Xacc/280 Worldcom Scandal

1/11/2012

XACC/280

Week 8 Check Point: Impact of Unethical Behavior

This checkpoint will explain the unethical practices displayed by WorldCom a company based out of Mississippi. According to “CBS News” (2012), “The telecommunications company said it had fired Chief Financial Officer Scott Sullivan, and accepted the resignation of senior vice president and controller David Myers, after an internal audit found improper accounting of more than $3.8 billion in expenses over five quarters” (World-Class Scandal at WorldCom). The external firm performing an audit said the management team was shocked by their discoveries. The company reportedly inflated earnings through their bookkeeping to the tune of $3.8 billion by reporting operating costs as long-term investments. This was accomplished by posting operating expenses such as salaries as long-term investments on their balance sheet. The proper way to record the salaries expense would have been to post the expenses in the income statement. Because they improperly recorded the expenses as investments, they overstated their assets while substantially understating expenses. Therefore, expenses were greatly devalued resulting in artificially inflated profit margins. Because the company was falsely reporting its financial status, this led to overvalued stock.

If I had been involved in the accounting process at WorldCom, I would have lost my position with the company. I would have brought the errors to the attention of my supervisors. However, there must have been cooperation within the company to pull a scandal of this magnitude off for so long. I would document my findings and got them in writing. I would not want to be held personally accountable for the actions on behalf of WorldCom. After obtaining necessary proof, I would have turned the information over to authorities. . Of course, I would have documented the salaries as expenses under operating costs rather than investments.

There were many things the...