Question

Please answer the following questions:

1. Specifically explain the two accounting methods that WorldCom used to commit fraud?

2. What were the pressures that led executives to commit fraud at WorldCom?

3. Were the external auditors and board of directors blameworthy in this case? Why or why not?

4 .Specifically, how was the fraud discovered? Do you agree or disagree with the actions taken to discover it?

5. Was Betty Vinson a victim or villain? Should criminal fraud chargers have been brought against her?

Answer 1

1. Classifying revenue expenditures as capital expenditures and subsequently not impairing the capital assets are the two accounting methods WorldCom used to commit fraud and subsequently push its profits to meet targets.

2. Wall street targets were the only pressures that forced the senior management to commit such a fraud so as to be able to inflate its earnings.

3. The board of directors are definitely blameworthy in this mishap as it was on their instructions the transactions so took place and it went on happening. The external auditors could be blameworthy if it could be proved clearly that they failed to carry out their duties or were negligent in carrying out their duties or could have easily detected the fraud had they worked more vigilantly.

4. The fraud was discovered when the corporate finance director used the term 'prepaid capacity' in one of the meetings with the auditors and no one had ever heard the term before. This led to the audit team searching and unearthing more of the transactions and eventually realizing a fraud of 3.8B $ in the financial statements.

5. I would say she was both, villian because she also took part in the fraud and abbetted to the crime without questioning or raising a voice. Victim because obviously it wasn't her intention to commit the fraud and she was only following her senior's instructions.

I hope the above solution is what you were looking for. For any further queries or doubts in the solution, please feel free to drop a comment. Please do leave a positive feedback, Thank you :)