What was the WorldCom Scandal and When did it Occur?

 

WorldCom had hid a total of 3.8 billion dollars worth of operating expenses as capital expenditures over an estimated 5 quarters.  If the expenses would have been stated as ordinary expenses it would have shown that the company was not profiting; but instead losing money.  Capital expenditures can be spread across a longer accounting period, thus allowing WorldCom to look as if it was still generating a profit.  (U.S. Telecommunications Company WorldCom Says It Hid $3.8 Billion in Expenses; Write-down Is Largest in U.S. History; Other Developments, 2002) The five quarter span that the accounting discrepancies transpired was allegedly as early as 2001 into the middle of 2002.  (Sandberg, Solomon, & Blumenstein, 2002)

 

This chart explains the difference between the accounting that occurred at WorldCom in comparison to GAAP.

 (Sandberg, Solomon, & Blumenstein, 2002)

 

 

 

Sandberg, J., Solomon, D., & Blumenstein, R. (2002, June 27). Accounting Spot-Check Unearthed A Scandal in WorldCom's Books. Retrieved from The Wall Street Journal: http://online.wsj.com/article/SB102512901721030520.html

U.S. Telecommunications Company WorldCom Says It Hid $3.8 Billion in Expenses; Write-down Is Largest in U.S. History; Other Developments. (2002, June 27). Retrieved from Facts on File World News Digest database: http://www.2facts.com/article/2002253770