Accounting Scandals

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Accounting Scandals

rajkumarfca@gmail.com

Several big firms have come under scrutiny recently for questionable

accounting practices. Some of the world’s biggest accounting scandals

WorldCom

WorldCom was one of the big success stories of the 1990s. It was a symbol

aggressive capitalism. Founded by Bernie Ebbers, one of the most aggressive acquirer

during the US mergers and acquisitions boom of the 1990s. WorldCom's asset value

had soared to $180bn before the US capital market started witnessing a downtrend.

WorldCom admitted in March 2002 that it will have to restate its financial results to

account for billions of dollars in improper bookkeeping after an internal audit showed

transfers of about $3.06 billion for 2001 and $797 million for the first quarter of 2002

were not made in accordance with generally accepted accounting principles.

In August 2002, An internal audit has revealed an additional $3.3bn (£2.2bn) of

improperly reported earnings - taking the total to more than $7bn, double the level

previously reported. $3.3bn was money from the company's reserves, which was

misrepresented as operating income.

As a result of the discovery, WorldCom said that its financial statements for the year

2000 will have to be reissued.

The company also said it may now write off $50.6bn in intangible assets. Former chief

financial officer Scott Sullivan and ex-controller David Myers were arrested a week

ago, and face seven counts of securities fraud and filing false statements with the SEC.

The company filed for Chapter 11 bankruptcy protection on 22 July, a process that

protects it from its creditors while it tries to restructure. It became the largest

bankruptcy in US history, listing $107bn in total assets and $41bn in debts.

In May 2003, WorldCom agreed to pay a record amount to the US financial watchdog.

MCI (formerly WorldCom), while neither admitting nor denying any wrongdoing, came

to a settlement over its massive accountancy scandal. It will pay $500m to the

Securities and Exchange Commission, the highest fine ever imposed by the

regulator. The original figure of $1.5bn was scaled down as MCI declared itself

bankrupt and so received favourable treatment.

The settlement sorts out the civil lawsuits that have been filed. But the criminal cases

relating primarily to the actions of former employees at the company are still pending.

Summary

When scandal was discovered: March 2002

Charges: Overstated cash flow by booking $3.8 billion in operating expenses as capital

expenses;

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Gave founder Bernard Ebbers $400 million in off-the-books loans.

The company found another $3.3 billion in improperly booked funds, taking the total

misstatement to $7.2 billion, and it may have to take a goodwill charge of $50 billion.

Outcome: Former CFO Scott Sullivan and ex-controller David Myers have been

arrested and criminally charged, while rumors of Bernie Ebbers' impending indictment

persist. On 9

March 2005, four foreign banks agreed to pay $428.4 m for settling the

class action law suit by investors accusing them of hiding risks at WorldCom before its

collapse.

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Accounting Scandals © Rajkumar S Adukia rajkumarfca@gmail.com Several big firms have come under scrutiny recently for questionable accounting practices. Some of the world’s biggest accounting scandals WorldCom WorldCom was one of the big success stories of the 1990s. It was a symbol aggressive capitalism. Founded by Bernie Ebbers, one of the most aggressive acquirer during the US mergers and acquisitions boom of the 1990s. WorldCom's asset value had soared to $180bn before the US capital market started witnessing a downtrend. WorldCom admitted in March 2002 that it will have to restate its financial results to account for billions of dollars in improper bookkeeping after an internal audit showed transfers of about $3.06 billion for 2001 and $797 million for the first quarter of 2002 were not made in accordance with generally accepted accounting principles. In August 2002, An internal audit has revealed an additional $3.3bn (£2.2bn) of improperly reported earnings - taking the total to more than $7bn, double the level previously reported. $3.3bn was money from the company's reserves, which was misrepresented as operating income. As a result of the discovery, WorldCom said that its financial statements for the year 2000 will have to be reissued. The company also said it may now write off $50.6bn in intangible assets. Former chief financial officer Scott Sullivan and ex-controller David Myers were arrested a week ago, and face seven counts of securities fraud and f ...
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