...WorldCom’s Ethics and Competitiveness By NaShawn Branch “A man without ethics is a wild beast loosed upon this world.” - Albert Camus Nobel Peace prizewinner, Albert Camus compared the actions of an unethical man equal to that of a beast. Following Mr. Camus’s assumptions leads one to question, are business leaders who act in an unethical manner considered beastly? How have unethical business leaders changed the way in which companies do business? All businesspersons that act in an unethical manner, regardless on the time era, eventually fail and the ramifications always affect society in the long-term. The socially irresponsible and illegal behavior by these organizations and their leaders cause hardship for thousands of people, damage the loosely woven fabric of civil society, and contribute in creating a moral climate of distrust and cynicism. (Berry & Workman, 2007) Consequently, the lack of integrity degrades the public perceptions and therefore companies become financially bankrupt. The purpose of this paper is to outline unethical violations using World Com as an example. This paper examines the cultural context, the adverse change in business practices, and new research on ethics in the communications industry. Cultural context in the WorldCom Before MCI acquired WorldCom, this was the ‘goliath’ of the communications industry. WorldCom was one of the largest telecommunications companies with nearly $160 billion in assets. In 2002, the entire...
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...Running Head: WORLDCOM AND ETHICS IN ACCOUNTING 1 WorldCom and Ethics in Accounting Brian Bartram Professor Hogan Strayer University Accounting 557 11/05/2012 WORLDCOM AND ETHICS IN ACCOUNTING 2 There have been many corporate and ethical breeches over the years in financial record keeping but it is believed that the current business and regulatory environment is conducive to ethical behavior. Unfortunately, publically traded companies have been prone to the proverb “one bad apple spoils the barrel”. When unethical practices are exposed, of a publically traded company, the effects can be tremendous and affect every individual or entity that is tied to the organization. For ethical principles to apply to companies, it must be shown that they can be considered moral or ethically responsible institutions. The Securities and Exchange Commission (SEC) is a US regulatory agency that has the authority to establish accounting standards for publically traded companies ("Quickmba financial accounting," 2010). When the SEC was established in 1934 there was no accounting standards issuing body. The SEC has encouraged the private sector to set the standards. In 1939, encouraged by the SEC, the American Institute of Certified Public Accounts (AICPA) formed the Committee on Accounting Procedure (CAP) which dealt with accounting issues as they arose from 1939 to 1959...
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...Ethics Assignment: Worldcom case Introduction: On 21 July 2002, WorldCom, Inc., the then-second largest telecommunications company in the U.S. filed bankruptcy protection. Its failure was due to its executives’ bad business behaviors to manipulate earnings with improper accounting entries. The key persons involved in the fraud were as follows; CEO Bernard Ebbers, CFO Scott Sullivan, the accountants were Bufford Yates (Director of General Accounting), David Meyers (Controller), Troy Norman (Director of Legal Entity Accounting), and Betty Vinson (Director of Management Reporting), pressured by CEO and CFO to prepare improper accounting entries. Those executives and accountants were convicted of securities fraud and received federal jail sentences after the manipulation came out in public. What institutional setting and pressures is Betty Vinson exposed to? WorldCom profits gone down in October 2000, and Better Vinson’s boss, Buford Yates (Jr. Director of General Accounting) asked her and another manager to release $828 million of line accruals into the income statement. The company was facing revenue and pricing pressure then, and the CEO had threatened his staffs about how he and other directors would lose everything if the company did not improve its performance. WorldCom’s corporate culture of encouraging “systemic attitude conveyed from the top down that employees should not question their superiors, but simply do what they were told” also made it more difficult for Vinson...
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...ETHICS IN ACCOUNTING: THE WORLDCOM INC. SCANDAL Conf.univ.dr. Lucian Cernuşca “Aurel Vlaicu” University, Arad, str. Piaţa Sporturilor, nr. 10, bl. 25, apt. 7, 310167 Arad, Phone: 0730468534, luciancernusca@gmail.com What is ethics? What does ethics have to do with accounting? How does a scandal affect the business environment and the society? This article will explain just those questions by analyzing a “famous” fraud scandal: WorldCom Inc. The article discusses the chronology of events that lead to the WorldCom Inc. collapse and explains how the figures were manipulated for the owners’ interest and what the accounting scam was. The article ends with the consequences of the scandal and what the effects were on the society and business environment in general. JEL Classification: M4 Accounting and Auditing Key words: ethics, accounting, bankruptcy, WorldCom Inc., expenses. What is ethics? Why ethics in accounting? Ethical values are the foundations on which a civilized society is based on. Without them, the civilization collapses. In business, the purpose of ethics is to direct business men and women to abide by a code of conduct that facilitates public confidence in their product and services. In the accounting field, professional accounting organizations recognize the accounting profession’s responsibility to provide ethical guidelines to its members. Ethics must and should be taught. People are not born with the desire to be ethical or be concerned with...
