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article review: Accounting Fraud at worldcom - Essay Example
Author : heidenreichaust
Finance & Accounting
Pages 4 (1004 words)
WorldCom: Case Study WorldCom: Case Study Introduction The fall of the corporate giant WorldCom was inevitable in every sense because it neither followed reasonable market oriented objectives nor complied with legal and ethical norms…
As the E/R ratio imbalance kept increasing, the managers sought to cook the books so as to prevent investors and government from getting the consistent results. 1. Case Summary WorldCom, the Nation’s second largest long distance Telecommunications Company filed for bankruptcy protection on July 21st 2002 revealing that it had overstated earnings in 2001 and the first quarter of 2002 by more than $3.8 billion. Further on August 8th of the same year the company again admitted that it had maneuvered its reserve accounts also affecting another 3.8billion. Substantial accounting fraud was charged against the firm by the US Securities and Exchange Commission. The actual cause of the corporate failure lies with the enormous oversupply that could be attributed to excessively optimistic projections of Internet growth. Evidently, the company’s projections on expense-revenue ratio flawed as “the industry conditions began to deteriorate in 2000 due to heightened competition, overcapacity, and the reduced demand for telecommunications services at the onset of the economic recession” (Kaplan & Kiron, 2007). Subsequently, the stock market value of the firms in the telecommunication industry plunged and people at the WorldCom’s helm of affairs intervened in the accounting practices to conceal the actual trouble from public. ...