Worldcom has commenced its manipulations right from

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WorldCom has commenced manipulations right from 1999, as company's CEO declared, with the single purpose to obtain desired earnings to up stock market price. Before declaration their intention to restate the earnings, Andersen, the Auditor, warned investors others not to relay on the audit reports by them earlier because the company announcing accounting manipulations transferring line costs to capital accounts. per June 25, 2002 report, the quantum such transfers were $797 million in 1Q and $3.055 billion during 2001. depreciation 2 In other words, WorldCom capitalized line costs instead of expressing immediately hence avoided a loss of about $7.6 billion the financial statements. For several years, in such a way, billions of dollars worth operating expenses started to appear WorldCom's accounting books as assets. company violated the Generally Accepted Accounting Principles (GAAP) by treating the operating costs as capital assets and created worthless assets. 2 N.A. Depreciation = The reduction in the balance sheet value of a company asset to reflect its loss through age and wear and tear. From - neeeastle con/sn/imestor services/glossary, visited Wednesday, July 18, 2007 244 its the boost of and given was of As of 2002 As per the company's "game", it called certain revenue expenditure known as "line costs" as capital expenditure. Line costs are the amounts paid to a third party service provider whose telecommunication network will be used by WorldCom for getting a right to use the network for their activity. These payments are revenue expenses and NOT assets to capitalize. Every year, the company's major expense was the "line costs" which accounted for 40-45% from the revenue earned. But the company developed a strategy to capitalize the expenses. Post manipulation, the quantum of the "line costs" paid during 2001 were $14.739 billion. During the same year, the report profit was $1.407 billion while the line costs capitalized ALONE were $3.055 billion. Therefore, the company had a loss of $1648 millions but by using the account fraud they kept the top showing a profit of $1407 million. On the other hand, capital expenditure generally includes investments in assets like machinery and other long-term asset purchases. In other words, it's an investment in an asset from which the company benefits for more than one year. The cost of the assets will be gradually deducted from earnings by . and in of in The of value on
Instead of a conclusion... It is astonishing to note how Arthur Andersen could miss such an elementary fraud. It was maybe the simplest fraud that could have been detected easily by anyone who cared to look carefully at the accounts. WorldCom hired Andersen to perform a standard audit, BUT not a fraud audit. Although WorldCom fraud was a straightforward lie that would not have been possible without the involvement of the entire group, the fraud could have been missed. To save their skin, Andersen blamed Sullivan for withholding information during the audit. However, when they discovered that certain expenses have been reported as investment,

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