WorldCom and Journal Entries SLU世通和日记圣路易斯.pptVIP

WorldCom Ethics CaseGAAP Issues Denise Bauer Christopher Meza Jonathan Schmitz Breanne Wilhelm Background Major telecommunications company WorldCom “continued to post impressive revenue growth numbers” Competitors dropped from 330 to 150 Was meeting or exceeding expectations while others experienced difficulties Background Pressures both externally and internally to repeat success in 2001 Ebbers’ stock was pledged as collateral to finance the purchase of his personal outside business interests Double-digit rate of revenue growth was expected In effort to reduce expenses and meet expectations, capitalized expenses and improperly recognized revenue WorldCom Ethics Case Was WorldCom’s accounting methodology in accordance with GAAP? Journal entries made without detailed support Line Costs were capitalized Scott Sullivan’s justification for capitalizing them Revenue Recognition issues Common reporting problems found WorldCom and Journal Entries Journal entries were made without detailed support Line costs were capitalized Liability accrual release WorldCom and Journal Entries Was it a proper accounting practice without detailed support? $150 million and $771 million journal entries Usually need approval in businesses Became a matter of internal controls Approval came from Sullivan Internal Audit – reported to management Changes in accounting methods need disclosures and footnotes Based on GAAP, describe the propriety or impropriety of releasing $150 million in line cost accruals in the Wireless division over Deloris DiCicco’s objections. Support your position using authoritative accounting literature. What is a line cost? WorldCom paid outside service providers to carry some portions of its calls. WorldCom paid the outside service providers for carrying WorldCom customers’ calls on their lines Ex. A call from a WorldCom customer in Chicago to London might start on a local Chicago phone company’s line, flow to WorldCom’s own network, and then get passed to a British p