WorldCom’s reaffirmation of earnings had put the company in default of bank agreements. Such default resulted in loans being called in for immediate payment. WorldCom’s financial problems made it impossible for it to make enough profit to cover such loans as they were called in. Dreading bankruptcy and the possibility of interruption of service, WorldCom’s customers started looking for other, more stable telecom providers which led to even less profit coming in each month to pay their…
Some of the companies involved in the creating accounting practice in the late 1990s and early 2000s were Enron, Tyco, Global Crossing, Waste Management, WorldCom, etc. These scandals cost investors billions of dollars due to the collapse of these companies and damaged public confidence in the securities markets.…
Some firms, however, were unable to proceed as successfully as Comcast. While AT&T was one of the pre-1995 world’s largest telecomm companies, it underwent a major breakup to transform itself from a long-distance phone company to an integrated voice and data communications company. Spending over $100 billion to facilitate this evolution through acquisitions and upgrades, AT&T Broadband became the United States’ largest cable company. By 2000, however, in an industry rocked by multiple acquisitions, a long distance price war, slow adoption of new technologies, and dried…
a. (i.) According to FASB Statement of Concepts No. 6, paragraph 25, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. They represent probable future economic benefits controlled by the enterprise. According to FASB Statement of Concepts No 6, paragraph 80, expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major, or central, operations. Expenses are gross outflows incurred in generating revenues. (ii.) SCON No. 6, paragraph 148, states that costs should be expensed when they are used up or have expired and when they have no future economic value which can be measured. SCON No. 6, paragraph 178-181, states costs should be capitalized or recorded as assets when the costs have not expired and they have future economic value.…
These scandals mainly involved the reporting of inflated and/or inaccurate financial records, misusing or misdirecting funds, or hiding debt to make companies appear more profitable. Enron was by far the largest, and still best known, of the early accounting scandals. This probably has a lot to do with the fact that Arthur Anderson, at the time one of the top five global accounting firms, was initially implicated as well. U.S. Government officials were initially slow to react and the focus was more on penalties for…
During the WorldCom expansion, CEO, Bernie led the company through 70 acquisitions in less than 20 years. Bernie was too audacious to expand the company without consideration. For example, when board didn’t want to invest any more capital or incur more debt on telecom, Bernie mortgaged everything he had to buy TMC outright. The strategy helps LDDS expand, but also planted bomb…
In 1982, the Justice department ordered the separation of ATT into local subsidiaries. MCI was one of the main competitors of AT&T and the impact of this new competition on MCI was uncertain. In this case the financial impact of this increased competition will be analyzed.…
Many such scandals broke out during the period of 2000-2002, WorldCom, Tyco International, Adelphia, Peregrine Systems were a few to name. These scandals resulted in many investors losing their money, some who had invested their life savings, due to stock price crashes also causing instability in the stock markets. After a series of analysis and discussions, the senate passed a bill call ‘Sarbanes Oxley Act of 2002’.…
Large events of fraud have happened within companies such as Enron and WorldCom (Weygandt, Kimmel, & Kieso, 2008). People generally remember only these because they are some of the most popular scandals in business history (Weygandt, Kimmel, & Kieso, 2008). However, there are many more reported each year. Because of this, the Sarbanes-Oxley Act was passed requiring all publicly traded U.S. corporations to manage and adequate system of internal controls (Weygandt, Kimmel, & Kieso, 2008). Otherwise they may be fined or imprisoned (Weygandt, Kimmel, & Kieso, 2008).…
On December 2, 2001, Enron filled for bankruptcy under chapter 11 of the US banking code. This sudden collapse of one of Fortune 500 largest companies shocked the world. Once the world’s largest energy company, Enron’s scandal became the largest bankruptcy recognition and was attributed as the biggest audit failure in American history. The impact of this downfall was felt within the company and throughout the business world.…
In December 2005, two years after this case was written, the telecommunications industry consolidated further. Verizon Communications acquired MCI/WorldCom and SBC Communications acquired AT&T Corporation, which had been in business since the 19th Century. The acquisition of MCI/WorldCom was the direct result of the behavior of WorldCom's senior managers as documented above. While it can be argued that the demise of AT&T Corp. was not wholly attributable to WorldCom's behavior, AT&T Corp.'s decimation certainly was facilitated by the events surrounding WorldCom, since WorldCom was the benchmark long distance telephone and Internet communications service provider. Indeed, the ripple effect of WorldCom's demise goes far beyond one company and several senior managers. It had a profound effect on an entire industry.…
The Enron scandal is most likely the most talked about scandal to this day. Those involved and those who listened will always remember the impact it created on Corporate America. Top executives actions were in the form of "off-balance sheet partnerships used to hide the company 's deteriorating finances, revenue from long-term contracts being recorded in the first year instead of being spread over multiple years, financial reports being falsified to…
Prior to 2002 there were no regulations enforcing lawful ethical accounting practices. There were also no internal accounting controls which led to the large corporations to commit fraud by altering the books to make them look more profitable. By providing false information and significant omissions in there financial statements investors were enticed into forking up large amounts of money into these corporations. The effect of these actions will cause investors to invest in the company that ere not as profitable as the reports states. Some of these corporations include WorldCom, Enron, and Tyco. Once the investor realized that these businesses were not profitable and the numbers were drastically inflated, it was too late and millions were lost in the process.…
A fundamental problem facing managers in the 1990s is how to exercise adequate control in organizations that demand flexibility, innovation, and creativity. Competitive businesses with demanding and informed customers must rely on employee initiative to seek out opportunities and respond to customers' needs. But pursuing some opportunities can expose businesses to excessive risk or invite behaviors that can damage a company's integrity. Consider the spate of management control failures that have made headlines in the past several years: Kidder, Peabody&. Company lost $350 million when a trader allegedly booked fictitious profits; Sears, Roebuck and Company took a $60 million charge against earnings after admitting that it recommended unnecessary repairs to customers in its automobile service business; Standard Chartered Bank was banned from trading on the Hong Kong stock market after being implicated in an improper share support scheme. The list goes on. In each case, employees broke through existing control mechanisms and jeopardized the franchise of the business. The cost to the companies- in damaged reputations, fines, business losses, missed opportunities, and diversion of management attention to deal with the crises-was enormous. How do senior managers protect their companies from control failures when empowered employees…
WorldCom, formerly known as the second largest long distance phone service, had taken its fall and officially took its final name on April 14, 2003. This Company’s mission statement was to “Create a competitive advantage for WorldCom and contribute significantly to WorldCom's business success by promoting business practices that provide greater opportunity for a diverse supplier base." Throughout WorldCom’s lively years, it had great growth through the buying out of other telecommunication companies, such as MCI Communications, Tier 1 ISP UUNET, and had a major part of the internet backbone. On November 10, 1997, this powerful company announced their 37 billion dollar merger, making it the largest in US history. WorldCom had almost become the nation’s top telecommunications provider if the Sprint merger had gone through. This merger couldn’t go through because of the concerns the US Department of Justice had about the possible future monopoly.…