Global Crossing Case
GLOBAL CROSSING LTD.
Entity Background
Global Crossing is a telecommunications company providing computer networking services worldwide. It was founded in 1997 by Gary Winnick, Abbot L. Brown, David L. Lee and Barry Porter through Pacific Capital Group. It is said that Global Crossing was the first global communications provider with IPv6 natively deployed in both its private and public backbone networks. It raised about $400 million on its initial public stock offering.
Global Crossing was acquired by Level 3 in 2011 for about $3 billion.
Global Crossing is known as the 4th largest bankruptcy in the U.S. history.
Entity Auditor: Arthur Andersen
What Went Wrong? What is its impact on the financial statements?
REVENUE OVERSTATEMENT. The company has not properly recorded the revenue of their long – term contracts. The company recognizes this revenue in full upon the initiation of the contract rather than over the term of the contract. This resulted to a misstatement of revenue since they are not recorded in the period they were earned.
SWAP DEALS. According to APB No. 29, exchanges of nonmonetary assets are to be recorded at historical carryover basis. This means that exchanges should not be recognized as revenue. Global Crossing recorded a $100 million sale of capacity to Qwest Commercial Communications Inc. It was recorded as cash revenue during the first half of 2001 but Qwest also sold almost the same amount of capacity to Global Crossing. Qwest did not recognize this exchange as a sale. This resulted to an overstatement of revenue in the entity’s financial statements.
JOSEPH PERRONE. Global Crossing has hired Joseph Perrone, a former Arthur Andersen employee as an executive vice president for finance in 2000. Arthur Andersen was the entity’s auditor. Joseph Perrone served as a global managing partner for Global Crossing and he work in connection with Global’s 1998 initial public offering, which raised about $400 million. This switch has piqued the
Entity Background
Global Crossing is a telecommunications company providing computer networking services worldwide. It was founded in 1997 by Gary Winnick, Abbot L. Brown, David L. Lee and Barry Porter through Pacific Capital Group. It is said that Global Crossing was the first global communications provider with IPv6 natively deployed in both its private and public backbone networks. It raised about $400 million on its initial public stock offering.
Global Crossing was acquired by Level 3 in 2011 for about $3 billion.
Global Crossing is known as the 4th largest bankruptcy in the U.S. history.
Entity Auditor: Arthur Andersen
What Went Wrong? What is its impact on the financial statements?
REVENUE OVERSTATEMENT. The company has not properly recorded the revenue of their long – term contracts. The company recognizes this revenue in full upon the initiation of the contract rather than over the term of the contract. This resulted to a misstatement of revenue since they are not recorded in the period they were earned.
SWAP DEALS. According to APB No. 29, exchanges of nonmonetary assets are to be recorded at historical carryover basis. This means that exchanges should not be recognized as revenue. Global Crossing recorded a $100 million sale of capacity to Qwest Commercial Communications Inc. It was recorded as cash revenue during the first half of 2001 but Qwest also sold almost the same amount of capacity to Global Crossing. Qwest did not recognize this exchange as a sale. This resulted to an overstatement of revenue in the entity’s financial statements.
JOSEPH PERRONE. Global Crossing has hired Joseph Perrone, a former Arthur Andersen employee as an executive vice president for finance in 2000. Arthur Andersen was the entity’s auditor. Joseph Perrone served as a global managing partner for Global Crossing and he work in connection with Global’s 1998 initial public offering, which raised about $400 million. This switch has piqued the