Executive Summary
This assignment is a compilation of the case analysis of the demise of the company world as a result of the accounting scandal in June 2002. A risk-based auditing approach has been implemented to study the significance of the organisation operating as a going concern and choosing to go for administration or its liquidation. All these cases of the operational performance are analysed with the help of the Australian accounting standards and auditing concepts to arrive at the conclusions related to the reasons that resulted in the collapse of this organisation and recommendations are provided to the people practicing accountancy and auditing as well as the organisation on how to ensure that they do not face the same fate. Creative accounting was not a technique that was new in the market and there are a number of organisations that have been reported to make use of them to ensure that they are pure more profitable or they are easily able to attract the resources and investors. World was also involved in the creative accounting practices by capitalising the cost improperly. On June 2002, it was revealed that the organisation was practising fraudulent reporting and the accounting reports of the organisation were full of made up figures that indicated that the organisation had an annual profit of $3 billion when in fact LDDS was registering a loss of $500 million for that year. This was followed by a detailed investigation of the reports and operations of the company that revealed total misstatement by the company of about $11 billion till the year 2002.
Introduction
This assignment is a compilation of the case analysis of the demise of the company WorldCom as a result of the accounting scandal in June 2002. A risk-based auditing approach has been implemented to study the significance of the organisation operating as a going concern and choosing to go for administration or its liquidation. All these cases of the operational performance are analysed with the help of the Australian accounting standards and auditing concepts to arrive at the conclusions related to the reasons that resulted in the collapse of this organisation and recommendations are provided to the people practicing accountancy and auditing as well as the organisation on how to ensure that they do not face the same fate .
WorldCom was an organisation providing long distance telephone services two individuals and organisations. It had its humble beginnings in the United States of America as the Long Distance Discount Services (LDDS) providing organisation that slowly and gradually went on to become one of the largest telecommunication service providing organisations in the United States. The Organisation was established in the year 1983 and Bernie Ebbers was appointed the CEO of the organisation in the year 1985. LDDS decided to go public in the year 1989 and your organisation went on to become a company having $30 billion as their annual revenue after acquiring other telecom organisation operating in the country. Ebbers became one of the richest people in America and his net worth was attributed to be close to $1.4 billion in the year 1999 and he further continued with the acquisition strategy and served as an extremely strong leader making the organisation rise in the industry. However, on June 2002, it was revealed that the organisation was practising fraudulent reporting and the accounting reports of the organisation were full of made up figures that indicated that the organisation had an annual profit of $3 billion when in fact LDDS was registering a loss of $500 million for that year. This was followed by a detailed investigation of the reports and operations of the company that revealed total misstatement by the company of about $11 billion till the year 2002 .
This research includes an analysis of this case to understand why this fraud happened and what were the constituent and the reasons for it. It is not only important to study this case to ensure better accounting practices but this case will also provide the auditors with the methods to analyse and identify any threats to the organisational performance and their ability to operate as a Going Concern in the near future.
Research methodology
The research methodology for a study is defined as the approach adopted for conducting the study and for analysing the data collected for the research to reach the desired conclusions. This is a desk research which follows the exploratory research design. It involves the exploration of the case of WorldCom and how the accounting fraud by the organisation resulted in its demise and impacted not only the organisation but also the entire business world. This is a research that is completely based on the secondary data that is gathered from the previously published electronic and non-electronic sources of information. These include the research journals, articles, research papers, government reports, business reports, newspapers, magazines and other scholarly paper. A combination of qualitative and quantitative information is used in this study in order to effectively carry out the analysis of the given case and find out the reason that led to the fraudulent reporting, the characteristics of the fraud detected by the reporting organisations and the consequences of this incident for all the stakeholders involved . The implications of the findings from this research will be analysed with regard to the going concern, administration and liquidation of the organisation. Wild qualitative data adds to the description and the detailed attributes and properties of the case, the quantitative information will help in objectively carrying out the comparison and analysing the case by measuring and quantifying the information.
It is important to note that being an academic research, this study is limited in its scope. Due to the limited availability of time and resources, the findings of this research are only limited to the case of WorldCom and how the fraudulent reporting by the organisation has impacted the stakeholders of the company. The findings from the study cannot be generalized for any other organisation or case.