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WorldCom Accounting Fraud Case Study

   

Added on  2020-03-16

6 Pages938 Words54 Views
Finance
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Running head: FINANCIAL ACCOUNTINGFinancial AccountingStudent’s Name:University Name:Author Note
WorldCom Accounting Fraud Case Study_1

1FINANCIAL ACCOUNTINGTable of ContentsAnswer to Question 1.................................................................................................................2Answer to Question 2.................................................................................................................3Answer to Question 3.................................................................................................................3References..................................................................................................................................5
WorldCom Accounting Fraud Case Study_2

2FINANCIAL ACCOUNTINGAnswer to Question 1On the date of July 21, 2002, the WorldCom Group which is essentially atelecommunications company with a revenue amount of more than $30 billion did file forprotection for bankruptcy under Chapter 11 of the U.S. Bankruptcy code. The issue thatoccurred in the company was that from the year of 1998 to 2000, WorldCom did deliberatelydecrease the amount of reserve accounts in order to cover up for the liabilities of thecompanies that it had acquired. WorldCom did make an addition of $2.8 billion from the partof the revenue to these reserves. The reserves were not able to cover it as a result a particularmail was sent on December, 2000 to the respective Texas division reporting this issue. Inorder to manage this, the CFO, Sullivan instructed the employees or the key members of theorganization to tune up the operating costs as long-term investments by an amount of $3.85billion. This resulted in the scandal that turned the huge losses into enormous profits. To bemore clear the net income of the company increased by $1.38 billion in the financial year of2001. The assets were also overstated (Yallapragada, Roe and Toma 2012). The disparities that were observed in the financial statements of the company was thatthe capital expenditure in the domain of computer expenses was not recorded by the amountof $500 million. The entry of $2 billion was also questionable. Even the profits wereincreased by the amount of $3.8 billion. The issue or the misstatements that were carried out in the year of 2001 and in 2002were that the line costs especially the costs related to the utilization of third-party networkfacilities and services were misstated in the financial statement as capital expenditures. Thisunethical practice was at first noticed and reported by Cynthia Cooper who was the vicepresident of the internal auditing team and then reported to the Securities and ExchangeCommission. The company accepted its fault and surrendered that these transactions were not
WorldCom Accounting Fraud Case Study_3

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