世通公司财务舞弊

Overview of WorldCom
❖ WorldCom was the darling of Wall Street and the Telecom Industry of the 90’s
Grew rapidly through acquisitions and from increased demand for telecom services;
❖ The U.S. Financial Accounting Standards Committee (FASB) issued in July 2001, No. 142 criteria, "Goodwill and other intangible assets" no longer requires listed companies to amortization of goodwill and intangible assets not explicitly useful life, instead lessvalue test and provision for impairment.
• Fraudulent Methods
•1.Misused of reserve funds to offset the line cost
❖ After reviewed the third and fourth quarter financial statements of 2000,Scott Sullivan considered the line cost occupied high proportion of operating revenue,which made the profits less than the Wall Street financial analyst's earning expectation .
❖ It’s worth mentioning that this method not only exaggerated profits but also inflated the cash flow produced by WorldCom operating activities.
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• Fraudulent Methods
been the largest merger in history) 2000: Dotcom Bubble Burst (rapid decline in
telecom stock values) 2000-02: WorldCom loans $400M to CEO (Ebbers) 2002: Accounting Fraud uncovered 2002: Filed for(申请) Bankruptcy Protection 2004: Emerged from Bankruptcy as MCI 2005: Verizon agrees to acquire the company for
Went bankrupt;
Overview of WorldCom
•Key Events
1996: Acquired MFS (including internet backbone) 1998: Acquired MCI (more than twice it’s size) 2000: Failed merger(合并) with Sprint (would have
•Your site
• Fraudulent Methods
•4.Ask at the fixed assets depreciation, inflated future operating results.
• unfinished R & D spending of $ 3.1 billion was recognized depress goodwill on the one hand
•Results Caused by WC Scandal
•Worldcom
•1.Downsizing— cut its work force by 17000 •2.Collapse of Stock Price —— from 64.5 dollars to 9 cents •3.Bankruptcy—— the largest bankruptcy filing in United States history
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•WorldCom's False Statements in Filings With Commission Third Quarter 2000 Through First Quarter 2002
•1.235 billion
•1.235 billion
•3.015 billion
•3.015 billion
•Financial fraud—lawsuit
Directed and approved by WorldCom's senior management
•Scott Sullivan •David F. Myers
•CFO •Controller
•Buford Yates, Jr.
•Betty L. Vinson & •Troy M. Normand
$6.75B(plus assumption of $6B of Debt)
•Financial fraud—lawsuit
In 2002, SEC(证券交易委员会) Charged two former WorldCom accountants, Betty Vinson and Troy Normand, with participating in multi-billion dollar financial fraud.
•3.Divided the acquisition costs,deliberately underestimated the goodwill
❖ This kind of fraud is the usual trick of U.S.listed companies.The method is to divide the purchase price to the in-process R&D expense(未完工研发支出) as much as possible ,and identified as disposable loss,in order to reduce goodwill amortization or avoid impairment loss in future periods.
•through the provision of $ 3.4 billion impairment of fixed assets inflated the profits of future periods.
• Fraudulent Methods
•5.Using accounting standards, making a sum of write-offs
• Fraudulent Methods
•3.Divided the acquisition costs,deliberately underestimated the goodwill
❖ When acquired MCI,WorldCom planned to allocate 600~700 million dollars of 3.7billion dollars purchase price to the in-process R&D expense, and recognized as the current loss,in order to reduce the amount of goodwill.But under the pressure of SEC,WorldCom eventually had to confirm the amount of contribution to 310 million dollars as disposable loss in 1998.This approach lead to a severe underestimation of goodwill.
•Results Caused by WC
Scandal
•Worldcom
•Results Caused by WC Scandal
•Director of General Accounting •Accountants
• Fraudulent Methods
•1.Misused of reserve accounts to offset the line cost
❖ Used the provision for reserve accounts(like deferred tax,bad debt reserves and accrued expense)of previous years to offset the line cost ,in order to exaggerate the profits in external reporting.The SEC( 美国证券交易管理委员会)and Department of Justice (美国司 法部）had been already verified such fraud up to 1.635 billion.
❖ So the line cost of the third and forth quarter statements were reduced by 828 million dollars and 407 million dollars,then increase the same amount in deferred tax, bad debt reserves and other subjects to maintain the balance.
• Fraudulent Methods
•2.Offset the line cost,exaggerate capital expenditure
❖ Executives requested the branch to offset the line cost which had previously been recognized as operating expense,go to capital expenditure accounts like fixed assets,in order to reduce operating costs and increase operating profits.The SEC and Department of Justice had been already verified such fraud up to 3852million dollars.
High stock price was a powerful currency to make acquisitions;
❖ WorldCom was a casualty of the Dotcom Bubble Burst( 互联网泡沫破灭 )of 2000
Resorted（凭借） to accounting fraud to meet financial targets;
世通公司财务舞弊
•Contents
•2nd largest
•long-distance phone company
•declared bankrupt •financial fraud
•Contents
• Overview of WorldCom • Fraudulent Methods • Impact of the fraud ••Inspirations