Assignment:
Review the Case: Behind Closed Doors at WorldCom: 2001. by Kay E. Zekany , Lucas W. Braun , Zachary T. Warder and response the below:
Q1. Two General Accounting employees--Dan Renfroe and Angela Walter--made journal entries in the amount of $150 million and $771 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.
Q2. Based on GAAP, describe the propriety or impropriety of releasing of $150 million in line cost accruals in the Wireless division over Deloris DiCicco's objections. Support your position using the authoritative accounting literature.
Q3. On the topic of capitalizing line costs, critique the rationale included in CEO Scott Sullivan's White Paper. Based on your own analysis of GAAP, explain the propriety or impropriety of capitalizing line costs in the telecom industry.
Q4. Consider the journal entry that recognizes $35 million of revenue in 2001 from the EDS contract based on WorldCom's expectation that the five-year required cumulative minimum payment would not be met. Based on your own analysis of GAAP, explain the propriety or impropriety of this journal entry.
Q5. Why do you think the professionals in this case, most of whom were CPAs, would agree to record a material journal entry contrary to their best professional judgment?
Q6. 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.