The WorldCom Accounting Scandal

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The WorldCom Scandal Contents Key elements at WorldCom………………………………………………………………………3 Corporate Governance Issues at WorldCom…………………………………………….........4 UK Corporate Governance...................................................................................…...5, 6 Conclusion………………………………………………………………………………………… 6 References………………………………………………………………………………………….7 Key Elements at WorldCom WorldCom began as a small provider of long distance telephone service. During the 1990s, the firm made a series of acquisitions of other telecommunications firms that boosted its reported revenues from $154 million in 1990 to $39.2 billion in 2001 (Lyke and Jickling, 2002). The economic problem was that WorldCom had a vast supply in telecommunications capacity that emerged in the 1990s, as the industry rushed to build fibre optic networks and other infrastructure based on overly optimistic projections of Internet growth (Lyke and Jickling, 2002) By 2001 the telecommunications market was softening; meaning prices were falling due to an excess of supply and a decrease in demand as the dot com boom ended. WorldCom had already signed contracts with third party telecommunication companies promising to complete their calls. These multi billion dollar contracts were actually costing more in expenses than what the company would or was receiving in revenue (Sandberg, Solomon, & Blumenstein, 2002). In 2002, WorldCom’s bankruptcy was the largest in US history; WorldCom admitted that it had falsely booked $3.85 billion in expenses to make the company appear more profitable. Ebber who was CEO of WorldCom created fictitious some more than questionable accounting practices. Thus began the practice of taking an operating expense and reclassifyin... ... middle of paper ... ...practice. The changes were made so issues that occurred in the WorldCom scandal are prevented through greater transparency of financial information, internal control, and the protection of shareholders. References Lyke, B and Jickling, M. (2002). WorldCom: The Accounting Scandal. CRS Report for Congress, p2. Sandberg, J., Solomon, D., & Blumenstein, R. (2002, June 27). Accounting Spot-Check Unearthed A Scandal in WorldCom's Books. Retrieved from The Wall Street Journal: http://online.wsj.com/article/SB102512901721030520.html Solomon, J (2013). Corporate Governance and Accountability. 4th ed. Sussex: John Wiley & Sons Ltd. p.7, p9, p10, p15, p58, p60, p253. Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.

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