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Posted on April 16th, 2014, by

  1. 1.      Using the Myers-Briggs and Keirsey personality test, Ms. Cooper was categorized as introspective, intuitive, a thinker and judgmental.

a. How did these qualities help her lead her internal audit team?

Being introspective, intuitive, a thinker and judgmental Ms. Cooper has managed to conduct the accurate investigation of WorldCom fraud and lead her team to the discovery of fraudulent accounting entries. When she has just started her investigation, she had no facts that would indicate to accounting fraud. Instead, her intuition helped her to dig deeper into accounting books of WorldCom, while her introspective mind and critical, analytical thinking skills helped her to reveal the fraud.

b. How could these qualities possibly hurt Ms. Cooper in her continuing career?

However, these qualities could prevent Ms. Cooper from career development because top executives do not like such subordinates that can look deeper than leaders do. Leaders do not appreciate subordinates, who challenge their decisions and who are plotting against them, since Ms. Cooper created the team investigating the WorldCom case but, if there were no frauds, her work would aim against the top executives of the company and undermine their authority in the company.

  1. 2.      How would you describe your personality? How would your personality traits help you in an accounting career? How could these personality traits possibly slow down the progress of your career?

I am success-oriented, reasonable, a thinker and analytical. I believe these qualities will help me a lot in my accounting career because the accurate analysis and reasonable decisions are essential in accounting. In addition, these qualities minimize the risk of errors, since I do not take decisions hastily. On the other hand, these traits may slow down my progress because I avoid taking risky decisions, which though can bring me to the fast success.

3. Why was Ms. Cooper uncomfortable with taking on the role of performing a financial audit? What is the normal role of internal auditors? (This question will require research on your part.)

 Ms. Cooper feels uncomfortable because she actually has to conduct the in-depth investigation and even crashing the company’s computers. These tasks go far beyond a normal role of an internal auditor. Instead, internal auditors basically conduct the audit focusing on revelation of possible errors and checking accounting reports and entries, without in-depth investigations, which are the prerogative of external auditors. Internal auditors just work to enhance accuracy of the company’s accounting.

4. On March 7, 2002, the SEC surprised Worldcom with a Request for Information. What led the SEC to issue this request? Does the SEC have the legal authority to compel Worldcom to provide the information? What authority has Congress given to the SEC? (This question will require research on your part.)

The SEC had the authority to request for information and monitor public corporations. Under the Securities Exchange Act of 1934 and Sarbanes-Oxley Act of 2002, the SEC has the authority to monitor public corporations and their accounting, in case of suspects concerning their accounting and financial performance. If frauds are uncovered, the SEC has the authority to lay legal and financial liabilities on companies violating existing regulations.

5. How are capital expenditures different from operating costs? What is the difference in impact on profits of these two items? What exactly was the fraudulent reporting that Worldcom perpetrated? Given our discussion of chapter 2, what accounting principles/concepts were violated by this fraudulent reporting?

Capital expenditures are expenditures creating future benefits, while operating costs are expenditures which the company spends at the moment to perform its regular operations without the clear aim of obtaining profits in the future. Operating costs just allow the company to maintain its regular performance, while capital expenditures lay the foundation to the future profits of the company. The fraudulent reporting of WorldCom led to the deception of stakeholders concerning expected profits of the company, which were substantially higher than the real profits of WorldCom.

6. When KPMG took over as the auditor of Worldcom, what communication (if any) is required with the predecessor auditor, Arthur Andersen? (This question will require research on your part.)

Arthur Andersen should provide KPMG with report on the audit conducted in WorldCom and KPMG could use this information for the further investigation of WorldCom accounting system and books.

7. What ethical dilemmas did Ms. Cooper have to face when Gene Morse found an accounting entry for $500 million without any invoices or documentation in May 2001? At what point (according to the article) did Ms. Cooper realize that fraud was being perpetrated by management?

Ms Cooper faced the ethical dilemma of choosing between her loyalty to the company and uncovering the truth about the evident fraud since $500 million without any invoices and documentation gave clear insight toward accounting frauds being used and covered by top executives of WorldCom. Ms. Cooper was apparently aware of consequences of her discovery and its publicity for the company since the revelation of such a fraud could put under a threat the survival of the company. In fact, as she investigated the case in-depth she had uncovered the fraud and the scheme used by WorldCom’s top executives.

8. How did these events at Worldcom impact the public’s image of accounting? (This question will require research on your part).

WorldCom’s scandal undermined the confidence of the public in accounting in the US. Traditionally, the business is grounded on mutual trust without which the successful development of business is virtually impossible. However, the case of WorldCom raised doubts of the public in the fairness and transparency of business in the US. Hence, investors became disinterested in investments in the US companies, because they have proved to be unreliable and fraudulent as was the case of WorldCom. The US society also perceived the WorldCom scandal in the negative light, since the behemoth of the US economy has proved to be a fraudulent company. The fraud made by top executives put under a threat the future of thousands of employees, who became hostages of the situation, when fraudulent top executives ruin the huge company sweeping out thousands of employees, who have become jobless after the downfall of such a behemoth as WorldCom.

9. Given the potential personal costs of whistle-blowing, why should accountants whistle-blow?

Accountants should not appreciate their personal interests above all. Instead, they should focus on interests of their company and its employees. In fact, accountants should whistle-blow to prevent disastrous effects of accounting frauds. The sooner frauds are uncovered the better for stakeholders. If accountants report immediately, the fraudulent scheme will not work for a long time. Hence, negative effects of the fraud will be minimal.

On the other hand, accountants should be aware of the fact that, if they uncover fraudulent schemes but do not report to law enforcement agencies of the SEC, they become liable to the legal prosecution because, being informed of a fraud they have to report on it. Otherwise, they become involved in the fraud.

10. Research: Find an article that discusses how a specific company (other than Worldcom) was caught in a fraudulent scheme. Summarize what happened and whether the company is still in operation.

Enron financial scandal was similar to that of WorldCom and Enron scandal led to the bankruptcy of the company. Enron top executives also cooked their accounting books to present the financial position of the company better. They presented revenues and profits of the company higher than they really were. As a result, when the deception was uncovered, Enron turned out to be in a poor financial position, while the publicity of the scandal was the last straw that put the end to the behemoth.

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