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World Com Case Essay

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BAC 3654 Tutorial 2 - Discussion of questions and case: WorldCom: The Final Analyst

Question
Why might ethical corporate behavior lead to higher profitability?

Answer:
  * 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.

Question
Why should a professional accountant be aware of the Ethics Code of the International Federation of Accountants (IFAC)?

Answer:
  * 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)

  2. -------------------------------------------------
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...

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