What effect did the WorldCom scandal have on accounting?
ACCOUNTING FRAUD AND ITS CONSEQUENCES Unfortunately for thousands of employees and shareholders, WorldCom used questionable accounting practices and improperly recorded $3.8 billion in capital expenditures, which boosted cash flows and profit over all four quarters in 2001 as well as the first quarter of 2002.
What GAAP principles did WorldCom violate?
The two primary ways that Worldcom increased net income by violating GAAP were: 1) reduction of reported line costs, and 2) exaggeration of reported revenue.
What went wrong in WorldCom?
WorldCom was a telecommunications company that went bankrupt in 2002 following a massive accounting fraud. WorldCom remains the biggest accounting scandal in U.S. history as well as one of the largest bankruptcies.
How did the WorldCom scandal affect the company and investors?
WorldCom employs 80,000 and will eliminate a fifth of those jobs almost immediately. The Enron- stock meltdown wiped out $67 billion of share- holder wealth—less than half what WorldCom in- vestors have lost. The losers include pension funds and mutual- fund investors across the country.
How did the WorldCom scandal change the business environment?
First, WorldCom paid “line cost” fees for the right to use the lines and networks of third-party telecom companies. At the time it was discovered, WorldCom had inflated its assets by close to $11 billion. It still holds the record as the largest accounting fraud in U.S. history.
How did WorldCom inflate its net income?
The company said it inflated earnings by improperly counting some of its routine expenses as long-term capital expenditures, which do not have to be deducted as business costs.
How did WorldCom accountants conceal over $9 billion in expenses?
In general, WorldCom manipulated its financial results in two ways. First, WorldCom reduced its operating expenses by improperly releasing certain reserves held against operating expenses. Second, WorldCom improperly reduced its operating expenses by recharacterizing certain expenses as capital assets.
How did WorldCom inflate earnings?
What are the ethical issues in WorldCom case?
This case describes three major issues in the fall of WorldCom: the corporate strategy of growth through acquisition, the use of loans to senior executives, and threats to corporate governance created by chumminess and lack of arm’s-length dealing.
Who was mainly responsible for the downfall of WorldCom?
What Drove the Fraud? The driving factor behind this fraud was the business strategy of WorldCom’s CEO, Bernie Ebbers. In the 1990s, Ebbers was clearly focused on achieving impressive growth through acquisitions.
How did Enron case affect accounting practice?
The Enron scandal drew attention to accounting and corporate fraud as its shareholders lost $74 billion in the four years leading up to its bankruptcy, and its employees lost billions in pension benefits.
How much did WorldCom manipulate its financial results?
Defendant WorldCom has acknowledged that during this period, as a result of undisclosed and improper accounting, it materially overstated the income it reported in its financial statements by approximately $9 billion. In general, WorldCom manipulated its financial results in two ways.
What is the WorldCom scandal worth?
WorldCom has revealed a further $3.3bn in accounting errors, doubling the size of the accounting scandal at America’s second largest long distance phone company to more than $7bn. Mark Tran explains What did WorldCom say?
What are WorldCom’s fraudulent accounting practices?
WorldCom’s fraudulent accounting practices with respect to “line costs” were designed to and did falsely and fraudulently inflate its income to correspond with estimates by Wall Street analysts and to support the price of WorldCom’s common stock in the market.
Does WorldCom have a balance sheet or income statement?
Public companies, such as WorldCom, typically report the financial results of their operations in financial statements that include both an income statement and a balance sheet.