Behind Closed Doors at WorldCom
1. Two General Accounting employees—Dan Renfroe and Angela Walter—made journal entries in the amount of $150 million and $171 million, respectively, without detailed support. It was noted that this was not out of the ordinary at WorldCom. In your opinion, was this a proper accounting practice? Explain.
Though this may not be out of the ordinary for WorldCom, this is not a correct accounting practice. The way the entries were made does not comply with the proper account practice according to GAAP. Detailed support is an important part of providing support to a journal entry and it explains the reason or purpose as to why the journal entry was created.
2. Based on GAPP, describe the propriety or …show more content…
I think that in many situations employees were able to twist statements which follow GAAP guidelines. May employees were convinced they were doing the right thing and those that were unwilling to participate were overlooked. Most of the material journal entries which were made contrary to best judgment were so done with a view to mask the declining profits and to show increasing profits, which in turn would increase stock prices.
6. In general, how does the role of Internal Auditing differ from the role of Independent (or External) Auditing? What is the role of Internal Auditing in a well-run corporation? When performed by internal auditors, what is a financial audit versus an operating audit? Do you think WorldCom’s Internal Audit Department was functioning as it should have been? Explain.
Internal auditors work within an organization and report to its audit committee and/or directors. They help to design the company’s organizing systems and help develop specific risk management policies. External auditors are independent of the organization they are auditing. They report to the company’s shareholders. They provide their experienced opinion on the truthfulness of the company’s financial statements and perform work on a test basis to monitor systems in place.
Internal Auditing is designed to look at the key risks facing the business and how the business is managing those risks effectively. It usually results in recommendations for improvement