http://www.scu.edu/ethics/dialogue/candc/cases/worldcom-update.html
On June 25, 2002, WorldCom, the Nation’s second largest long distance telecommunications company, announced that it had overstated earnings in 2001 and the first quarter of 2002 by more than $3.8 billion. The announcement stunned financial analysts and, coming on top of accounting problems at other corporations, had a noticeable effect on the financial markets.
The accounting maneuver responsible for the overstatement – classifying payments for using other companies’ communications networks as capital expenditures – was characterized by the press as scandalous, and it was immediately asked why Arthur Andersen, the company’s outside auditor at the time, had not detected it. WorldCom filed for bankruptcy protection on July 21. On August 8, the company announced that it had also manipulated its reserve accounts in recent years, affecting an additional $3.8 billion. Response in Washington was swift. On June 26, the U.S. Securities and Exchange Commission (SEC) charged the company with massive accounting fraud and quickly obtained court order barring the company from destroying financial records, limiting its payments to past and current executives, and requiring an independent monitor. Hearings were held by the House Committee on Financial Services on July 8 and by the Senate Committee on Commerce, Science, and Transportation on July 30. Several company officials have been indicted. The fundamental economic problem confronting WorldCom is the vast oversupply in the Nation’s telecommunications capacity, a byproduct of overly optimistic projections of Internet growth. WorldCom and other telecommunications firms faced reduced demand as the dot–com boom ended and the economy entered recession. Their revenues have fallen short of expectations, while the debt they took on to finance expansion remains high. As the stock market value of these firms has plunged, corporate management has had a powerful incentive to engage in accounting practices that conceal bad news.
When WorldCom, the telecommunications giant, failed and was put into bankruptcy, the U.S. witnessed one of the largest accounting frauds in history. Former CEO, Bernie Ebbers, 63, was convicted of orchestrating this US$11 billion accounting fraud and was sentenced to 25 years in prison on July 13, 2005. WorldCom made major accounting misstatements that hid the increasingly perilous financial condition of the company. The Report described the accounting shenanigans as follows: “… As enormous as the fraud was, it was accomplished in a relatively mundane way: more than $9 billion in false or unsupported accounting entries were made in WorldCom’s financial systems in order to achieve desired reported financial results.
In the end, I want to say that professional accountants should never compromise ethical standards. They must uphold the high ethical standards because they are one of the Deloitte’s core shared value. There should be professional competence, confidence, integrity and objectivity in professional accountants. They should only take tasks that can be completed with professional competence. If professional accountants carry in their minds the ethical factors, this will help them to carry out their responsibilities with sufficient care and diligence. Listing ethics as first core value in accounting sends a message internally and externally that they are the foundations of everything that an accountant does for success. In short ethics are the highway to success for professional accountants.
Xitong He 