The case is about World Com Company. The company was undergoing a harsh financial period and they had to try under whatever means to reduce expenses so that investors could invest in the company. In an attempt to ensure that the costs of the company were reduced, the company, capitalized some of its line costs and stated that they were capital expenditures. The auditors of the company, Anderson Company stated that the company did not observe GAAP but the misstatement was not material. This was wrong information and it misguided investors.
The auditors of the company acted in a fraudulent manner. This is because they misguided the investors in the company knowingly. The auditors should have offered a qualified report with no disclaimer note. They should have4 stated that the financial statements of the company were wrong. The capitalization of expense meant that the expenses would not be reflected in the income statement of the company. Hence, the income of the company would increase and the financial ratios for the company would be favorable for the owners of the company. The liability of the auditors would be deregistration of their company and also having to incur a jail term for willing and knowingly misguiding the users of the financial statements.
The management of a company is responsible for the preparation of the financial statements. The auditors have an obligation of stating if according to their opinion the financial statements are correct. However, in this case, the auditors knowingly gave a wrong report. That should not be the case and should not be done by any auditor. Auditors should obey their code of ethics in their roles in a company.