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1、The Rise and Fall of WorldCom,The Worlds Largest Accounting Fraud07-11-2012,Your site here,Contents,long-distance phone company,declared bankrupt,financial fraud,2nd largest,Your site here,Contents,Fraudulent Methods,Impact of the fraud,Overview of WorldCom,Inspirations,Your site here,Overview of Wo
2、rldCom,WorldCom was the darling of Wall Street and the Telecom Industry of the 90s Grew rapidly through acquisitions and from increased demand for telecom services; 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 Res
3、orted（凭借） to accounting fraud to meet financial targets; Went bankrupt;,Your site here,Overview of WorldCom,1996: Acquired MFS (including internet backbone) 1998: Acquired MCI (more than twice its size) 2000: Failed merger(合并) with Sprint (would have been the largest merger in history) 2000: Dotcom
4、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 $6.75B(plus assumption of $6B of Debt),Ke
5、y Events,Your site here,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.,Financial fraudlawsuit,Your site here,Scott Sullivan,David F. Myers,Buford Yates, Jr.,Betty L. Vinson & Troy M. Normand,Sc
6、ott Sullivan,David F. Myers,Buford Yates, Jr.,Scott Sullivan,David F. Myers,Betty L. Vinson & Troy M. Normand,Buford Yates, Jr.,Scott Sullivan,David F. Myers,Directed and approved by WorldComs senior management,Financial fraudlawsuit,Your site here,Fraudulent Methods,1.Misused of reserve accounts to
7、 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 suc
8、h fraud up to 1.635 billion.,Your site here,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 Stre
9、et financial analysts earning expectation .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,Your site
10、here,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
11、and Department of Justice had been already verified such fraud up to 3852million dollars.Its worth mentioning that this method not only exaggerated profits but also inflated the cash flow produced by WorldCom operating activities.,Fraudulent Methods,Your site here,3.Divided the acquisition costs,del
12、iberately 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 lo
13、ss in future periods.,Fraudulent Methods,Your site here,When acquired MCI,WorldCom planned to allocate 600700 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
14、,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.,3.Divided the acquisition costs,deliberately underestimated the goodwill,Fraudulent Methods,Your site here,Your site here,Your
15、site here,WorldComs 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,Your site here,4.Ask at the fixed assets depreciation, inflated future operating results.,unfinished R & D spending of $ 3.1 billion w
16、as recognized depress goodwill on the one hand,through the provision of $ 3.4 billion impairment of fixed assets inflated the profits of future periods.,Fraudulent Methods,Your site here,5.Using accounting standards, making a sum of write-offs,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.,
