AUDITORS

WorldCom’s external auditors during and before the fraud were Ather Anderson
LLP. and KPMG. Ather Anderson is blamed for having the bigger share for the downfall of
WorldCom. Ather Anderson was once one of the big five accounting firms and performed
auditing tax and consulting services for large co-corporations. The firm was founded in
1913 by Ather Anderson & Clarence Delany as Anderson, Delany & company 1. The firm
changed its name to Anderson & co in 1918.

INVOLVEMENT IN THE SCANDAL.

Ather Anderson LLP
On June 15 2001 Anderson was convicted of obstruction of justice for shredding
documents related to its audit of Enron resulting in the Enron scandal. This indictment
put a spotlight on its faulty audits of other companies most notably sunbeam and
WorldCom. The subsequent bankruptcy of WorldCom then led to a series of other cases
against Anderson. Arthur Andersen was accused of failing to protect investors. The
accounting firm issued an audit opinion on WorldCom with an “intend to deceive,
manipulate or defraud” 2
investors
To date Anderson has not been formally dissolved nor has it declared bankruptcy.
Ather Anderson is a good example of what happens when accountants get so intertwined
with their clients that the thin line is often blurred. The accounting firm becomes so
involved with its client such that it would most of the time turn a blind eye to any fraud.

KPMG
After WorldCom fired Anderson auditors after its role in the down fall of enroll corp.
and other firms like Adelphia communications it appointed KPMG as its new auditor in
may of 2002. KPMG would later be accused in a report by Richard Thornburgh of its
flawed tax advice to WorldCom now MCI. The report said the company had avoided state
taxes by charging subsidiaries more than 12 million in royalties in over 4 years. Richard
Thornburgh’s report also accused KPMG of failure to warn WorldCom on the risks of its
strategies "may constitute negligence". KPMG hit back saying “the accusations were
simply wrong” Mr. Farrell Malone had been assigned by KPMG as the engaging partner
on this audit.3

1
Ather Anderson challenging status quo by Mary virgin more, john Crompton
2
New York state comptroller Allen Hevesy www.cbs.camoney
3
Findlaw.com
REPORT ON WORLDCOM BY AUDITORS

Prior to May 16th 2002 Anderson LLP audited the company’s 2001 financial statements
and reviewed the company’s first quarter 2002 financial statements. During this period
Anderson’s partner on WorldCom’s audits was Mel Dick. Anderson gave an unqualified
opinion on the company’s 2001 financial statements following its audits. On February 6,
2002, the Audit Committee met with Andersen to discuss Andersen's audit of the
Company's consolidated results of operations and financial position as of and for the
year ended December 31, 2001. Andersen's presentation4 noted, among other things:
1) There were no significant or unusual transactions, or material transactions in
controversial or emerging areas for which there was a lack of authoritative
guidance or consensus.
2) Andersen had assessed the Company's key accounting practices to determine
whether management had adequate controls to prevent a material error in the
financial statements as a result of a failure to properly record data in the
general ledger.
3) It was Andersen's assessment that the Company's processes for line cost
accruals and for capitalization of assets in Plant, Property & Equipment accounts
were effective.
4) It was Andersen's assessment that the Company's process for formulating
judgments and estimates for accrued line costs was effective, noting that line
costs as a percentage of revenue had remained flat at 41.9% on a YTD basis.
During the meeting, Andersen advised in response to specific questions by the
Committee that Andersen had no disagreements with management and that
there were no accounting positions taken by the Company with which Andersen
was not comfortable.

4
www.sec.gov/news/extra/wcrevex1.pdf
AUDITING PROCEDURE THAT WOULD HAVE PREVENTED THE WORLDCOM
SCANDAL

The audit rules could have helped prevent the WorldCom scandal. New audit rules
like the statement on auditing standards 112 clearly define rules under which
communicating internal controls matters identified in an audit can be handled. For
instance the auditor cannot be part of a client’s internal control as this impairs the
auditor’s independence.
Companies should implement other channels of communication other than just
employee reporting to management. This is to allow employees within the company
an opportunity to blow the whistle without fear in case they notice any major financial
irregularities within a company.
The whole scandal revolves around ethical issues for accountants. In the world com
scandal accountants were instructed to hide bad debts and falsify WorldCom’s books.
David Myers WorldCom’s controller said that he followed orders from senior
management to make entries that reduced WorldCom’s reported actual costs and
therefore to increase WorldCom’s reported earnings. (New York times 14/09/2007).
All the controller had to do is blow the whistle when he noticed such an alarming
issue. The alarm on WorldCom was triggered by an employee in the internal audit.
During May 2002, Cynthia Cooper, Vice President - Internal Audit, began an
investigation of certain of the Company's capital expenditures and capital accounts.
This is was what made everybody else notice the malpractices that had been
perfected for a while by WorldCom’s executives. Hence accountants should rely on
their ethical skills and voice any malpractice.
While much blame lies at accountants and executives not being honest, much of
the financial scandals have been a built up of irregularities that have gone without
prosecution or deep investigations. There has never been a preventative culture
instituted but rather a let it happen and we investigate approach which is one of the
 downfalls of neo-corporate culture. The more prominent irregularities uncovered
before the WorldCom collapse include Global Crossing, Tyco International, Merrill
Lynch, Dynegy, ImClone Systems, Adelphia Communications, Computer Associates,
Peregrine Systems, Qwest Communications, Xerox, and Merck. The Securities and
Exchange Commission (SEC) reported that investigations relating to “financial
statement improprieties” in recent years had pushed its caseload to an
unprecedented 330 in 2002.5 This should have been a gauge for rising problems.
With these reports proper response should have been instituted to stop these
irregularities. There was a need to seal the loop holes that allow every “acceptable”
maneuvers that executives use to fiddle the books to match the corporate game.
Managers, often use these maneuvers’ knowing that the auditors and everybody will
turn a blind eye. For example while operating expenses will be reflected fully on the
immediate profit and loss account, the impact of capital expenditure will be spread
out. What goes to which of the two accounts is not always clear-cut, but the gray area
will be minimized if honest accounting principles are observed. The same applies to
many other accounting decisions. One of the external auditors' main jobs is to check
that honest decisions are being made. This should have happened with WorldCom.