Accounting Froud at worldcom & executive
Background Information
This report details the rise and collapse of WorldCom Group: this telecommunication giant employed 60,000 individuals and had over $104 billion in assets. However, most numbers were deliberately misstated in order to maximize income and survive in the global stock market. WorldCom dates back to 1983 when in split up from AT&T to create a separate entity in order to take over the Southern states telecommunication markets. WorldCom focused on providing Long Distance Discount Services (LDDS) to the southern markets where there was no market presence by other big company's like Sprint and MCI. During the 1990, WorldCom was deeply involved in acquisitions and purchased over 60 firms. In 1996, WorldCom merged with MFS Communications Company (MFS), which owned local network access facilities via digital fiber optic cable networks in and around U.S. and European cities and UUNet technologies, an Internet access provider for businesses. In 1997, WorldCom purchased MCI for $42 millions but not allowed to purchase Sprint in 2000 because of anti-trust regulations. Due to a sudden crash in stock market in 2000, telecom industry in U.S. Telecom industry faces massive capital investment, excess capacity and continuous fall in LDDS prices and lower demand. WorldCom resorted to wrong accounting methods (booking expense as capital, extensive accruals) to show that they were making progress. Between1998 and 2002, WorldCom was 2nd largest long-distance operator and handled internet traffic and data traffic with over 20 millions customers in 2002. In 2002, when company Identified its losses, it recalled debts from creditors and negotiated compromised deal with its lenders which failed and company had to face legal action of bankruptcy.
Analyze the case, identify the problems in the case, and critically evaluate company’s financial reporting practices from the perspective of its stockholders, other investors, creditors, and regulators
Analysis
A major factor
This report details the rise and collapse of WorldCom Group: this telecommunication giant employed 60,000 individuals and had over $104 billion in assets. However, most numbers were deliberately misstated in order to maximize income and survive in the global stock market. WorldCom dates back to 1983 when in split up from AT&T to create a separate entity in order to take over the Southern states telecommunication markets. WorldCom focused on providing Long Distance Discount Services (LDDS) to the southern markets where there was no market presence by other big company's like Sprint and MCI. During the 1990, WorldCom was deeply involved in acquisitions and purchased over 60 firms. In 1996, WorldCom merged with MFS Communications Company (MFS), which owned local network access facilities via digital fiber optic cable networks in and around U.S. and European cities and UUNet technologies, an Internet access provider for businesses. In 1997, WorldCom purchased MCI for $42 millions but not allowed to purchase Sprint in 2000 because of anti-trust regulations. Due to a sudden crash in stock market in 2000, telecom industry in U.S. Telecom industry faces massive capital investment, excess capacity and continuous fall in LDDS prices and lower demand. WorldCom resorted to wrong accounting methods (booking expense as capital, extensive accruals) to show that they were making progress. Between1998 and 2002, WorldCom was 2nd largest long-distance operator and handled internet traffic and data traffic with over 20 millions customers in 2002. In 2002, when company Identified its losses, it recalled debts from creditors and negotiated compromised deal with its lenders which failed and company had to face legal action of bankruptcy.
Analyze the case, identify the problems in the case, and critically evaluate company’s financial reporting practices from the perspective of its stockholders, other investors, creditors, and regulators
Analysis
A major factor