of Investors. Available at
SSRN 3183617.
Shen, M., (2017) Labor Market Consequences of Restatements for Corporate Accountants.
Thudium, L.B., (2018) A Comprehensive Collection of Accounting Methods and Principles: A
Case by Case Analysis (Doctoral dissertation, University of Mississippi). USA : Routledge
Yow, W.T. and Tong, D., (2019) Case Analysis 3:“Managers Don’t Have All the Answers”.
Oxford: Oxford University press