Business Failure: Worldcom
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- Date Submitted: 07/09/2012 05:23 PM
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WorldCom Business Failure
2002 was an eye-opening year for the business world. According to CNN Money (2002), it marked “two of the biggest accounting scandals to rock the financial world,” (para. 1). How can an organization go from one of the most profitable with shares selling for $64 per share to $0.21 per share within a few months? Fraud, greed, and a compliant accounting firm was the crux of the downfall of WorldCom.
Fraud within WorldCom
The WorldCom executives did not start out with the intentions of “perpetrating the largest accounting fraud in U .S. history,” (All Business, n.d., para. 1) however, the pressures of maintaining the consistent cash flow proved to be the downfall of the CEO of World Com, Bernie Ebbers, according to All Business (n.d.), “these pressures resulted with Ebbers and other WorldCom executives to engage in unethical and fraudulent behavior,” (para. 9).
In order to keep the earnings before interest, depreciation, taxes and amortization (EBIDTA) at the level it had been over the recent years the executives at WorldCom engaged in creative accounting. The executives at WorldCom conspired to move expenses from the income statement to the balance sheet and label them as pre-paid assets. WorldCom financial statements claimed to have more assets on account, and less expenses then what they had. Not only did the executives falsify the financial statements, Arthur Anderson did not ask “tough questions of WorldCom's top executives or continuing to demand access to company records, Andersen shrugged its shoulders and acquiesced to a client that paid the firm more than $40 million in auditing and consulting fees in a three-year span,” (CNN Money, 2005).
Organizational Behavior Theories
Groupthink is one of the behavioral theories that fit the WorldCom scenario involving so many people from the top ranking executives, to the accountants making the entries with no backup, to the outside accounting firm signing off on the integrity of...
2002 was an eye-opening year for the business world. According to CNN Money (2002), it marked “two of the biggest accounting scandals to rock the financial world,” (para. 1). How can an organization go from one of the most profitable with shares selling for $64 per share to $0.21 per share within a few months? Fraud, greed, and a compliant accounting firm was the crux of the downfall of WorldCom.
Fraud within WorldCom
The WorldCom executives did not start out with the intentions of “perpetrating the largest accounting fraud in U .S. history,” (All Business, n.d., para. 1) however, the pressures of maintaining the consistent cash flow proved to be the downfall of the CEO of World Com, Bernie Ebbers, according to All Business (n.d.), “these pressures resulted with Ebbers and other WorldCom executives to engage in unethical and fraudulent behavior,” (para. 9).
In order to keep the earnings before interest, depreciation, taxes and amortization (EBIDTA) at the level it had been over the recent years the executives at WorldCom engaged in creative accounting. The executives at WorldCom conspired to move expenses from the income statement to the balance sheet and label them as pre-paid assets. WorldCom financial statements claimed to have more assets on account, and less expenses then what they had. Not only did the executives falsify the financial statements, Arthur Anderson did not ask “tough questions of WorldCom's top executives or continuing to demand access to company records, Andersen shrugged its shoulders and acquiesced to a client that paid the firm more than $40 million in auditing and consulting fees in a three-year span,” (CNN Money, 2005).
Organizational Behavior Theories
Groupthink is one of the behavioral theories that fit the WorldCom scenario involving so many people from the top ranking executives, to the accountants making the entries with no backup, to the outside accounting firm signing off on the integrity of...