The Case About Accounting Fraud At Worldcom

1964 Words Jun 11th, 2016 8 Pages
the analysis of the case about Accounting Fraud at WorldCom
Group member: Weichuan Xu Miao zhou
1. What are the pressures that lead executives and managers to "cook the books?"
Firstly, one of the pressure is the company’s goal that was made by the top executive Ebbers. There is an economic recession and the bubble collapse which make the conditions deteriorate in 2012. He thinks that the company should focus on being the NO.1 stock on Wall street rather than the company’s really good operation situation, which is a strategic mistake. It means that the whole company might pay a close attention to the company’s good financial ratio excessively. In detail, facing the serious situation, the executives still tried to maintain the company’s
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Due to the difficulties to find a company like WorldCom to make such a benefits for their family, they will choose to survive and undertake the burden from the surrounding.
2. What is the boundary between earnings smoothing or earnings management and fraudulent reporting?
The earnings smoothing is for management who try to maximize the wealth of company and reduce the risk of the firm. It can also improve the value of company and reduce the tax in order to make the financial statement more reliable. Management can keep an illusion of consistent increasing, borrow money from next quarter, and load up expense to reduce the variance of periodic profit to some extent allowed by accounting principles. The management can use of accounting techniques to make positive picture of company represented by financial reports. It can keep the investment from investors and shareholders because they prefer to paid the higher price of stock only when there’s a stable increase in the earnings.
On the other side, fraudulent reporting is about the deliberate action for issuing a misleading financial statements. The purpose is to conceal the real performance and negative picture of business. However, the management is intention to conceal the actual performance of the company regardless the legal and legitimate practices by its financial statements.
WorldCom’s action is a fraudulent reporting rather than earning smoothing. It said

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