Question

WoldCom scandal. Discuss the following:

Why might the WorldCom fraud seem less egregious than Enron? Why, according to a telecon executive from the South, was WorldCom able to grow so quickly? What was the basic strategy of the nine investors who later became WorldCom at the beginning of their business? What was Ebbers’ acquisition formula? What were some of the factors that led to a decrease in WorldCom’s growth? What are some reasons why WorldCom might have been less able to deal with its problems than its telecom competitors, most of whom faced the same problems? What were some of the practices that WorldCom used to sustain its 42% E/R ratio? Very briefly state why the improper release of accruals was fraudulent? Briefly explain how WorldCom’s method of ‘Closing the Gap’ worked. What is the difference between a ‘disinterested judgment’ and an ‘interested judgment’? Give at least two reasons why Sullivan’s decision to capitalize line costs was an ‘interested judgment’. What is the difference between the burden of ownership and the way WorldCom’s lines were a burden’ to the company? How was Enron’s fraud similar to that of WorldCom? How were the Dutch doctors in WWII able to resist the Nazi demands that they euthanize patients and perform other medical atrocities? How did Arthur Andersen view its relationship with WorldCom? What were some ways that Arhur Andersen made it easy for WorldCom to commit fraud? How did the WorldCom fraud come to light in the end?

Answer 1

Why might the WorldCom fraud seem less egregious than Enron?

In reality case of worldcom is more shocking because it involved the basic window dressing of treating revenu expesnes as capital expenditures to inflate profits which auditors could easily detect and report but it may seem less egregious because it involved the same auditor Arther Anderson who failed to do their duties in Enron also.

Why, according to a telecon executive from the South, was WorldCom able to grow so quickly?

They were able to grow quickly because they followed acquistion strategy and acquired their small competitors as well as companies which provided them with the opportunity to provide more integrated services of international calling and internet.

What was the basic strategy of the nine investors who later became WorldCom at the beginning of their business?

Their basic strategy was to provide better services of international calling and internet facility

What was Ebbers’ acquisition formula?

Formula was to pay 6 times the revenue for acquisitions

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