Could the WorldCom Scam been Avoided?

Under the direction of CEO and co-founder Bernie Ebbers, WorldCom  grew to become one of the largest telecom companies in the world. Ebbers  was a growth advocate, acquiring more than 50 different firms. One of  its biggest acquisitions was in 1997, when MCI was acquired for roughly  $37 billion. In less than two decades, WorldCom had grown from a small  telephone company to a corporate giant, controlling about half of the  U.S. Internet traffic and handling at least half of the e-mail traffic  throughout the world. Having once been a highest-performing stock  company, a plunge in 2002 forced the company into bankruptcy. During its  success, WorldCom had established a large reserve account, from which  monies were pulled to cover decreasing revenues, without auditor or  investor knowledge. As these reserves dwindled, the company CFO, Scott  Sullivan, ordered accountants to reclassify many of the company’s  OPERATING expenses as CAPITAL expenses. The result was an increase in  operating income and a corresponding strengthening of the balance sheet  to the tune of almost $4 billion. Eventually detected by auditors, the  company was forced to file the largest Chapter 11 bankruptcy ever  recorded. Thousands of employees lost not only their jobs, but also  their entire retirement savings. The fraud cost investors billions of  dollars as the company quickly went from a multibillion-dollar franchise  to bankruptcy. Several company executives were indicted on counts of  conspiracy and security fraud. The main perpetrator, Scott Sullivan  (CFO), received a sentence requiring him to pay as much as $25 million  in fines and serve up to 65 years in prison.

Using both the required text and external resources, address the  question provided below. Responses should be unique and incorporate your  personal perspectives that are supported by reading and research.  Initial comments should be 1-2 paragraphs in length for each point.  Follow-up postings should not exceed a paragraph and should add  additional information or perspective to the original author’s comments.

The Sarbanes-Oxley Act of 2002 has, in many ways, changed the role of  financial statement auditors. In addition to ensuring financial  statement accuracy, independent auditors are now required to review a  company’s internal controls and report their assessments in the  company’s annual report. How might these new policies help prevent  financial statement fraud from occurring?

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