From Groovy to Grim: How Creative Accounting debase the companys environment

Presented By: Rae Bernadette J. Simborio

Outline of Topics
- Case Analysis (WorldCom Inc.)
- Companys Code of Ethics for Employees - Business processes - Recommendation - Graphs
- Revenue - Income

- Violation

- Auditors Opinion: Video Presentation

I knew it was wrong, and I know it was against the law, but I thought we were going to get through it in a short period of time. -- Scott D. Sullivan, former CFO of WorldCom,

Company Profile
O MCI WorldCom, Inc O One of the largest telecommunication companies in the world. O Three divisions :
O MCI WorldCom, U.S. telecommunications; O UUNET WorldCom, Internet and technology services; O WorldCom International

O second largest long distance company in the United

States

The Situation
O 1999 - WorldCom was not meeting Wall

Streets revenue and earnings expectations

O 2000 - WorldComs aggressive growth

strategy suffered a serious set back.

O Q3 in 2000, the company managed to

meet the Wall Street expectations.

O Months later, WorldComs stock price

started to plummet
O WorldCom directors lent the CEO US$400

million to meet the loans requirements.

O Q1 2002 - the companys revenue was

declining

What are the Issues?

O The company window dressed their Financial

Statements in order to prop up the price of WorldComs stock.

O The fraud was accomplished primarily in two

ways:
O Underreporting line costs O Inflating revenues with bogus accounting

entries from "corporate unallocated revenue accounts".

The Outcome
O Acquired 65 companies; 11 were acquired

in 1991 to 1997 O $41 billion in debt $73.7 billion O Small team of auditors headed by Cynthia Cooper worked together to investigate and unearth $ 3.8 billion fraud O July 21, 2002 MCI WoldCom Inc. filed for bankruptcy protection

How WorldCom mishandled expenses

Assesment of Business Inherent risks

Review of the Code of Ethics for Employees

Review of the Business Processes

Recommendation

Commonly Violated Offenses

Violated Offenses

Fraud AWOL Tardiness Others

Revenue
90,000.0 80,000.0 70,000.0 60,000.0 50,000.0 40,000.0 30,000.0 20,000.0 10,000.0 1995 1996 1997 10,000.0 1998 1999 2000 2001

Before merger

After merger
70,000.0 60,000.0

50,000.0
40,000.0 30,000.0

20,000.0

Profit
7,000.0 6,000.0 5,000.0 4,000.0 3,000.0 2,000.0 1,000.0 (1,000.0) (2,000.0) (3,000.0) 1995 1996 1997 2,000.0 6,000.0 4,000.0

Before merger

After merger
10,000.0 8,000.0

1998
(2,000.0) (4,000.0)

1999

2000

2001

Market Value
Before merger
120,000.0 100,000.0 80,000.0 150,000.0 60,000.0 100,000.0 40,000.0 20,000.0 1995 1996 1997 50,000.0 250,000.0 200,000.0

After merger

1998 1999 2000 2001

Auditors Opinion: A Video Presentation

OPEN FORUM (5 minutes)

CONCLUSION

Thank You!