Internal auditors usual deal with improving the

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audits on a small scale. Internal auditors usual deal with improving the effectiveness of risk management, control, and governance processes. The information that internal auditors collects helps a company improve in a broad range of activities such as operational efficiency, reliability of financial reporting, and fraud control. 4. On March 7, 2002, the SEC surprised Worldcom with a “Request for Information.” What led the SEC to issue this request? Does the SEC have the legal authority to compel
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Worldcom to provide the information? What authority has Congress given to the SEC? (This question will require research on your part.) The SEC issued the request because a lot of similar businesses in the telecommunications industry were reporting large losses, while Worldcom was reporting quarterly gains. SEC did not have the power to request additional information about Worldcom’s financial statement. Congress gave the SEC the power to issue harsher fines and prison sentences to CEO/CFO’s who certify that their financial statements were correct but later were found to be fraudulent. 5. How are capital expenditures different from operating costs? What is the difference in impact on profits of these two items? What exactly was the fraudulent reporting that Worldcom perpetrated? Given our discussion of chapter 2, what accounting principles/concepts were violated by this fraudulent reporting? Capital expenditures are assets that are expensed over a length of time, while operating cost are cost that need to be paid in the year and quarter that they are incurred. If you which an operating expense to a capital expense then operating income or net income will look better than it really it. Worldcom took operating expenses that in was incurring in their telecommunication business and switching them to a capital expenditures and calling it “prepaid capacity”. The expense recognition principle was not followed by Worldcom because the expense generated revenue for the company but it was not followed by the cost of producing that service.
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