Case Analysis Accounting Fraud at World Com
Running head: CASE ANALYSIS OF THE ACCOUNTING FRAUD AT WORLDCOM
Case Analysis of the Accounting Fraud at WorldCom
Angela Crossley
Troy University
October 27, 2008
History The origin of WorldCom can be traced back to 1983. The CEO, Bernard J. Ebbers, of WorldCom had very interesting beginnings. He invested in Long Distance Discount Services (LLDS) with eight other investors, and believed that the telecommunications industry was a very good business venture. In the beginning the lack of technical experience of the LLDS proved to be detrimental by creating a great deal of debt. The company enlisted Bernard J. Ebbers to create a sound and solid business. Ebbers proved himself to the company and others in the industry that he was a force to be reckoned with and turned the business profitable in less than a year’s time. Ebbers did not have a degree in business from any elite school. He had a very humble beginning with cost cutting at the forefront and a desire to make change within the industry. In 1995, the company publicly became known as WorldCom. By 1998, Ebbers and his Chief Financial Officer, Scott Sullivan, who was the brains behind the MCI merger, received accolades and were recognized by analysts as industry torch bearers. As the years progressed and the company grew larger, problems began to arise. The problems that WorldCom encountered could not have been predicted by any of the stockholders. In 1999, WorldCom tried to attain Sprint, but the merger was terminated, which led to the beginning of the end for WorldCom. On July 21, 2002, WorldCom Group filed bankruptcy, which was due to deliberately overstating tax income.
The Culture WorldCom’s company culture was extremely oppressive. The advent of expanding the company led to pitfalls that management did not address. WorldCom acquired different companies and continued to manage the companies that they obtained as separate entities. The disconnection of the departments
Case Analysis of the Accounting Fraud at WorldCom
Angela Crossley
Troy University
October 27, 2008
History The origin of WorldCom can be traced back to 1983. The CEO, Bernard J. Ebbers, of WorldCom had very interesting beginnings. He invested in Long Distance Discount Services (LLDS) with eight other investors, and believed that the telecommunications industry was a very good business venture. In the beginning the lack of technical experience of the LLDS proved to be detrimental by creating a great deal of debt. The company enlisted Bernard J. Ebbers to create a sound and solid business. Ebbers proved himself to the company and others in the industry that he was a force to be reckoned with and turned the business profitable in less than a year’s time. Ebbers did not have a degree in business from any elite school. He had a very humble beginning with cost cutting at the forefront and a desire to make change within the industry. In 1995, the company publicly became known as WorldCom. By 1998, Ebbers and his Chief Financial Officer, Scott Sullivan, who was the brains behind the MCI merger, received accolades and were recognized by analysts as industry torch bearers. As the years progressed and the company grew larger, problems began to arise. The problems that WorldCom encountered could not have been predicted by any of the stockholders. In 1999, WorldCom tried to attain Sprint, but the merger was terminated, which led to the beginning of the end for WorldCom. On July 21, 2002, WorldCom Group filed bankruptcy, which was due to deliberately overstating tax income.
The Culture WorldCom’s company culture was extremely oppressive. The advent of expanding the company led to pitfalls that management did not address. WorldCom acquired different companies and continued to manage the companies that they obtained as separate entities. The disconnection of the departments
References: Accounting Fraud at WorldCom. Retrieved October 21, 2008 from Harvard Business Online Website: https://harvardbusinessonline.hbsp.harvard.edu/b01/en/courseplanning/student/student_course_detail.jhtml?courseId=c23431 Horngren, T. C., Sundem, L. G., Stratton, O. W., Burgstahler, D., & Schatzberg, J. (2008). Introduction to Management Accounting Chapters 1-17 (14th ed.). What is earnings management? Retrieved October 25, 2008, from Investopedia Website: http://www.investopedia.com/ask/answers/191.asp