The Corporate Giant WorldCom Essay Example | Topics and Well Written Essays - 1000 words

The Corporate Giant WorldCom - Essay Example As the E/R ratio imbalance kept increasing, the managers sought to cook the books so as to prevent investors and government from getting the consistent results. 1. Case Summary WorldCom, the Nation’s second largest long-distance Telecommunications Company filed for bankruptcy protection on July 21st, 2002 revealing that it had overstated earnings in 2001 and the first quarter of 2002 by more than $3.8 billion. Further on August 8th of the same year the company again admitted that it had maneuvered its reserve accounts also affecting another 3.8billion. Substantial accounting fraud was charged against the firm by the US Securities and Exchange Commission. The actual cause of the corporate failure lies with the enormous oversupply that could be attributed to excessively optimistic projections of Internet growth. Evidently, the company’s projections on expense-revenue ratio flawed as â€Å"the industry conditions began to deteriorate in 2000 due to heightened competition, overcapacity, and the reduced demand for telecommunications services at the onset of the economic recession† (Kaplan & Kiron, 2007). Subsequently, the stock market value of the firms in the telecommunication industry plunged and people at the WorldCom’s helm of affairs intervened in the accounting practices to conceal the actual trouble from the public. In short, what they did was that they transferred a considerable part of current expense to a capital account as the capitalized cost would normally be considered an investment. 2. What were the pressures that led executives and managers to â€Å"cook the books?† Evidently, the company struggled to maintain its E/R ratio since the first quarter of 2000 ‘while facing revenue and pricing pressures and its high committed line costs’ (Kaplan & Kiron, 2007). WorldCom had to spend beyond its capacity due to unnecessary acquisitions of other firms. In order to overweigh the short term loss, managers were as ked to spend exceedingly so as to raise immediate revenue. There was incessant pressure from the top. For instance, CFO Sullivan directly insisted Myers and Yates carry out his plans. And on the bottom line, individuals like Betty were forced to partake in accrual releases and capitalization of line costs. These were the situations in brief that made executives and managers to â€Å"cook the books. 3. Why were the actions taken by WorldCom managers not detected earlier? What processes or systems should be in place to prevent or detect quickly the types of actions that occurred in WorldCom? The company officials could qualify a considerable amount of costs as an investment in 2001 and the first quarter of 2002, and this could have allowed the company to spread the costs to subsequent years if Cooper had not come across the issue. Obviously, the incident indicates the prevailing pitfall in the US corporate governance. Evidently, audit firms have to make strategic amendments to their processes and procedures to detect frauds and errors in the account books of the client on time. WorldCom was indirectly supported by the Andersen accounting firm, who ignored the fact that the organization’s practices were apparently unethical. Only government can safeguard the interests of its citizens against unscrupulous business practices. Likewise, various service institutions particularly that of banking and accounting must keep themselves reliable and sustainable to prevent this kind of fraud in future.  

ACC403, Principles of Accounting Mod 4 Case Assignment Essay

ACC403, Principles of Accounting Mod 4 Case Assignment - Essay Example The existing cost allocation uses factors which identify the portion of costs for each multi-purpose facility that are specific to individual purposes (separable factors) and the proportional allocation of remaining joint costs among multiple purposes (joint factors). c. COE-Transferred Facilities – These include facilities that were constructed by the COE and transferred to Reclamation for operational and financial integration with the CVP. They appear in Schedule No.1 of the CVP financial statement. d. Non - Reimbursable Costs – The plant-in facilities include components directly set aside to a non-reimbursable category pursuant to Congressional legislation. In the CVP allocation these component costs are directly assigned to the appropriate category and are removed from the allocation base. f. State Share of San Luis Unit - In the allocation of CVP costs, the State share of the construction costs of joint-use facilities is directly assigned to the State and removed from the allocation base. The above said approach seems to be good. This is because the costs are identified and allocated separately. After completing the adjustments the remaining costs represent the total capital investment to be allocated among the authorized project purposes of the CVP. For single-purpose facilities, costs are allocated in total to the purpose served. Cost allocations can be made both within and across time periods. If two or more cost objects share a common facility or program, the cost pool of the shared unit is a common cost to the users and must be divided or allocated to them. Bases of allocation typically are based on one of the following criteria: cause-and-effect, benefits derived, fairness, or ability to bear. The selection of a criterion can affect the selection of a basis (Answers.com). Some cost information is reported to external users such as shareholders and creditors in