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4 Pages Essays / Projects Year Uploaded: 2021

The disclosure of massive financial accounting fraud at WorldCom on June 25, 2002 was a major shock to the public since the company at that time was the second largest US long-distance carrier and developed the world’s largest Internet protocol network (Bartholomeusz 2002). It became apparent that WorldCom had overstated EBITDA by fraudulently capitalizing its expenses (Sadka 2006), which inflated the company’s reported earnings and cash flows by at least 3.9 billion US dollars (Bartholomeusz 2002). In July 2002, the company filed for Chapter 11 bankruptcy with debt of 41 billion US dollar (Sadka 2006). The accounting fraud at WorldCom resulted in a widespread withdrawal of non-expert trust on the systems of accounting and auditing (Unerman and O’Dwyer 2003). The weak and ineffective auditing had led to the largest bankruptcy in the US. It can be seen from the scandal that the lack of auditors’ independence, breach of fundamental principles of professional ethics and the lack of effective internal control. The essay will further analyse the three issues and discuss the relevance of the WorldCom collapse to Australian Auditors. Firstly, the lack of

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