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