F012236143 - WORLDCOM CASE Source: SEC Settlement with...

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WORLDCOM CASE Source: SEC Settlement with Auditors of WorldCom: Too Little, Too Late? http://accountingonion.typepad.com/theaccountingonion/2008/04/sec-settles-wit.html Background Most readers will recall that the WorldCom accounting fraud was astonishing for both the magnitude of the errors in the financial statements, and the simplicity of the accounting. We're not talkin' 'bout complex financial arrangements, arcane consolidation, pension, stock option or revenue recognition rules; we're talkin' the third week of Accounting 101. We're talkin' about capitalizing telephone line access fees ("line costs") that should have been expensed. Over a number of quarters, $3 billion in payments that should have been reported as expenses on the income statement were parked in property and equipment (P&E) accounts on the balance sheet. The "top-side" accounting entries to effectuate the fraudulent misstatements circumvented internal controls and were made by accountants with the highest authority in the company. The $3 billion capitalization of line costs was the first of the WorldCom accounting frauds to come to light, but it paled in comparison to the additional $8 billion of accounting misstatements that were subsequently discovered. As Cynthia Cooper, the whistle blower on the first $3 billion wrote in her recent book. "...[top management at WorldCom] had a process called 'close the gap,' whereby they
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F012236143 - WORLDCOM CASE Source: SEC Settlement with...

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