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Essay / Research Paper Abstract
This 4-page paper discusses WorldCom's fraudulent accounting methods and what could have been done to save the company. Bibliography lists 3 sources.
Page Count:
4 pages (~225 words per page)
File: AS43_MTworlfrau.doc
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Unformatted sample text from the term paper:
in history" (Ulick, 2002). The bankruptcy came among SEC investigations about improper accounting methods the corporation had used, and amid an SEC investigation. The bankruptcy was also announced to an
investor community weary from accounting scandal after accounting scandal. At the heart of this multibillion-dollar accounting scandal were two people: CEO Bernie Ebbers, a fanatic about slashing costs and posting
double-digit revenues, and CFO Scott Sullivan, who managed to use a variety of accounting sleight-of-hands to give Ebbers his double-digit revenues. When the dust finally settled, it was found that,
in total, WorldCom reported accounting irregularities of $11 billion (Scharff, 2005). In its investigation of WorldCom, the 2003 SEC report found three
major areas of fraud. The first was an unauthorized movement of line costs to capital as prepaid capacity (Scharff, 2005). The reason this was unauthorized is because line costs are
those paid to local telephones companies for both origination and termination of long-distance calls (Scharff, 2005). As WorldCom and its competition knew, line costs are also the largest single expense
for long distance companies - and moving the costs to capital (rather than calling them what they were, which was expenses), the costs could then be depreciated over time (Scharff,
2005). The result would be an increase in the current years EBIDTA (Scharff, 2005). The line costs, in fact, were the main headache
for WorldCom - WorldCom managers were "regularly pressed to find ways to reduce line cost expenses" (Zekany et al, 2004, p. 108). This is where the above-mentioned capitalization came into
play - basically the lines costs were considered "prepaid capacity" rather than out-and-out expenses (Zekany et al, 2004). The second fraud focused on
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