How might these new policy help prevent financial statement

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Reference no: EM131983685

Assignment : Could 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.

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?

Answer in 1-2 paragraph

Reference no: EM131983685

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