Case Study Analysis: Arthur Andersen, WorldCom, and Insurance Ethics

This report provides a comprehensive analysis of three significant case studies: Arthur Andersen's downfall, WorldCom's accounting manipulations, and the ethical implications of insurance and genetically inherited diseases. The Arthur Andersen case examines the firm's flawed governance, its focus on revenue over ethical compliance, and the consequences of its actions, including the destruction of Enron audit documents. The WorldCom case delves into accounting manipulations, including the improper handling of expenses and the creation of reserves to inflate income, leading to the CEO's conviction. The insurance ethics case explores the proposed legislation against genetic discrimination, discussing the theory of adverse selection and the ethical considerations surrounding genetic testing and its potential impact on individuals' access to insurance. The report highlights the importance of ethical conduct, adherence to GAAP, and the need to prioritize public interest in financial and insurance practices.

Assignment

CASE STUDY: ARTHUR ANDERSEN'S TROUBLES
Introduction
The case is relating to the largest professional service firm which was once part of Big 5
accounting firms i.e. AA which is now Big 4. The AA partners were motivated by revenue
generation but due to enhancement in risk taking the unfavourable consequences were also
enhanced. It was the only one in Big 5 which allowed the partner to override a ruling of quality
control partner, thus the decision was taken by person who give importance to potential loss of
revenue rather than compliance with GAAP.
Main Body
The main issues with Arthur Andersen (AA) were firms flawed governance system which
focuses on profit rather than firm fiduciary interest and public interest. The same can be accessed
from the decision taken by AA in case of Enron, Waste Management as well as Sunbeam failure
in which it was revealed that it was only interest in revenue generation. Even the final
disintegration of AA was caused by decision relating to shred Enron audit documents and
conviction charge of obstruction of justice (Kumar & Lim, 2015). The justification provided by
lawyer of AA was that they were complying the policy relating with destruction of extraneous
and redundant material. But due to lack of relevance it was not able to prove the same.
Conclusion
It can be concluded that it is necessary for every audit firm to comply with GAAP and require
emphasizing on public interest rather than revenue generating. The same was not complied by
AA, thus eventually it was fined for $500000 and place for five years probation.

WORLDCOM’S ACCOUNTING MANIPULATIONS
Introduction
WorldCom’s accounting manipulation comprises easy to spot types of fraud. The main reason
behind overstatement of cash flow and income was that fees paid to third party
telecommunication network provider for right to access the third parties network. The specified
cost should have been expensed but same was offset by capital transfer or charge against capital
accounts in order to raise the income. Further additional reserves were created which enhances
the profit too. Thus the principles complied by company comprise accounting manipulations.
Main Body
WorldCom accounting manipulation comprises accounting of expenses in appropriate manner
and developing reserves in order to inflate the income. The motivation mechanisms were applied
by the company in order to boost the profit and protect the company to present its actual
financial position (Bhasin, 2016). In 2001 when it was assessed that the company was not
possible to draw down its reserve in order to offset line cost it inflated its income. Even
investigation revealed that Bernard Ebbers, the CEO was loaned $408.2 million. The same was
required to be applied for buying World Com stock or for margin calls but it was used for
constructing new home and other personal use.
Conclusion
It can be concluded that appropriate punishment was provided to the CEO of company Ebbers
for manipulation and other injustice acts; i.e. is of twenty five years federal prison and was
sentenced for five years in federal prison.

CASE STUDY: ETHICS CASE: INSURANCE AND GENETICALLY
INHERITED DISEASES
Issue
The proposed legislation of Wasylycia-Leis against genetic discrimination is appropriate as it is
based on the theory of adverse selection. The theory asserts that one party has information
advantage over other party and same can be misused for other party’s advantage. Marron and
Joffe (2017) asserted the three core reasons on the basis of which argument can be made against
genetic discrimination are that people who carry genes that code provide detail relating to
specific disease which might or might not develop in them.
Main Body
The proposed legislation of Wasylycia-Leis against genetic discrimination is appropriate as it is
based on the theory of adverse selection. The theory asserts that one party has information
advantage over other party and same can be misused for other party’s advantage. Marron and
Joffe (2017) asserted the three core reasons on the basis of which argument can be made against
genetic discrimination are that people who carry genes that code provide detail relating to
specific disease which might or might not develop in them. The fact that they might have to face
the symptoms of the disease would not allow them to live freely and they will always over think
about same (Bartels, LeRoy, and Caplan, 2017). Further, it is possible that individuals wanted to
take test relating to health but are afraid as they have fear that the result will be used against
them.

Conclusion
It can be concluded that Genetic Discrimination is necessarily to be done but in positive manner.
The information attained through genetic test could be applied by individual to take essential
safety steps in advance so that they could face the issue or disease when its symptoms are
actually seen by them. A minor pre-cure or safety- measures might lead them to a better future.

REFERENCES
Bartels, D. M., LeRoy, B. S., & Caplan, A. L. (2017). Genetic counseling: Ethical challenges
and consequences. Routledge.
Bhasin, M. L. (2016). Accounting manipulation practices in financial statements: An experience
of an Asian economy. International Journal of Economics and Financial Research, 2(11),
199-214.
Kumar, K., & Lim, L. (2015). Was Andersen’s audit quality lower than its peers? A comparative
analysis of audit quality. Managerial Auditing Journal, 30(8/9), 911-962.
Marron, J. M., & Joffe, S. (2017). Ethical considerations in genomic testing for hematologic
disorders. Blood, 130(4), 460-465.