The fraud, discovered earlier this year by internal auditors at the US telecoms goliath WorldCom and announced to the world this week, has severely shaken world equity markets leading to fundamental questions being asked about the way the business world operates.
Richard Nelson, deputy president of the Institute of Internal Auditors, said: ‘WorldCom is the most radical example yet of an organisation where the cocktail of commercial pressure, an aggressive acquisition policy, senior mismanagement and – crucially – flawed accounting practice, was lethal.
‘When a CEO expresses “shock” at the discovery of such a fraud, it is time for a rethink.’
Nelson urged a change in the relationship between external audit firms and their audit clients, with regard to the provision of consultancy services to these clients.
He said: ‘The role of the external auditor has become more problematic; often external audit firms perform a variety of consultancy roles for the same client, become too close and lose objectivity in the push for profitability. This must change.’