UK Accounting Glossary
The WorldCom Scandal was an accounting scandal involving the telecommunications company WorldCom, which was at the time the second-largest long-distance phone company in the USA (2002).
As the scandal surfaced, it emerged that WorldCom had dishonestly enhanced it’s financial results by approximately $11 billion USD through (i) falsely classifying various operating expenses as capital expenditure, and (ii) improperly manipulating it’s revenue reserves.
The former meant that many current expenses failed to be displayed on the profit and loss account, thereby appearing to inflate the companies short-term profits; whilst also artificially boosting the value of the assets.
The latter likewise created illusory profits whilst diminishing liabilities.
The fraud identified by internal auditors at WorldCom was at the time the biggest scandal in US history – and led to the company subsequently filing for bankruptcy protection in 2002.
As a result of the scandal, several senior executives at WorldCom also faced criminal charges.