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Identifying and Describing the Ethical Issue. Worldcom - Essay Example

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College
Essay
Finance & Accounting
Pages 4 (1004 words)

Summary

The major ethical and legal issue regarding Worldcom's accounting manipulations stem from the fact that the company decided to treat $3.8 billion in everyday expenses from its operating accounts relating to a Sprint merger as capital investments…

Extract of sample
Identifying and Describing the Ethical Issue. Worldcom

The company manipulated the company's financial results in order to meet Wall Street expectations and artificially inflate their stock price amidst declining financial performance. Treating operational expenses as capital investments inflated the company's operating income since expenses are supposed to be accounted for in the quarter that they are incurred, instead of being spread out over a period of years. In this case this illegal accounting practice allowed Worldcom to treat operational expenses that should have been fully recognized each operating quarter as a long term capital expenditure, where related costs are expensed during the operating lifetime of a specific asset instead of being accounted for during one specific accounting period.

As a result three former Worldcom executives were convicted of accounting fraud. David Myers, the third executive in command and Worldcom's former controller, was convicted to one year and one day in prison. The former controller received a much lesser sentence than the other executives due to his early admission of responsibility and remorse as well as extraordinary cooperation with the government in exposing the extent of the fraud including the major players involved (Cbsnews, 2009).Scott D. Sullivan, Worldcom's former chief financial officer, was convicted to five years in prison as part of a plea agreement in which he testified against the company's CEO Bernard J. Ebbres. Bernard Ebbres was eventually convicted to 25 years in prison for the Worldcom accounting fraud ultimately leading to the company's bankruptcy (Sullivan, 2013).
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