Introduction
Accounting and Finance are two different fields, but most of the people associated both of them are identical. However, the concepts of both of these provisions are totally different from each other. Accounting is the name of recording the day to day transaction, while finance is the name of utilizing the funds of the company at a place from where the likelihood of earning would be on a higher node.
Both of the concepts of Accounting and finance are two important things from the standpoint of an organization and no organization could be in the line of economically based prosperity without having both of these things in particular. There are a number of concepts, which specifically come under the ambit of Accounting and Finance, and among them, the name of Auditing is one of them. Theoretically, auditing means to double check the things and from an accounting perspective, auditing could be done on the basis of accounting results. Lots of times, it is found that the firms engage with any form of accounting manipulation that is an unethical stuff in a professional environment . The main perspective of this assignment is to analyze the auditing stance of WorldCom through their CRS Report. There are 3 fundamentals have been given with the report, and it is required to select one of the principles to complete the assignment. The assignment has two different parts which needed to be complete accordingly and on the basis of CRS report. The fundamental of auditing that has been taken into consideration for this assignment is “REPORTING”. The first section of the paper requires summarizing the CRS report, which would be done in the next step.
Summary of CRS Report
The case also described the unethical incident in which the company had engaged them. WorldCom admitted that they manipulated the amount of $ 3.8 billion, and it was a manipulation occurred in the payment side. From the crux of the report, it is found that the company inflated the amount of their net income and assets, by decreasing down the expenses. A huge amount of $ 3.8 billion had been classified as Financial Capital as compared to the expense. According to the CRS report, the company had been questioned many times regarding the manipulation of assets and equities. The reserve accounts of the company had been investigated critically, which was such an indictment charge against the company and their major operations.
CRS report also furnished that the company duly announced the same manipulation in one of their meeting which was not understandable from the viewpoint of the company, as no company would furnish their secrets and a secret that may endanger their situation. The share price of the company had fallen heavily to a level of 2$ from the level of 64$ after the announcement. Apart from investors, employees of the company also suffered severe losses in their retirement plans approximately amounting to $ 642.3 million. According to the CRS report, the main goal behind filing of a bankruptcy is to keep the firm in business under the supervision of a court. CRS report also revealed that the WorldCom bankruptcy is the largest in U.S. history; in comparison, Enron listed assets of $63.4 billion when it filed for bankruptcy in December, 2001.
Principle Association with CRS Report
The principle that has been taken into consideration for this analysis is “Reporting”. In finance or accounting, the name of Reporting is an important term, which also known as Disclosures. Basically, it is referred as an activities or laws which have to be considered by an organization to become economically active. It is important for a company to comply with the regulatory standards accordingly, especially while making their financial statements. There are two different types of reporting, which particularly International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). WorldCom was a US based company, and the standards that the company followed was comprises on US-GAAP.
In the case of WorldCom, there is a serious lacking of reporting has been found, because the company had not reported their expenses and assets accordingly. Materiality of the information and Evidence are two of the main things which deem as an integral thing from the standpoint of a company as far as financial reporting is concerned, but the company lack in the same.
The case clearly mentioned that the company had to pay an amount of $ 3.8 billion to its counterparts, and this particular amount should be recorded as an expense in the income statement of the company due to which the bottom line of the company should have been affected. Unfortunately, the expenses were not treated in a legitimate way, and the expense amount had been recorded as a financial capital amount of the company due to which the net income and financial position of the company inflated heavily. Internal Audit team should apprise WorldCom that the act is totally unethical, and they cannot escape after committing such criminal and unethical act, in order to prevent them from the problem of bankruptcy, criticism, penalty and sanctions.
Conclusion
Accounting is a broad term, in which numerous concepts stride upon and among them; the name of Auditing is one of them. Auditing is a term that usually means to double check in order to detect any type of discrepancy or manipulation in the accounts. Organizations usually initiates misrepresentation stance in sales, revenues, expenses and net income, but this particular act is totally banned in the accounting literature and it has been considered as an act of fraud and unethical behavior. The main perspective of this assignment is to analyze the auditing stance of WorldCom through their CRS Report. From the entire analysis, it is found that WorldCom did an unethical thing by manipulating their financial result and making fool to their investors from different standpoint. The act initiated by WorldCom was not to record or report the expenses at a place from where they should lie. Security and Exchange Commission (SEC) had imposed different sanctions and charge on the company from which the company is still fighting. As conclusion, it could be said that organizations should not engage them in any sort of unethical activity or behavior to avoid such things.
References
Gramling, A. A. (2012). Auditing. New York: Cengage Learning.
