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CASO WORLDCOM - Coggle Diagram
CASO WORLDCOM
POST - CONFLICT
From a high of $64.50 a share in mid-1999, he price fell below $1 a share immediately after the announcement and then to pennies a share
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Worlcom's future depended on wether it's costumers switched or not to other telecommunication companies
WorldCom stated that it would cut 17,000 of its 85,000 employees
CFO went to jail, with charges on fraud
In July 2002, WORLDCOM was declared in bankruptcy
BACKGROUND
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They reported revenues from $154 million in
1990 to $39.2 billion in 2001, placing it 42nd among Fortune 500 companies
The main problem that caused the devaluation of the stock market price of WORLDCOM was the oversupply in telecommunications capacity.
They build infrastructure based on some overoptimistic projections on internet growth, but they faced reduced demand as the economy entered recession provoking debt for the company.
Investors in WorldCom have suffered major losses: the market value of the company’s common stock plunged from about $150 billion in January 2000 to less than $150 million as of July 1, 2002.
PROCEDURE
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As she found some irregularities, she proceded to call an outside auditor, in this case KPMG, to review the problems.
The chief financial officer, was asked to justify the procedures and, after he had not consulted
with Arthur Andersen about classifying some line costs as capital expenditures, and maintained it was not notified of them, he was dismissed.
The question here is why it took more than a year for the company’s internal auditors to discover the misclassification and Andersen should have designed its audit to detect misclassifications of this magnitude.
CONFLICT
The company had classified over $3.8 billion in payments for line costs as capital expenditures rather than current expenses.
Reportedly, $3.055 billion was misclassified in 2001 and $797 million in the first quarter of 2002.
On July 1, 2002, WorldCom announced that it was also investigating possible irregularities in its reserve accounts, Even though they had contact with an outside auditor, Andersen.
The treatment of line costs as capital expenditures was discovered by WorldCom’s internal auditor,