Extraordinary Circumstance Review

trigger and Aim of the Review This review of WorldCom is based on the Extraordinary stack by Cynthia barrel maker. The purpose of review report is to conclude whether WorldCom satisfied the work out of Ethics and the Attri hardlye and Performance Standards set forth by the IIA. downplay WorldCom was one of the largest telecommunication companies in the world during 1996 to 2002. The caller-out helped to grow a small regional company that bought and re-sold long distance in the randomness into an international behemoth that operated in over 65 countries.However, in 2002, the older management and employees perpetrated a massive fraud, and in June, WorldCom announced that it had misstated its financial statements over the last five quarters by $3. 8 billion. After approach path out this scandal, WorldCom went bankrupt, and it has been the largest bankruptcy ever. Analysis Based on the book Cynthia Cooper wrote, WorldCom didnt comply with the Code of Ethics and the Attribute and Performance Standards. antic The internet bubble that burst in March, 2000 is followed with much larger and much devastating collapse Telecom.WorldComs financial statements were far worse than candidate that would emergence in striving legal injury fall, downgrading company and most significantlylosing capital to acquire companies. Then CEO and CFO were planning to sort the financial statements with mid-level accountants. They thought if the financial statements were better in next quarter, they could right the change. But things didnt go according to plan. They had to change the number until the go blew. Lack of risks assessment During the WorldCom blowup, CEO, Bernie led the company through 70 acquisitions in less than 20 years.Bernie was too audacious to expand the company without consideration. For example, when poster didnt want to invest any more capital or incur more debt on telecom, Bernie mortgaged everything he had to buy TMC outright. The system helps LDDS ex pand, but also planted bomb in the company which detonate in the future. Gambling or else than risk control When World Com was getting other companies, some were not willing to receive a compounding of change and stock. They would sell the stock as soon as they get.In ordain not to let the stock price fall, the executives in WorldCom bought the stock quite at a discount price. Luckily, as the result, the stock price went up dramatically. Low internal Audit department position Internal canvas department was a dispensable unit in the company and didnt get high attention during that time. Unlike external counterparts, internal auditors be ordinarily employees of the companies they audit. Some companies choose to have further a small, sign group, others none at all, and others outsource the function altogether, sometimes to the said(prenominal) human race accounting firm performing the external audit.Cynthia Cooper was announced to be the director of internal auditing by C EO, Bernie. They probably had some deals under instrument panel during CEO fraud. Individual manipulation and lacking of proficiency LDDS was too epic to have so many employees reporting to CEO, Bernie directly. Meanwhile, Bernie doesnt have proficient telecom or financial training and he was only kindle in what he liked and understood. His goal was to make WorldCom to be the no(prenominal) 1 stock on Wall Street rather than produce market share or be global which implied the tragedy of WorldCom.He interminably acquired the other companies to make WorldCom bigger and bigger without deep consideration, even paying the price to unload his confidants. Lack of programs improvement WorldCom was praised as a fast- ontogeny companya rate of growth usually achievable only by external acquisition, not organic internal evolution. If WorldCom ever stops acquiring, growth will most likely slow, which will negatively impact analysts ratings and WorldComs stock price. The main business in WorldCom is not real telecom business instead, its a acquiring and resell business.Thus, in that respect were no improvement or clear organic structures in the company. Whats more, WorldCom didnt have its own wireless network and it only sells wireless service, which would result in loss revenue later. Lack of after acquiring exam WorldCom acquired 65 companies successfully until the failure of acquiring Sprint. Internal auditing department only employed 10 people to monitor the huge company. Not list to monitor and test the acquired companies. Lack of auditing CEO During the golden period of WorldCom, Bernie obtained contribute from plenty banks which related to the stock price of the company.As long as WorldCom stock stayed higher above a level, banks wouldnt issue a delimitation call, requiring Bernie to come up with the cash to pay down enough of the add to bring the collateral to remain at a certain percentage of the loan. As a result, when the stock market fluctuated in 2002, WorldCom stock price went down below the certain level, and the board had to help Bernie to pay the loan, or the stock price will keep falling as the banks lose confidence in WorldCom and sell stocks one after another.But at the beginning, on that point was no one to control Bernie not to borrow money and sweep up that risk to pay marginal call. Conclusion WorldCom was proved to be a big success and a tragedy in the history. Its strategy of expansion through acquiring constantly helped it grow-up to be a top snow company in the stock market. However, its precisely because this crazy acquiring method let the WorldCom ignore the foundation of operating activities. Investors neglect the cash flow statements rather than totally relied on the equity return.As the internal department, it didnt play a good role in assurance and consulting activities for the acquiring process. Since the department wasnt gain enough attention from the board and was usually influenced by the executi ves, like CEOBernie, it was hardly to let them perform comfortably under the Bernies control. In this case, Bernie was seen as Gods in WorldCom and there was no one came up with objections, even some will oppose the acquiring, but at last Bernie still could do what he wants.Even Cynthia found there was a fraud from the new CEO and CFO after Bernie go forth WorldCom. It still couldnt prevent the tragedy Bernie planted before. At the same time, this case also gives a lesson that power should be divided rather than central control, and the person who holds the power should have the enough capability and pro knowledge. 2 . On summon 52 3 . On scalawag 57 4 . On page 77 5 . On page 84 6 . On page 129 7 . On page 175 8 . On page 127 9 . On page 152 10 . On page 172 11 . On page 183