1. Although it usually doesn’t involve physically stealing money, financial statement fraud is commonly considered the most expensive type of fraud. Why is this true?
2. The Sarbanes-Oxley Act of 2002 has, in many ways, changed the role of financial statement auditors. In addition to ensuring financial statement accuracy, independent auditors are now required to review a company’s internal controls and report their assessments in the company’s annual report. How might these new policies help prevent financial statement fraud from occurring?

WorldCom Corporation began as a small company in the 1980s. Under the direction of CEO and cofounder Bernie Ebbers, it quickly grew to become one of the largest telecom companies in the world. Ebbers’ success resulted in his theory that survival in the telecommunications industry would come only through company growth and expansion. Therefore, during the next two decades, WorldCom grew through acquisitions, purchasing more than 60 different firms in the latter half of the 1990s alone. In 1997, WorldCom acquired MCI in a transaction that cost the company roughly $37 billion, and it would have purchased Sprint if it had not been prevented by federal antitrust regulations.
In less than two decades, WorldCom had grown from a small telephone company to a corporate giant, controlling about half of the U.S. Internet traffic and handling at least half of the e-mail traffic throughout the world. The value of WorldCom stock followed the company’s growth, eventually reaching more than $60 per share. However, corporate scandal and falsified financial statements soon led the company down the dreaded spiral until, in 2002, it filed for the largest Chapter 11 bankruptcy in U.S. history.