Financial Scandal at Worldcom Worldcom: Term Paper

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This value may not be immediately apparent, however, as investments are long-term projects, and expected to grow over time, hence a new factory is allowed to be accounted for differently than say, a new box of paperclips. But under WorldCom's accounting system, a new ream of computer paper was just as much as a 'investment project' as introducing a new computer operating system designed to increase efficiency.

From an accounting perspective, this meant that WorldCom could spread the costs of such fictional investment expenses over a number of years, instead of having to account for these outlays on a regular basis as expenditures that detracted from its profit margin. This made WorldCom's profits look much greater than they were in comparison to its telecommunications rivals, had the figures been computed accurately, like other, competitor firms. Thus, the company seemed much more attractive to investors, because of this artificially inflated profit margin. In fact, instead of making a $1.3 billion profit, as it claimed in 2002, WorldCom was actually in the red rather than in the black, if its sales figures and company expenditures were computed by legal, conventional methods of accounting.

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("WorldCom: Why it matters," 2002, BBC News)

What where the influences, the people behind the fraud?

The rapacious, 'must make money now' climate of the telecommunications boom is often cited as the atmosphere or climate that precipitated the scandal. In terms of the people behind the fraud, its Chief Financial Officer, Scott Sullivan, clearly should bear the brunt of the burden, along with its founder, former Chief Executive Officer Bernie Ebbers. Ebbers and Sullivan "were a well-known corporate double act, " with a long history of inflating corporate profits (Sullivan's sleight of hand) and underwriting the money to buy the over-inflated stock prices (Ebbers's role in the 'act.') ("WorldCom: Why it matters," 2002, BBC News)

However, the company's official outside auditor, the firm of Arthur Andersen, also bears some of the burden of responsibility. Clearly this type of obvious fraud should have been evident to the eyes of what is supposedly (or was) one of the most reputable accounting firms in the world. Anderson, also implicated in the Enron scandal, was yet another guilty party to the WorldCom scheme. (WorldCom: Why it matters, 2002, BBC News)

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