Fraudulent Financial Reporting and Ethics at WorldCom Case Study

Fraudulent Financial Reporting and Ethics at WorldCom - Case Study Example As a result, the company incurred very substantial losses. These enormous losses meant that the business could not attain standards set by stock exchange analysts (Kaplan, Robert, and Kiron, 2004). WorldCom decided to hide these losses and buy time so that they could pay their expenses later. WorldCom’s senior management resorted to fraudulent practices to conceal these losses. The company agreed to have intentionally misappropriated over $3.8 billion. This amount was a line cost liability, but it was reported as a long-term capital investment. Line costs are funds that WorldCom paid to other telecommunication companies to lease their communication networks. Line costs were supposed to be as current liabilities in WorldCom’s profit and loss account. In 2001, $ 3.055 billion was said to have been wrongly assigned by the company. A sum of $797 million is supposed to have been allocated in 2002. WorldCom claimed that $14.7 billion was reported as line cost during the year of 2001 (Kaplan, Robert, and Kiron, 2004). Having allocated the expense as a capital investment, WorldCom increased its net annual income. This is because the line cost, a current liability, was inaccurately reduced. Following this, there were increments in the company assets since capital costs are considered investments. On 8th August 2012, WorldCom to have used its financial reserves wrongfully. Reports revealed that WorldCom used funds in reserve accounts to pay line expenses. Reserve accounts hold precautionary money for companies to use in case of an unforeseen event. The United States Stock Exchange Commission requested WorldCom to avail financial reports suspected to be.