Professional Documents
Culture Documents
Ê
In 1998, the telecommunications industry began to slow
down and WorldCom's stock was declining. CEO came under
increasing pressure from banks to cover margin calls on his
WorldCom. Beginning in 1999 and continuing through May
2002, WorldCom used shady accounting methods to mask its
declining financial condition by falsely professing financial
growth and profitability to increase the price of WorldCom's
stock.
HHISHAPPÊ
he fraud was accomplished in two main ways.
First, WorldCom's accounting department
underreported 'line costs' (expenses with other
telecommunication companies) by capitalizing these
costs on the balance sheet rather than properly
expensing them.
Second, the company inflated revenues with bogus
accounting entries from corporate unallocated revenue
accounts.
H
NE INCOME
xxx (Huge Increase)
x Î
2
,
"
3
&
&
x Î
4
,3
x Î
,
+(
$3
&
&
x Î
12
5
(
6
3+ 2
5
(
+
%&
%
x Î%
)3
ÑÑ
x Ñ,&$--./S01 )$%2Ñ2&$--./3+1 Ñ2)$%'./1
740!71
19
*47/-
09198#978)
740!71
<&
<
<%
è
-
6
<
%<''
<
== '<
* >
,
+
<&%
<
== <%
7
<
&
== %<
#
&<
+
<
%<&%
<%
è
0 ,=
+
<
<
== '<
8 "
+
< &
<&'
== <'%
1
<%
== == <%
+
(
"
'&
== == '&
) ?
5
#
+
?
5
&%<&
<%
<%
&<
@@@@@@@
@@@@@@@
@@@@@@@
@@@@@@@
x
<'%%
3
'<'
74;98*
-9#0
74
/448#
4#97
#:
:9*:4
#:9)
4#97
#:
##4
#7
1#
#:94
/448#
709*#978)
S 0
0
0
0 4| |
A"5()6#")(6')
| | | |
".5%(-'-.)6(6-7.-()7#
HÊÊ
8+&)(&''&( 00
))
9 + (
0 :
S
+$
+ 0
))
9 + &''59 I$
)6(&''6
* Ê99 Ê
0 +0
0( + 0 0
$H
&6+ $
!
S9 < =+A
"# "#
x our auditor (and therefore, you should)
maintain all audit related records, including electronic
ones, for seven years.
x Firms that audit your companyǯs books
can no longer provide you with I related services.
x ou must provide systems or procedures
that allow employees to communicate effectively with
the audit committee.
S9 < =+A
"# "#
x our CEO and CFO must sign
statements verifying the completeness and accuracy of
financial reports.
x CEOǯs, CFOǯs and outside auditors must
attest to the effectiveness and accuracy of financial
reports.
x Companies must report material
changes in their financial conditions Dzon a rapid and
current basis.dz he act calls it Dzreal timedz disclosure but
is unclear on what it means.
S9 <=+A
!& '
# $
%
7
7
>
A"2B
5
(
<< 3
"
(
"
(
" C
(
"
(
%
3
9(
A>
(B
5
>
A" B
<
<
3
" "<
"<
"
"
>
(
,
,
(
"
"
((
"
"
,
!
!
#0S9 .=+
(( (
he jobs of the CEO, CFO & CIO got tougher on
July 30, 2002 the day the Sarbanes Oxley Act
was signed. he legislation requires significant
changes to financial practices and corporate
governance, and touches all corporate areas
including technology. For the first time ever, the
CFO and CEO can look a CIO in the eye and say,
'Guess what, you're on the hook with us.'
S+ Ê=
x m
x àeport parameter changes are documented
x Data that generates financial statements is accurate
x
x Costing is accurately assigned
x r
x Approved suppliers are used
x Approval limits cannot be easily manipulated
x
x Duplicate customers
x Credit limits
0 Ê=
x
!""
x Accurate reporting
x !
x Separation of functions to minimize risk of fraud
x Audit changes to sensitive data
x Approval processes for creation of financial data
x m
r
x Ensure all month/year end activities are completed
* 00
=+A
"#$m#%
&'
(
$)
) $
*(
) +,
,
,
,
-
.
Ê S
x
Ê
A +Ê (
>
+ +
( (
+0 A
A $
x 9)?(&'')(
0 @
ë
.
A0"?)% $
Ê S
x On October 22, 2001, the Securities and
Exchange Commission (SEC) begins an
inquiry into Enronǯs accounting practices.
$
$ C
C&''&C'?&?
$
4CC0 $ C
$=;9I =D& ID#)7?')
+D
+D))?&%DE&00$=E#0E#E&? E
#9 E#E&? E#