Accounting Fraud at Worldcom

Case Assignment #1 - Accounting Fraud at WorldCom

1. Discuss the fraud at WorldCom in terms of the objective of financial reporting. How was the objective subverted by the actions taken by the managers of WorldCom?

A. To begin, the primary objective of financial reporting for most companies is to provide useful information to capital providers. Essentially, the objective is "to assist in the efficient functioning of economies and the efficient allocation of resources in capital markets" (pg. 21, textbook). However, in the fraud case at WorldCom, WorldCom's senior managers did not endorse this objective nor made any attempt to provide useful financial information to present and potential equity investors, lenders, and other creditors. Why? The senior managers...