worlcom
BKAL 3063(E) INTEGRATED CASE STUDY
30 SEP 2014
NIMELAN A/L MANOHAR 207110
NADIA BINTI ABDULLAH 213803
NAJIHAH SAKINAH BINTI MOHD NORDIN 213950
SURAYAH BINTI MATIASIN 214114
Accounting Fraud at WorldCom
Executive Summary
WorldCom is a telecommunication company that has been found by Bernard Ebbers, a Canadian. Growing rapidly through mergers and acquisition strategy, Ebbers handled largest takeover in US history by acquiring MCI, the nation’s second largest long distance company. The aggressive acquisition strategy required issuing a lot of debt, which eventually cause problems that attract the company to do accounting frauds. The main issue in this case is cooking the books, in which accounting misstatements were done intentionally. Cynthia Cooper, head of internal audit department, began to find out the fraud activities after she had requesting an explanation of doubtful $2.3 billion worth of projects. On 26 June 2002, SEC had filed a civil suit against WorldCom. WorldCom then announced for bankruptcy protection under Chapter 11 of the US Bankruptcy Code.
Statement of Problems
WorldCom is just another case of accounting abuses and outright greed. Hence, the main issue in this case is none other than its accounting fraud. Cooking the books which is the act of falsification of accounting records so that company can provide a misleading picture of a firm 's financial position is what they did. In terms of accrual releases, Myers has instructed acting CFO of UUNET to release line accruals and booked that entry even though it is not agreeable. Expense capitalization is another factor of cooking the books too as Sullivan was so determined to maintain the 42% E/R ratio. He decided to stop recognizing expenses for unused network capacity when they incurred, instead capitalizing them into an asset account, “construction in progress”. In order to win the board’s confidence, Sullivan had manipulated the information regarding capital expenditures and line
30 SEP 2014
NIMELAN A/L MANOHAR 207110
NADIA BINTI ABDULLAH 213803
NAJIHAH SAKINAH BINTI MOHD NORDIN 213950
SURAYAH BINTI MATIASIN 214114
Accounting Fraud at WorldCom
Executive Summary
WorldCom is a telecommunication company that has been found by Bernard Ebbers, a Canadian. Growing rapidly through mergers and acquisition strategy, Ebbers handled largest takeover in US history by acquiring MCI, the nation’s second largest long distance company. The aggressive acquisition strategy required issuing a lot of debt, which eventually cause problems that attract the company to do accounting frauds. The main issue in this case is cooking the books, in which accounting misstatements were done intentionally. Cynthia Cooper, head of internal audit department, began to find out the fraud activities after she had requesting an explanation of doubtful $2.3 billion worth of projects. On 26 June 2002, SEC had filed a civil suit against WorldCom. WorldCom then announced for bankruptcy protection under Chapter 11 of the US Bankruptcy Code.
Statement of Problems
WorldCom is just another case of accounting abuses and outright greed. Hence, the main issue in this case is none other than its accounting fraud. Cooking the books which is the act of falsification of accounting records so that company can provide a misleading picture of a firm 's financial position is what they did. In terms of accrual releases, Myers has instructed acting CFO of UUNET to release line accruals and booked that entry even though it is not agreeable. Expense capitalization is another factor of cooking the books too as Sullivan was so determined to maintain the 42% E/R ratio. He decided to stop recognizing expenses for unused network capacity when they incurred, instead capitalizing them into an asset account, “construction in progress”. In order to win the board’s confidence, Sullivan had manipulated the information regarding capital expenditures and line
References: Ashraf, J. (2011). The Accounting Fraud @ Worldcom. : The Causes, The Characteristics, The Consequences, And The Lessons Learned . Kennedy, K. A. (2012). An Analysis of Fraud:. Causes, Prevention, and Notable Cases . Lad, J. (1991)." The Quest for a Code of Professional Ethics ": An Intelectual and Moral Confusion. In D. G.Johnson, Ethical Issues in Engineering. New Jersey: 1991. Flores, Albert.(1998). "The Philosophical Basis of Engineering Codes of Ethics." In Vesilind P.A. and A. Gunn (eds), Engineering Ethics and the Environment. Cambridge: Cambridge University Press, 1998: 201-209.