Accounting Scandal of Worldcom

951 Words Jul 7th, 2012 4 Pages
MANAGERIAL ACCOUNTING

WORLDCOM
How did it cook the books?
Nguyen Bao Khanh
Student ID: FB60162 Class: FB0662

May 19th, 2012

APENDIX
1. WorldCom’s accounting scandal 2. How did WORLDCOM cook its books? 3. Conclusion

WORLDCOM headquarter in Virginia, USA.

WORLDCOM’S ACCOUNTING SCANDAL
WorldCom, established in 1983, whose CEO was Bernard Ebbers, was the second largest long distance phone company in the US after AT&T. It could be seen as a pride of America until it got into one of the biggest accounting scandals in the American history which finally led to its bankruptcy in 2002. On July 21st, 2012, WorldCom filed for bankruptcy, which was worth 103.9 billion USD and became the largest filing at its time. Its CEO, Bernard
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There would be no effect on current net income as increasing in Equipment means increasing in depreciation expense. Instead of being spent in the current year only, the cost is spread over many years. At the moment, you may have the general image of the tactics that WorldCom used to cook their books.

WorldCom announced $3.8 billion in improperly booked expenses for 2001 and 2002, and an additional $3.3 billion in accounting errors. Moreover, WorldCom officially filed for bankruptcy when found an accounting fraud with the amount up to $11 billion. So how did it happen? As having mentioned, WorldCom’s CEO Bernard Ebbers was convicted of being guilty for the stock and accounting fraud, so it was obvious that the fraud occur from the management level of the company. WorldCom’s major operating expense was called line costs, which means cost paid to lease other telephone operators’ network, phone lines and so on. In short, just remember that line costs are its main operational expense. In 2000, WorldCom was actually not doing a good business, and they somehow tried to cover the current reality by performing some ‘magic’ with their accounting stuff, and here is the thing: WorldCom was managing to cover the truth behind its business, so according to his indictment, Mr. Scott Sullivan – former CFO – tried to move around the reserves for…