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...Ethics in Accounting and the Fall of WorldCom Alison Painter Breeden Juanita S. Edwards, CPA ACC 557: Financial Accounting 23 January 2013 Ethics in Accounting and the Fall of WorldCom In 2002, WorldCom was the second largest telecommunications company in the United States, but because of management failures and an unethical accounting culture it went bankrupt. This paper contains a discussion describing corporate ethics currently used in business; WorldCom's background, and the ethical breach; how WorldCom's ethical issue was discovered, describing how management failed to create an ethical environment; and recommendations. A conclusion summarizes the paper. Corporate Ethics If a company is driven by its responsibility to its Shareholders, then it should base its decisions and actions on the best interests of the owners, and generate more profit. If the company is stake-holder driven then its decisions and actions should be based on what is in the best interest of those impacted by the business (Gruble, 2011). Gruble (2011) further argued that "The most widely accepted definition for business ethics says that it is a set of corporate values and codes of principles, which may be written or unwritten, by which a company evaluates its actions and business-related decisions.” WorldCom was a company driven by its responsibility to its shareholders to the point where it began to behave unethically and this ultimately led to its demise. WorldCom History and...
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...Ethics in Finance To help demonstrate why ethics in finance is need the falling of WorldCom is used. In the matter of three years WorldCom went from one of the most successful and promising companies to a bankrupted and absorbed company because of upper management lacking ethics. In early 2001 WorldCom expected and thus projected the use of internet to increase and so they made a significant amount of leases to internet and telecom service providers. However, the internet usage did not increase but crashed causing many of WorldCom’s leases to default. To help save their appearance WorldCom used reserve account to cover operating expenses, making it look as if they made money despite the many defaults. WorldCom did this knowing it would violate transfer rules and the proper use of Reserve Accounts. By the end of the 1st Quarter, 2002, WorldCom had fraudulently transferred 3,062 million dollars. Due to the amount the three internal accountants, who helped with the transfers, grew deeply upset and choose to meet with the SEC, FBI, and U.S. Attorney’s Office on June 24, 2002 to bring forth WorldCom’s fraud. The news of WorldCom’s fraud caused their stocks to plummet leading them to bankruptcy by July of 2002. WorldCom changed its name, MCI Communication, in attempts to come back from the fraud scandal. They were unable to do so and were acquired by Verizon in 2005. The WorldCom case shows how unethical behaviors escalate in a small amount of time. There are five arguments...
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...Business ethics are a pivotal aspect in strategic business finance, or finance in general. Poor ethical practices and immoral acts have been conducted across many years by many individuals and businesses in the business world in regards to finance. This paper will focus on two of the more well-known ethical issues that occurred in the late 1990s and early 2000s, Enron Corporation and WorldCom. This paper will focus on the factors that led to the demise of the corporations, as well as the violations that occurred within the accounting practices, and the specific ethical violations in strategic financial planning. To summarize, the largest contributing factor to the demise of Enron Corporation and WorldCom was simply corporate governance failure (Stanford GSB Staff, 2016). The smaller factors that led to the governance failure were such things as increases in executive compensation and stock options, jumps to incentives to manage earnings, and major shifts in the structure of auditing firms. These changes directly led to the loss of money and public confidence. These reason can be classified as nothing other than management greed. This can be validated by the statistical increases in worker compensation which rose forty-two percent in the 1990s as well as corporate profits rose eighty-eight percent, the standard and poor index increased two hundred and forty-eight percent, as well as CEO compensation rose four hundred and sixty-three percent during this timeframe (Stanford GSB...
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...Running head: Review of Accounting Ethics 1 Review of Accounting Ethics Cynthia Harley Dr. Julie Hamm Acc 557 5/1/2014 Review of Accounting Ethics The WorldCom Scandal Vikalpa: The Journal For Decision Makers provides us with the following excerpt from WorldCom’s 2002 press release: CLINTON, Miss., June 25, 2002 –- WorldCom Inc. (Nasdaq: WCOM, MCIT) today announced that it intends to restate its financial statements for 2001 and the first quarter of 2002. As a result of an internal audit of the company’s capital expenditure accounting, it was determined that certain transfers from line cost expenses to capital accounts during this period were not made in accordance 2 with the generally accepted accounting principles (GAAP). The amount of these transfers was $3.055 billion for 2001 and $797 million for the first quarter of 2002. Without these transfers, the company’s reported EBITDA would be reduced to $6.339 billion for 2001 and $1.368 billion for the first quarter of 2002, and the company would have reported a net loss for 2001 and for the first quarter of 2002 (Pandey & Verma, 2004, p. 113). This information came at a time where the company had reached an all time high in the industry, second only to AT&T. The company originally started out as a small provider of long distance telephone service in Mississippi under the name LDDS and later changed its name to WorldCom. During the 1990’s the company took on an aggressive acquisition strategy acquiring the likes...
