Worldcom Case: Ethicality of Accounting Activities

WorldCom Case: Ethicality of Accounting Activities

For a time, WorldCom, Inc. was the United States second largest long distance phone company who provided telecommunications internationally. The company expanded its operation by acquiring other telecom carriers, which led the company to success. However, in 2002, the company filed for bankruptcy because of accounting fraud and unethical issues.

Financial reports are presented on a daily basis in the business world. The reports are used to determine the stability of the company. In the case of WorldCom, the ethicality of their financial reporting of capital expenditures was in violation of the American Institute of Certified Public Accountants (AICPA) principles. These principles were adapted for the field of accountancy in an effort to avoid inaccurate ethical decisions. WorldCom’s code of conduct was ineffective because the organizations values were deterministic and material. The executive leaders used power, fear, and intimidation to lead their employees down the wrong path.

The key accounting activity involved in the WorldCom case was their liberal interpretation of accounting rules in regards to the reporting of capital expenditures. WorldCom’s decision to increase shareholder value at any cost led executives into breeding a culture of greed. Several aspects of accounting are based on ethical decision making skills and sound professional judgment. The executive leaders of WorldCom chose to classify the costs associated with leased fiber optic lines as capital assets on the balance sheet rather than properly expensing the costs as they were incurred (Mintz & Morris, 2011). This decision resulted in masking their declining earnings by painting a false picture of financial growth and profitability to inflate the price of WorldCom’s stock ("Report Of Investigation By The Special Investigative Committee Of The Board Of Directors Of WorldCom, Inc.", 2003).

The rules of AICPA Code of Professional Conduct are...