WorldCom

Definition

WorldCom was a telecommunications company that became infamous for one of the largest accounting scandals in history. The scandal involved fraudulent financial reporting, leading to its bankruptcy in 2002.

5 Must Know Facts For Your Next Test

1. WorldCom falsely inflated its assets by approximately $11 billion.
2. The company improperly capitalized line costs instead of expensing them, violating accrual accounting principles.
3. CEO Bernard Ebbers and CFO Scott Sullivan were key figures implicated in the fraud.
4. The scandal led to increased scrutiny and reforms in corporate governance and accounting practices, including the Sarbanes-Oxley Act of 2002.
5. WorldCom's bankruptcy was one of the largest in U.S. history, profoundly affecting investors and employees.

Review Questions

• What improper accounting practice did WorldCom engage in regarding line costs?
• Who were the key executives involved in the WorldCom accounting scandal?
• How did the WorldCom scandal impact future corporate governance and accounting regulations?

Related terms

Capitalization: Recording an expense as an asset rather than expensing it immediately.

Accrual Accounting: Accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.

Sarbanes-Oxley Act: A U.S. federal law enacted to protect investors by improving the accuracy and reliability of corporate disclosures.