ACC557 Financial Accounting
Cornelia H. Brown
Review of Accounting Ethics - Worldcom
In a business world pressured to meet organizational objectives such as high revenue growth it is not alarming that conduct by decision makers may be deemed as questionable practices. These practices within the past two decades have resulted in a number of organizations finding themselves confronted with ethical dilemmas and the aftermath of stock price declination, corporate demise and costly litigation. Worldcom is one of those organizations that found itself in this predicament as it announced filing for bankruptcy in July of 2002. (Thibodeau and Freier)
Worldcom evolved from Long Distance Discount Services (LDDS), a long-distance provider that connected calls between local telephone companies. In 1996 the Telecommunications Act allowed long-distance service providers to enter the local telephone services and other telecommunications services, such as the Internet. During the next four years the company embarked on an aggressive acquisition strategy to expand into these markets.
The acquisitions included the following telecommunication companies: MFS and UUNET (1996), Brooks Fiber Properties, CompuServe Corporation, ANS Communications and MCI (1998); Skytel and Sprint (1999). Although the Sprint merger failed, Worldcom became the second-largest telecommunications provider in the United States. During this time span year over year revenue growth was 50 percent in 16 of 23 quarters. (Thibodeau and Freier)
In 2000, Worldcom began to face challenges such as increased competition, decreased rate of growth, decline in stock prices and downturn in demand, particularly the Internet. The investment in network capacity outweighed consumer demand. The ratio of expenses to revenues increased as industry revenues and stock prices declined.
As a decision maker what takes place when faced with the...