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...RUNNING: Demise of Enron Corporation® and WorldCom® Demise of Enron Corporation® and WorldCom® Your Name October 31st, 2012 FIN/486 Instructor Enron Corporation and WorldCom In the last decade, two powerful American companies, Enron Corporation and WorldCom, have become the models of accounting corporate fraud. The Enron Corporation was founded in 1985 by Kenneth Law in Omaha, Nebraska. The company later moved its operation to Houston Texas when InterNorth and Houston Natural Gas merged. This American organization offered paper, pulp, electric, communication, and natural gas manufacturing. Enron employed over 20,000 professionals and reported earnings worth over 100 billion dollars. A few years earlier, on the other side of the country, WorldCom was established by Bernand Ebbers in Hattiesburg, Massachusetts . WorldCom make great growth strokes through mergers, acquisitions, long distance rates, and cutting edge technology in the communications industry. It achieved an unprecedented success that would soon unveil accounting fraud, scandal, and shameful demise. But in 2002 Enron and WorldCom were exposed as corrupt organizations, run by fraudsters that had lined their pockets with tens of millions of dollars and destroyed $240 billion dollars worth of investor's money (BBC News, 2012). Major Factors that Led to the Dissolution Business ethics are the standards of conduct or moral judgment that apply to persons engaged in commerce. Violations of these...
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...WorldCom history The history of WorldCom Company dates back in 1983 which started as a partnership between a former basketball coach Bernard Ebbers. This company was established at Mississippi as a coffee shop, which later developed to long distance Telephone Company. The company’s name initially was Long Distance Discount Service whose operations began on 1984. After several years in operation, the company became public in August 1989 with Bernard Ebbers as the company’s CEO (Moberg 4). Over the years, the company developed through mergers and acquisitions and becomes public in the year 1989. The notable merge which enabled the company to go public was the merger with the advantage companies Inc. This led to changing of the name from just LDDS to LDDS WorldCom in 1995 and to just WorldCom a year later (Moberg 4). In 1993, the company acquires long distance providers in the name of Resurgence Communications Group and Metromedia communications. This made history as the fourth largest long distance communication firm in United States. There were also several other mergers and acquisitions such as with IDB in 1994, WilTel in 1995, MFS communications in 1996, and the greatest merger which involved MCI communications. In 1998, WorldCom completed the merger with MCI at a cost estimated to be $40 billion. This was viewed as the greatest merger after brooks fiber properties and CompuServe which were valued at $ 1.2 and $ 1.3 billion respectively (Moberg 6). Another notable aspect...
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...BKAL3063 Integrated Case Study Group I A141 30 September 2014 Group Members: 1. Rose Atikahanum Binti Abdul Rahman 216666 2. Nor Amira Zuriyanti Binti Khalid 216410 3. Nurulnabila Binti Mohd Sanusi 216516 4. Peggy Liaw Wan Gene 216388 5. Willson Wong 216381 1.0 EXECUTIVE SUMMARY WorldCom was a telecommunications company and formerly known as Long Distance Discount Services (LDDS). The company was handled by Bernard J. (Bernie) Ebbers, one of the original nine investors, and managed to gain profit within one year of management. In order to maintain 42% of Expense-to-Revenue Ratio, David Myers (controller) asked Timothy Schneberger (director of international fixed costs) to adjust $370 million into accruals account. Sullivan (CFO) asked Myers and Yates (director of accounting department) to order managers in the company’s general accounting department to capitalize $771 million of expenses into an asset account. In 2000, Yates told Vinson and Troy Normand (manager in general accounting) that Myers and Sullivan wanted them to release $828 million of line accruals into the income statement. Besides that, the internal audit was primarily exist to measure business unit performance and enforce spending controls, whereas the external auditors, Arthur Andersen, was an independent auditors which performed the financial audits to access the reliability and integrity of the publicly reported financial information. Cynthia Cooper, the head of internal audit, had brought an issue...
