Accounting Fraud at WorldCom
WorldCom started expanding a lot because of which the different people in the organization became very distant. People did not know others in the organization because of which the communication became very weak. Each department had formed its own culture and they were following it.
The culture was very bureaucratic and all the communication was top to down. The lower level of management was given the authority to question the seniors in the organization. The employees were expected to do whatever their higher staff told them, no matter how unethical it was. The people were not awarded on the basis of merit. The employees also felt helpless and did not know who to talk about their problems.
Such practices in the culture of the organization encourage people to hide information and do not disclose it. People who were bothered to report activities were not given the authority to raise their concerns. They did not know who to contact and where to express their concerns. The environment was such which supported the activities of misrepresenting information. As a result, the accounting information was incorrectly stated which resulted in the accounting fraud.
Discuss how the CEOs desire to be the 1 stock on Wall Street contributed to the fraud.
According to the CEOs desire to be the Number 1 stock on Wall Street, the employees in the organization set their eyes on increasing the revenue. This was the only way the price of the company shares would increase. In order to gain this goal of increasing the revenue, people started doing whatever they could. They started spending and making investments which were not beneficial for the organization in the long term. They entered into long term fixed rate leases for network capacities in order to meet the increasing demand of its customer base. The broader picture was ignored which led to the fraud. The demand for telecommunication later on fell and during the time it was low, the company was paying for these leases for no reason. Some companies left the industry and the ones that stayed reduced the prices so much that WorldCom was forced to match. The company tried to maintain the Expense to Revenue ratio and in this attempt, it used accrual releases and expense capitalization which are accounting tactics used to achieve targeted performance.
Given the pressure on Accountants to book and release accruals to meet expected results, how might an Accountant go about handling this type of situation
This is a very complicated situation which often puts people like these accountants in a very difficult situation. There is a dilemma and the people have to make a choice. Each choice will have a different result. What choice the person makes depends from case to case. In such a situation where there is pressure from the higher ups, a lower level employee can use a method called whistle blowing. In this method, the lower level of employee contacts anyone who can be of help if he or she feels that there is some wrong happening in the organization (Kietzman, S., 2003). However, it is very important that the employee knows the right person who can be told in such a situation. When using whistle blowing, there are a number of factors that need to be kept in account. These include the seriousness of wrong being done in the organization or whether an action will be taken against the person doing the wrong or not.
Whistle blowing can be done internally or externally. Internal whistle blowing is when an employee tells someone about the wrong happening in the organization within the organization only. For instance, if an employee tells another employee about something wrong happening in the organization, it would be internal whistle blowing. On the other hand, we have external whistle blowing. This is when the employee tells someone from outside the organization about something wrong thats happening within the organization. An example of this could be informing the law enforcement agency about something wrong happening in the organization (Kietzman, S., 2003).
Discuss the pros and cons of whistle blowing. Would you be more likely to blow the whistle or not Explain your answer.
Although it seems like whistle blowing does not have any pros, it is not the case. Firstly, whistle blowing allows once to have a clear conscience. When you know that you did whatever was in your hands, you feel relieved. In addition to this, it makes people around you believe that you will always deal with situation honestly, no matter what. In short, it would make you and others feel good about yourself (Young, A.S, 2002).
On the other hand, there are also drawbacks of whistle blowing. When an employee reports of something wrong happening in an organization, the guilty person might take an action against that employee which may harm him or her. Getting threatened, mental pressure, being intimidated are some of the very few outcomes of whistle blowing (Young, A.S, 2002).
It takes a lot of courage to blow the whistle and because of this many people do not do it. The bitter fact is that it is never a safe move. When an employee points out something wrong that is taking place within the organization, it could always backfire and the employee will not get anything out of it. However, when someone has faith in their decision and themselves, they do not hesitate.
As mentioned before, I would consider a number of factors before I actually blow the whistle. I would have to keep in mind whats at stake. Only once I have weighed both the sides, I will decide whether I will blow the whistle or not. Therefore, my response to this is very situation specific.
Discuss the creditability of the Accounting Profession when Corporate fraud is unveiled.
When people talk about corporate frauds, the accounting department is mostly in one way or the other way responsible. This often makes the people believe that the accounting profession is not credible. It is true that the accounting personnel have a lot of chances of committing fraud and this is what makes the profession so difficult. There is this trust that needs to be developed and then only the employee can properly form.
There are a number of restrictions that accounting personnel must follow and standards that they must meet. One relevant to the case concept that is often used is Statements of Financial Accounting Concepts No. 1 which is Objectives of Financial Reporting by Business Enterprises. According to this, financial reporting is always done for an objective. In this case, financial reporting was misrepresented in order to make the companys reality different from what it actually was (Financial Accounting Standards Board, 2008).
Statement of Financial Accounting Concepts No. 5 which is Recognition and Measurement in Financial Statements of Business Enterprises is another statement that applies to this case. This statement outlines what information should be included in the financial statements and how this information should be measured.
I do not think that the existence of corporate fraud would affect the credibility of the profession as a whole because this would be stereotyping. A lot of corporate frauds are done by people in other departments therefore it does not make sense to doubt their credibility. Therefore, corporate fraud like the one at WorldCom does not affect the creditability of the accounting profession to any extent.
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