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Arthur Andersen-Worldcom Scandal

Arthur Andersen-Worldcom Scandal

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Published by my1bima
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations. In 2002, the firm voluntarily surrendered its licenses to practice as Certified Public Accountants in the United States after being found guilty of criminal charges relating to the firm's handling of the auditing of Enron, an energy corporation based in Texas
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations. In 2002, the firm voluntarily surrendered its licenses to practice as Certified Public Accountants in the United States after being found guilty of criminal charges relating to the firm's handling of the auditing of Enron, an energy corporation based in Texas

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Published by: my1bima on Nov 05, 2009
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03/25/2014

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AUDITORS
WorldCom’s external auditors during and before the fraud were Ather AndersonLLP. and KPMG. Ather Anderson is blamed for having the bigger share for the downfall of WorldCom. Ather Anderson was once one of the big five accounting firms and performedauditing tax and consulting services for large co-corporations. The firm was founded in1913 by Ather Anderson & Clarence Delany as Anderson, Delany & company
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. The firmchanged its name to Anderson & co in 1918.
INVOLVEMENT IN THE SCANDAL.
 Ather Anderson LLP
On June 15 2001 Anderson was convicted of obstruction of justice for shreddingdocuments related to its audit of Enron resulting in the Enron scandal. This indictmentput a spotlight on its faulty audits of other companies most notably sunbeam andWorldCom. The subsequent bankruptcy of WorldCom then led to a series of other casesagainst Anderson. Arthur Andersen was accused of failing to protect investors. Theaccounting firm issued an audit opinion on WorldCom with an “intend to deceive,manipulate or defraud”
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investors To date Anderson has not been formally dissolved nor has it declared bankruptcy.Ather Anderson is a good example of what happens when accountants get so intertwinedwith their clients that the thin line is often blurred. The accounting firm becomes soinvolved with its client such that it would most of the time turn a blind eye to any fraud.
KPMG
After WorldCom fired Anderson auditors after its role in the down fall of enroll corp.and other firms like Adelphia communications it appointed KPMG as its new auditor inmay of 2002. KPMG would later be accused in a report by Richard Thornburgh of itsflawed tax advice to WorldCom now MCI. The report said the company had avoided statetaxes by charging subsidiaries more than 12 million in royalties in over 4 years. Richard Thornburgh’s report also accused KPMG of failure to warn WorldCom on the risks of itsstrategies "may constitute negligence". KPMG hit back saying “the accusations weresimply wrong” Mr. Farrell Malone had been assigned by KPMG as the engaging partneron this audit.
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Ather Anderson challenging status quo by Mary virgin more, john Crompton
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New York state comptroller Allen Hevesy www.cbs.camoney
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Findlaw.com
 
REPORT ON WORLDCOM BY AUDITORS
Prior to May 16
th
2002 Anderson LLP audited the company’s 2001 financial statementsand reviewed the company’s first quarter 2002 financial statements. During this periodAnderson’s partner on WorldCom’s audits was Mel Dick. Anderson gave an unqualifiedopinion on the company’s 2001 financial statements following its audits. On February 6,2002, the Audit Committee met with Andersen to discuss Andersen's audit of theCompany's consolidated results of operations and financial position as of and for theyear ended December 31, 2001. Andersen's presentation
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noted, among other things:
1)
 There were no significant or unusual transactions, or material transactions incontroversial or emerging areas for which there was a lack of authoritativeguidance or consensus.2)Andersen had assessed the Company's key accounting practices to determinewhether management had adequate controls to prevent a material error in thefinancial statements as a result of a failure to properly record data in thegeneral ledger.
3)
It was Andersen's assessment that the Company's processes for line costaccruals and for capitalization of assets in Plant, Property & Equipment accountswere effective.
4)
It was Andersen's assessment that the Company's process for formulating judgments and estimates for accrued line costs was effective, noting that linecosts as a percentage of revenue had remained flat at 41.9% on a YTD basis.During the meeting, Andersen advised in response to specific questions by theCommittee that Andersen had no disagreements with management and thatthere were no accounting positions taken by the Company with which Andersenwas not comfortable.
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www.sec.gov/news/extra/wcrevex1.pdf 
 
AUDITING PROCEDURE THAT WOULD HAVE PREVENTED THE WORLDCOMSCANDAL
 The audit rules could have helped prevent the WorldCom scandal. New audit ruleslike the statement on auditing standards 112 clearly define rules under whichcommunicating internal controls matters identified in an audit can be handled. Forinstance the auditor cannot be part of a client’s internal control as this impairs theauditor’s independence.Companies should implement other channels of communication other than justemployee reporting to management. This is to allow employees within the companyan opportunity to blow the whistle without fear in case they notice any major financialirregularities within a company. The whole scandal revolves around ethical issues for accountants. In the world comscandal accountants were instructed to hide bad debts and falsify WorldCom’s books.David Myers WorldCom’s controller said that he followed orders from seniormanagement to make entries that reduced WorldCom’s reported actual costs andtherefore to increase WorldCom’s reported earnings. (New York times 14/09/2007).All the controller had to do is blow the whistle when he noticed such an alarmingissue. The alarm on WorldCom was triggered by an employee in the internal audit.During May 2002, Cynthia Cooper, Vice President - Internal Audit, began aninvestigation of certain of the Company's capital expenditures and capital accounts. This is was what made everybody else notice the malpractices that had beenperfected for a while by WorldCom’s executives. Hence accountants should rely ontheir ethical skills and voice any malpractice.While much blame lies at accountants and executives not being honest, much of the financial scandals have been a built up of irregularities that have gone withoutprosecution or deep investigations. There has never been a preventative cultureinstituted but rather a let it happen and we investigate approach which is one of the

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