[Solution] Help Strengthen Auditing Standards
Please reply with at least 150 words to the discussion below. you must support the assertions with at least 2 scholarly citations in APA format. any sources cited must have been published within the last five years.
The fraud committed by WorldCom executives was due in part to improper reduction of line cost items and fictious adjustments to report a growth in the company’s profits (Mintz & Morris, 2020). Upper management pressured their financial accounting staff to commit fraud to show investors and shareholders the success and profitability of WorldCom. The misappropriation and fraudulent financial reporting of WorldCom affected the financial and telecommunication industries, both domestic and abroad.
Explain the role of cognitive shortcomings in the WorldCom fraud and how social and organizational pressures influenced Betty Vinson’s actions
The WorldCom scheme included multiple roles of cognitive shortcomings and a corporate culture that affected the actions of key employees. The first shortcoming, The Tangible & the Abstract. In this deficiency, management considers the more tangible factors at the cost of additional abstract factors (Mintz & Morris,2020). The economic recession and high competition in the telecommunications market led to a decrease in demand, which ultimately led to a decline in stock prices. It was perceived that WorldCom stocks would not be attracted by investors. Coupled with poor decision-making of upper management, the company was forced to fraudulently overstate revenue. Second deficiency, Loss Aversion. According to the text, there is tendency to despise the losses more so than enjoying the gains that leads to unethical choices to avoid perceivable future losses (Mintz & Morris. 2020). In other words, the stakeholders feel the pain of a loss more than twice as strongly as they feel the enjoyment of making a profit (pg. 61). This deficiency could possibly be viewed as a reason for Ebbers, the CEO, to force the managers to improve the revenue conditions to keep their jobs. (Mintz & Morris, 2020). The third deficiency, Framing. In this instance, the stakeholders make various decisions based on the structure of a question so that the factors are such they appear equivalent to ethical behavior or standards (Mintz & Morris, 2020). For example, Betty Vinson’s trust in upper management and belief in what she was doing was for the greater good of the company. The final deficiency, Overconfidence. According to Mintz, in this deficiency there is a tendency for people to believe that they are ethically and morally correct so much so that it causes their decision-making to have moral consequences (pg.61). The overconfidence deficiency is best summed up in a statement by Cynthia Cooper, VP of internal audit, “Bernie Ebbers’ risk-taking and reckless strategies concerning the company’s liabilities and Ebbers’ personal debt affected his ability to make sound decisions.
Social and organizational pressures affected Betty Vinson’s job performance and actions. Following directions, dependability, and being a team player are important and ethical qualities for key employees. Although she meant well in her intentions, Vinson’s desire to be loyal to the company and upper management led to poor decision making and revocation of her accounting practices. The desire to win over authority by compromising one’s integrity overshadows the invaluableness of the individual.
The SEC action against Vinson was deemed “appropriate and in the public interest”. How was the public interest affected by what Vinson did and WorldCom’s actions broadly?
Due diligence for accountants is a key element to mention from the AICPA principles of professional code of conduct (2016). The Security and Exchange Commission charges against Vinson was appropriate for the crime. Because of the unprofessional and disregard of the code of accounting and principles by WorldCom and Vinson, regulations had to be improved and implemented. The Sarbanes-Oxley Act of 2002 (SOX) was was passed in response to tax disclosure scandals. The act was introduced to help strengthen auditing standards among publicly reported companies such as WorldCom (Coates, 2007).
In a presentation at James Madison University in November 2013, Cynthia Cooper said “You don’t have to be a bad person to make bad decisions.” Discuss what you think Cooper meant and how it relates to our discussion of ethical and moral development in the chapter.
In my opinion, I believe Cooper’s statement “You don’t have to be a bad person to make bad decisions”, speaks of life and the decisions we have to make as individuals. We are all humans with instinctive and curious behaviors. “According to Herath & Walker (2019) fraud and misappropriation of funds varied by gender, age, and corporate leadership. Researchers also concluded that fraud cases involved “a negative tone at the top, data breaches, and weak internal controls” (p. 103). It is our moral and professional duties as accountants to practice integrity and due diligence. Corresponding to AICPA 0.300.040.01, the Integrity Principle, “to maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity” (AICPA, 2014). Accounting practices that are motivated by the intent to deceive others or to enhance one’s personal wealth is unethical. As Christian leaders, when pressures occur, we quickly forget the promises in God’s word. Philippians 4:19 (English Standard Version), states “And my God will meet all your needs according to the riches of his glory in Christ Jesus”. It is important for leaders to remember that we serve a God who provides all our needs. Our faith and belief in Him help put thing into perspective and gives peace about financial concerns to which we are held accountable.