Worldcom Final Essay

Submitted By kenny159
Words: 1866
Pages: 8
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Table of Contents
1.0
Background 2
2.0 Issues/Problem………………………………………………………………..2
2.1 Corporate Culture 3
2.2 Expense to Revenue Ratio (E/R) Ratio 3
2.2.1 Accrual Releases 4
2.2.2 Expense Capitalization 4
2.3 General Accounting Department 5
2.4 Internal Audit 5
2.5 External Auditor – Arthur Andersen 6
2.6 The Board of Directors 7
The End Game 7
3.0 Solution 8
4.0 References……………………………………………………………………9

1.0 Background
WorldCom is recognized as a global communication provider, it has its operations running in more than 65 countries. It provides data transmission and internet services for businesses through its MCI units.
WorldCom originated 1983 breakup of AT&T. introduction to LDDS (long Distance Discount Services) commenced operations in 1984 providing services to the southern state local retail and commercial customers. It was recognized since the very beginning that WorldCom faced losses hence, triggered Bernie J. (Bernie) Ebbers to take over and operate the things. He focused on few factors such as internal growth, acquiring small long distance companies with specific area, and consolidating third-tier long-distances companies with larger market shares. These factors lead the company towards profit. Ebber’s main aim for WorldCom was not to capture market share or be global but was to be no.1 stock on Wall Street.
LDDS involved itself in mergers and acquiring small long distance companies and consolidating third-tier long distance carriers with larger market share. Through acquisition of companies, LDDS grew rapidly internationally and locally. 1989 LDDS became public company upon merger with Advantage Companies and by the end of 1993 LDDS was the fourth largest long distance carrier in the US. WorldCom became official when after a shareholder voted in May 1995.
By the time 1998 WorldCom became a full service telecommunication company, capable to supply virtually any size business with a full complement of telecom services. WorldCom advantage over its competitors, AT&T and Sprint, was by offering the best internet strength complexity and integrated service package.

2.0 Issues/ Problem discovered
2.1Corporate Culture
Being in an advantage as in growth, WorldCom was led to a hodgepodge of individuals and cultures. Ebbers created a culture in which the legal function was less influential and less welcoming than in a healthy corporate environment.
It was more than questionable whether WorldCom has actual, transparent process of application, evaluation, monitoring, and follow up acquisition, risk assessment and justified decision making. It had an autocratic style of management and followed a top down approach.
Under the company policies according to Ebbers this was “colossal waste of time”

2.2Expense to Revenue Ratio (E/R) Ratio
When the DOT COM bubble collapsed the prices for long distance communication services started falling and the local markets with high access charges were unprofitable.
WorldCom struggled in maintaining the percentage in subsequent quarters while at the same time facing prices and revenue crisis and its high committed line cost. And at times when WorldCom was week in WAN technology and was lower at demand for long distance services in market.
Matter became worse when WorldCom attempted to acquire Sprint (the largest wireless network company at that time) but US Justice Department refuse the merger to regulate the Telecommunications Industry on terms acceptable by the both companies.
In obsession over revenue growth and consistent maintaining a 42% E/R ratio the CFO Sullivan decided to use accounting entries to achieve targeted performance, accounting tactics, accrual releases in 1999-2000 and capitalization of line cost in 2001-2002 2.2.1Accrual Releases
Under the GAAP the company was required to estimate payments from line costs and match them with revenue in the income statement. Apparently Sullivan instructed the staff to release accruals that claimed were too high relative to future
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