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... many unethical accounting scandals existed. The WorldCom scandal is one of the most known unethical scandals. WorldCom submitted the largest bankruptcy filing in United States’ history after admitting improperly accounting for more than $3.8 billion dollars in expenses (Moberg, 2012). The company used acquisitions to spurt large growth. Two of WorldCom’s acquisitions included MCI Communications and MFS Communications (UUNet). This caused WorldCom to appear more favorable on Wall Street, and many banks, brokers, and investors gave strong buy recommendations (Moberg, 2012). This was not unethical; however, what investors and others were to uncover in the coming years, was. Through its favorable stock, WorldCom acquired MCI Communications and MFS Communications, which allowed WorldCom to offer long distance, local service, and data services (Moberg, 2012). Chief Executive Officer Bernie Ebbers led the company’s stock to increase from pennies, to more than $60 per share (Moberg, 2012). Where the unethical behavior of WorldCom occurred was in financial reporting. The company would write down millions of dollars in assets it acquired. According to Moberg (2012), “[It] included in this charge against earnings the cost of company expenses expected in the future. The result was bigger losses in the current quarter but smaller ones in future quarters, so that its profit picture would seem to be improving” (para. 13). WorldCom also reduced the book value of some of the acquired...
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...Ethics in the Corporate World ACC 557 Financial Accounting January 26, 2014 In today’s society, it seems that most companies are out to chase the almighty dollar and have little to no concern for the repercussions of their actions. In this paper, we will address five aspects of the corporate world and the ethical breaches that have been made in the last few years. The company that we will look at for examples is WorldCom. WorldCom was one of the companies that led to the creation of the Sarbanes-Oxley Act of 2002. The five questions that we will address in this paper are: 1. Is current business and regulatory environment more conducive to ethical behavior? 2. What impact was done to WorldCom because of the accounting ethical breach? 3. How was WorldCom caught and how they failed to be ethical? 4. What accounts were impacted and the resulting impact on operations? 5. What measures could have been taken to prevent this breach? The first thing that we will do is to describe how WorldCom came to be one the biggest companies in the telecommunications industry. WorldCom began in 1983 in Clinton, Mississippi as a long distance company called Long Distance Discount Services. As a result of several mergers that began in 1985 after the board elected Bernie Ebbers as the company CEO, the company grew by leaps and bounds. On November 4, 1997, WorldCom and MCI Communications announced their $37 billion merger to form MCI WorldCom, making it the largest corporate...
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...First of all, line costs are the amounts that WorldCom paid other companies to be able to use their communication networks for their customers and it included access fees and transport charges for messages. The line costs are an expense and instead of reporting them as an expense at the time, they chose to hold off on paying them and adding them in as an expense so that it would look as though WorldCom was earning more than they really were. The first solution should have been to relook at the financial statements of WorldCom from an ethical standpoint. Instead of ignoring expenses or changing expenses into assets and assets into expenses, WorldCom should have followed the guidelines of the Generally Accepted Accounting Practices and the SEC and followed the accrual method for their financial statements. If Scott Sullivan would have followed the rules of the GAAP and the SEC, WorldCom could possibly have gotten themselves out their financial hole rather than making it larger. Since that did not happen the internal auditors are considered to be the first line of defense against accounting errors and fraud within a company. The treatment of those line costs was found by Cynthia Cooper who was WorldCom’s internal auditor. It was brought to the attention of Scott Sullivan (WorldCom’s CFO) and they wanted him to explain why they had treated their line costs as capital expenditures. Now, the purpose of the United States securities law is to help protect all investors in a company...
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...telling you about organization WorldCom. I will be evaluating the planning function of management. Then I will be analyzing several things such as the influence hat legal issues, ethics, and corporate social responsibility that they have had on management planning. I will also be analyzing three factors that have influenced the company’s strategic, tactical, operational, and contingency planning. So please read on to find out about these things within the organization WorldCom. I would like to tell you about the company WorldCom before I get into the planning function of management. In 1983 a man named Bernie Ebbers was an early investor in a company that was a long distance service for a telecommunications company. Bernie made LDDC profitable and it began to grow over a fifteen year span he made the company a total seventy five thousand dollars. (WorldCom, 2010) By 1994 the long distance service revenues reached $2.2 billion and the company’s name was then changed in 1995 to WorldCom to reflect its growing global business. Then in 1998 WorldCom completed a takeover of MCI so it became MCI WorldCom. The company was doing so good but then hit rock bottom for Bernie Ebbers when he had to resign in 2001 due to loan scandal. (WorldCom, 2010) Now that I explained a little about the company I would like to get into evaluating the planning function of management. When evaluating the planning function of management it definitely did not look good for WorldCom. I think that with today’s...
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