BAC 3654 Tutorial 2 - Discussion of questions and case: WorldCom: The Final Analyst
Why might ethical corporate behavior lead to higher profitability?
* Because attention to ethical concerns can keep corporations out of costly problems such as clean-up of pollution problems, fines, low morale.
* Loss of reputation and stakeholder support.
* It can open up profitable opportunities such as developing green product lines.
Why should a professional accountant be aware of the Ethics Code of the International Federation of Accountants (IFAC)?
* Because the IFAC Code is the newly defined standard to which all IFAC members including the AICPA, CICA and ICAEW, IMA and SMAC* have pledged to harmonize their Codes to during the next 5 years.
* The IFAC Code contains the common elements to which all professional accountants will adhere.
*(SMAC….. Social Mobile Analytics and Cloud (SMAC) technology)
WorldCom: The Final Catalyst
What this case has to offer
* When WorldCom announced massive overstatements of profit in June 2002, it completely shattered the trust in corporate accountability and governance that President Bush and others had been trying to rebuild.
* The Sarbanes-Oxley Act emerged in late July 2002, triggering a change in corporate accountability and governance, and well as the accounting profession.
* The WorldCom case involves simple manipulations, but once again offers lessons about the need for
* an ethical corporate culture,
* whistle-blower protection,
* over-dominant CEO,
* no independent Chair of the Board, and
* incompetence of Directors.
Discussion of ethical issues
1. Describe the mechanisms that WorldCom’s management used to transfer profit from other time periods to inflate the current period.
* Capitalization of current costs to move...