AUDITORS WorldCom’s external auditors during and before the fraud were Ather Anderson LLP.

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 performed auditing tax and consulting services for large co-corporations. The firm was founded in 1913 by Ather Anderson & Clarence Delany as Anderson, Delany & company 1. The firm changed 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 shredding documents related to its audit of Enron resulting in the Enron scandal. This indictment put a spotlight on its faulty audits of other companies most notably sunbeam and WorldCom. The subsequent bankruptcy of WorldCom then led to a series of other cases against Anderson. Arthur Andersen was accused of failing to protect investors. The accounting firm issued an audit opinion on WorldCom with an “intend to deceive, manipulate or defraud”


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 intertwined with their clients that the thin line is often blurred. The accounting firm becomes so involved 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 in may of 2002. KPMG would later be accused in a report by Richard Thornburgh of its flawed tax advice to WorldCom now MCI. The report said the company had avoided state taxes 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 its strategies "may constitute negligence". KPMG hit back saying “the accusations were simply wrong” Mr. Farrell Malone had been assigned by KPMG as the engaging partner on this audit.3
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Ather Anderson challenging status quo by Mary virgin more, john Crompton New York state comptroller Allen Hevesy

REPORT ON WORLDCOM BY AUDITORS Prior to May 16th 2002 Anderson LLP audited the company’s 2001 financial statements and reviewed the company’s first quarter 2002 financial statements. During this period Anderson’s partner on WorldCom’s audits was Mel Dick. Anderson gave an unqualified opinion 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 the Company's consolidated results of operations and financial position as of and for the year ended December 31, 2001. Andersen's presentation4 noted, among other things: 1) There were no significant or unusual transactions, or material transactions in controversial or emerging areas for which there was a lack of authoritative guidance or consensus. 2) Andersen had assessed the Company's key accounting practices to determine whether management had adequate controls to prevent a material error in the financial statements as a result of a failure to properly record data in the general ledger. 3) It was Andersen's assessment that the Company's processes for line cost accruals and for capitalization of assets in Plant, Property & Equipment accounts were 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 line costs 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 the Committee that Andersen had no disagreements with management and that there were no accounting positions taken by the Company with which Andersen was not comfortable.


AUDITING PROCEDURE THAT WOULD HAVE PREVENTED THE WORLDCOM SCANDAL The audit rules could have helped prevent the WorldCom scandal. New audit rules like the statement on auditing standards 112 clearly define rules under which communicating internal controls matters identified in an audit can be handled. For instance the auditor cannot be part of a client’s internal control as this impairs the auditor’s independence. Companies should implement other channels of communication other than just employee reporting to management. This is to allow employees within the company an opportunity to blow the whistle without fear in case they notice any major financial irregularities within a company. The whole scandal revolves around ethical issues for accountants. In the world com scandal accountants were instructed to hide bad debts and falsify WorldCom’s books. David Myers WorldCom’s controller said that he followed orders from senior management to make entries that reduced WorldCom’s reported actual costs and therefore 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 alarming issue. The alarm on WorldCom was triggered by an employee in the internal audit. During May 2002, Cynthia Cooper, Vice President - Internal Audit, began an investigation of certain of the Company's capital expenditures and capital accounts. This is was what made everybody else notice the malpractices that had been perfected for a while by WorldCom’s executives. Hence accountants should rely on their 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 without prosecution or deep investigations. There has never been a preventative culture instituted but rather a let it happen and we investigate approach which is one of the

downfalls of neo-corporate culture. The more prominent irregularities uncovered before the WorldCom collapse include Global Crossing, Tyco International, Merrill Lynch, Dynegy, ImClone Systems, Adelphia Communications, Computer Associates, Peregrine Systems, Qwest Communications, Xerox, and Merck. The Securities and Exchange Commission (SEC) reported that investigations relating to “financial statement improprieties” in recent years had pushed its caseload to an unprecedented 330 in 2002.5 This should have been a gauge for rising problems. With these reports proper response should have been instituted to stop these irregularities. There was a need to seal the loop holes that allow every “acceptable” maneuvers that executives use to fiddle the books to match the corporate game. Managers, often use these maneuvers’ knowing that the auditors and everybody will turn a blind eye. For example while operating expenses will be reflected fully on the immediate profit and loss account, the impact of capital expenditure will be spread out. What goes to which of the two accounts is not always clear-cut, but the gray area will be minimized if honest accounting principles are observed. The same applies to many other accounting decisions. One of the external auditors' main jobs is to check that honest decisions are being made. This should have happened with WorldCom.


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