Accounting Fraud as a Key Component in WorldCom Essay

Accounting Fraud as a Key Component in WorldCom - Essay Example Management failed to visualize and introduce efficient reporting and honest auditing and the investors and public were indeed lost billions of dollars due to their intentional fraud. (Zekany 101) In telecommunication industry, line costs are reimbursed to local telephone companies for the connection and termination of long distance calls. This forms major single principal expense for long distance call service providing telecommunication company. WorldCom treated these revenue expenses namely lines cost as a capital expenditure against accepted accounting norms like GAAP. By treating these costs as capital expenditures, it would be depreciated over time and this would obviously result in increased current year earnings before EBIDTA. The financial scandals in WorldCom necessitated a need for a law that will hold the CEO, CFO and CIO’s of companies answerable for noteworthy monetary transactions, a law that will reinstall investor confidence in Public companies, stop financial fraud and to introduce internal checks on financial transactions and monitor the conduct of public accounting. After WorldCom accounting scandal, now, the Sarbanes-Oxley Act forbids directors, company officers or their authorized agents from â€Å"deceptively† coercing, manipulating, influencing, or misleading external auditors for the rationale of making company’s financial reports considerably deceptive. Now, under the Sarbanes-Oxley Act, management of a company has to report all transactions in an open manner, the CEOs and CFOs of companies endorse financial statements of their corporations, after initiating steps to make sure that sufficient internal control checks and processes at all levels are set forth. (Zekany 101) WorldCom fraud reveals that management was exceptionally optimistic and assumed unusual risks including fraud.