WorldCom: Another $2 Billion?
Less than two months ago, WorldCom’s announcement that it had wrongly listed $3.85 billion in operational expenses as capital expenses sent the company spiraling into the largest bankruptcy filing in history (see WorldCom Goes Boom and WorldCom Files for Bankruptcy). If today’s reports are accurate, the company’s misstatements of earnings exceed six billion dollars.
According to a report in the The Wall Street Journal, at least some of the additional accounting problems have to do with reversals of reserves, or funds that the company had set aside to cover upcoming events, like lawsuits, taxes, and uncollectible receivables. During the internal probe of WorldCom’s books, the company’s auditor, KPMG (which replaced notorious Arthur Andersen LLP in May this year) apparently found that the carrier had reversed some of these reserves into operating income, thus boosting its earnings further.
WorldCom wouldn’t comment on the reports, but the company has said earlier that it might have to restate additional items as it moves forward with its internal investigation of its accounting for the last three years (see WorldCom Wobbles On ).
While the new numbers once again are staggering, they're not unexpected. In fact, 72 percent of the 633 people who took Light Reading's recent poll on the scandal said they expected further skeletons in WorldCom's cupboard (click here to see the results). “I’m not surprised,” says Craig Johnson, an independent industry analyst based in Portland, Ore. “These revelations just keep coming. [But] if they’re up to $6 billion, you’ve got to ask yourself, what were their revenues for the past year or so?”
And $6 billion might not be the end of it. The additional items were reportedly found in WorldCom’s 2000 books. According to the WSJ report, the company’s accounting for 1999 has yet to be scrutinized.
— Eugénie Larson, Reporter, Light Reading