WorldCom to Restate $2 Billion More?
“We’re declining to comment on speculation,” a WorldCom spokesperson said today.
If true, the news should come as a shock to no one -- WorldCom’s gigantic balance sheet mistakes have become something of a tradition. WorldCom originally admitted to having misstated $3.8 billion in revenues back in June, but upped the number by more than $3 billion last month (see WorldCom's at $7.1 Billion and Counting). And in the chaos surrounding the WorldCom scandal, the additional $2 billion may not be the end of it.
“After the first one, nothing surprises me,” says Frank Dzubeck, president of consultancy Communications Network Architects. “The fate of WorldCom has already been decided… How many life sentences can you get?”
While WorldCom’s fraudulent accounting revelations over the summer helped push the company into the largest bankruptcy in history and led to the indictments of former CFO Scott Sullivan and former director of general accounting Buford Yates, tomorrow’s restatement is expected to do the company less harm.
The previous misstatements found on WorldCom’s books related to booking operating expenses as capital expenses, thus artificially boosting earnings. Those have been characterized as "accounting 101" mistakes. The additional $2 billion, on the other hand, is expected to involve accounting issues that have previously been open to interpretation.
Citing people close to the situation, the Wall Street Journal report stated that some of the revision may relate to writedowns of assets, while some is probably connected with improper accounting of the consolidation of foreign subsidiaries. The additional restatement could also be linked to the company’s previously stated intention to take a whopping $50.6 billion writeoff related to goodwill and other intangible assets, mainly left over from the company’s 60-company merger and acquisition spree.
But while a new restatement may not be as harmful to WorldCom as the first accounting revelations were, Dzubeck says that it will probably reduce the company’s chances of survival. “I’m getting more and more phone calls from concerned [WorldCom] customers,” he says. “They were [already] looking for a plan B… Now they’re starting to look at it much more closely.”
— Eugénie Larson, Reporter, Light Reading