Question

Please provide an example of a well-publicized accounting fraud and explain which control ultimately broke down and led to the fraud.

Answer 1

Let's take an example of World Com. It was a big Telecom company which used to inflate its profits by capitalizing on the expenditures instead of showing them expense. This increases profits and decreases expenses. Consequently, it leads to bankruptcy.

Preventive and detective controls like internal control, proper external audit, disclosure of information in footnotes were found missing. The absence of these controls leads to fraud at Worldcom.

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