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Worldcom

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by

Micky Kumar

on 27 April 2013

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Transcript of Worldcom

photo credit Nasa / Goddard Space Flight Center / Reto Stöckli WorldCom a) WorldCom now known as MCL was the second largest telecommunications company in the world. It is best known for its massive accounting scandal that led to its bankruptcy in 2002.

b) WorldCom specialized in telecommunications

c) WorldCom had the following products and services:
·Data communications services
·IT solutions
·Internet Access
·Wireless
·Conferencing
·Premises Equipment

d) It was located in Clinton, Mississippi
e)30,000 employees -On June 25, WorldCom had said that it overstated earnings by 3.8 billion dollars

-it had overstated its earnings and understated its expenses which made the company look like it had a net income

-WorldCom would have to revise its financial statements

-On June 26th WorldCom had been charged with accounting fraud by the U.S securities and the Exchange Commission

-On July 21st WorldCom filed for bankruptcy protection Summary The
Scandal
Methodology It is an over statement of revenue and understated of expenses in the Income statement.
Misrepresentation of the financial position for the company What was the Scandal? Who was involved? In the year 2000 the telecommunications industry entered a downturn which worldcoms growth strategy suffered a serious setback.
Stocks were declining and ebbers a margin call from the banks about his stock that was used to finance his other businesses
The board that loans ebber with 400 millions dollars to cover his margins, the board believed that the loan would help him sell his stocks Why did they do it? It took place at 1999
In 2000 they showed that they made a profit but instead made a loss
It ended at 2002
March 30 2005 Bernard Ebbers was guilty on all charges When did it take place? Chief Executive Officer - Bernard Ebbers
Chief Financial Officer - Scott Sullivan
Comptroller - David Myers
Director of General Accounting - Buford Yates
They used fraudulent accounting to cover there declining revenue and make a fake picture of financial growth in order to boost their stock In 2002 a team of internal auditors came together to investigate and found 3.8 billion in fraud. Then the board of directors were notified of the fraud and acted swiftly. 1.After the bankruptcy, the people who were responsible for inflating their earning to hide their enormous expense were punished.
ð The board sacks CFO Scott Sullivan, and controller David Myers resigns.
ðA federal jury of fraud, conspiracy and filing false documents with regulators found Ebbers guilty. He was sentenced 25 years in prison.
2.Post Scandal
ðWorldCom revived its old name, i.e., MCI, Which was bought by Verizon for 7.8 billion dollars. As of now, it is one of the leading telecommunication companies under the sub-division of Verizon. http://www.iwar.org.uk/news-archive/crs/13384.pdf
http://www.cbsnews.com/2100-201_162-513473.html
http://danielsethics.mgt.unm.edu/pdf/WorldCom%20Case.pdf
http://maccounting.wordpress.com/2011/04/04/worldcom-scandal/
http://news.bbc.co.uk/2/hi/business/2066959.stm
www.jlhpress.com/abe/proceedings06/lease.pdf Source - -accounting rules (GAAP)should be more strict

- If the management was organized and everyone would check their work twice to make sure it was correct

-learn from other accounting scandals and make sure you don’t do the same mistake as other companies Recommendations Bernard Ebbers who was the CEO and was prison for 25 year because of this fraud
Scott D. Sullivan who was CFO and inflated the total assets by $ 11 billion How was the worldcom scandal finally detected? They Booked line costs expense as capital instead of expenses
They inflated revenues with fake accounting entries called corporate unallocated revenue Explain how the firm managed to hide their accounting improprieties Who inside the organization helped to hide the worldcom scandal? Effects The effect of WorldCom Scandals had impact on many aspects of company.
·Shareholders
In 2002, the company shares hits low of $2.35, decreases more than 95% from record high of $64.50 on June 21, 1999
ð 539 mutual funds owned 400 million of the three billion in outstanding shares of WorldCom. Therefore, many investors in this fund suffered heavy loss.
The stockholders stock was cancelled making it totally worthless

·Employees
About 17000 employees were laid off in first week after they announced bankruptcy in 2002. The employee benefits were witheld when worlcom filed for bankcruptcy What was the impact on the stakeholders? (i.e. – shareholders, company employees, customers, government, etc.) -Be more alert and careful when auditing Recommendations Company significant members decided to conceal their financial position to the public in order to maintain their reputation. Did the accountants outside the organization help to hide it? Pranish, Rajdeep,Micky, Gurjyot
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