A similar case arose in the case of WorldCom (Sidak 2003). The company which once used to be extremely profitable with soaring stock prices and a burgeoning business was faced with trouble when its fortunes reversed. With stock price falling, the banks were issuing margin calls on the company’s CEO which required him to get immediate cash.
This he managed through corporate loans and guarantees from the board which again backfired, leading to the dismissal of the CEO. Since the company now found itself in dire straits with earnings steadily decreasing, it started manipulating segments of its accounts. This it did via efforts to increase the earnings of the company in hopes that it would give a more profitable outlook for WorldCom to investors and increase its declining stock price (Sidak 2003). This was managed through the under reporting of interconnection expenses with regards to other telecommunication companies. In standard reporting, this was required to be expensed out in the income statement but it was actually capitalized on the balance sheet. On the revenue side, the company started including bogus entries which made the revenue appear higher than it really was. Eventually the internal auditors of the company were able to uncover the fraud perpetrated by the company and exposed it to the audit committee which took swift action.
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