Finance Fraud or an Accounting Scandal

Finance Fraud or an Accounting Scandal Student’s Name Institution Course Date FINANCE FRAUD OR AN ACCOUNTING SCANDAL In 2002, WorldCom Company was one of the largest company in American history to go bankrupt. WorldCom corruption scandal is one of the largest scandals. WorldCom is the second largest Telecom firm in the United States and it is the long-distance telephone and data services provider across the region. The company announced its revision on the recent financial statements on June 25th 1999. A lot of investors and analyst were shocked because their previously reported profits turned out to be lose. The accounting irregularities were discovered during an internal audit. During the audit, the company ascertained that $3.3 billion in profits were recorded inappropriately on its books between 1999 and the first quarter of 2002. The company had taken a line of costs especially those that were associated with the company’s use of third-party network services and amenities were wrongly recorded as capital expenditures. Additionally, $3.8 billion shillings in the expenses of the company were recorded as capital investments yet it was improper. This revision caused a reduction of the company total profits by more than $3.2billion. Additionally, the company stated that most of the $3.3billion irregularities were as a result of the manipulation of the reserves. These reserves were set aside by the company to cover up all the estimated loses, for example, uncollected payments from the consumers and customers and judgments in lawsuits and other expected costs (Giroux, 2013). Even though setting aside reserve s for this purpose is a legitimate practice for any company, they can as well be used to create an accounting equivalent of a slush fund. The company could avoid this type of fraud by transferring all the money from the reserve. The suspicion is the WorldCom Company inflated all the reserves in order to boost their profits so that they would meet all their profit projections. The chief executive officer John Sidgmore held the former financial officers and the former regulator responsible for the scandal. The two individuals were fires for claiming that $3.8 billion in regular expenses as capital investments in 2001. Both were accused of fraud, conspiracy and other charges. The founder of the company Bernie Ebbers claimed not to be aware of these accounting probl...