Ethical Behavior in Finance Reporting

In: Business and Management

Submitted By bobsmith
Words 757
Pages 4
Over time, many unethical accounting scandals existed. The WorldCom scandal is one of the most known unethical scandals. WorldCom submitted the largest bankruptcy filing in United States’ history after admitting improperly accounting for more than $3.8 billion dollars in expenses (Moberg, 2012). The company used acquisitions to spurt large growth. Two of WorldCom’s acquisitions included MCI Communications and MFS Communications (UUNet). This caused WorldCom to appear more favorable on Wall Street, and many banks, brokers, and investors gave strong buy recommendations (Moberg, 2012). This was not unethical; however, what investors and others were to uncover in the coming years, was.
Through its favorable stock, WorldCom acquired MCI Communications and MFS Communications, which allowed WorldCom to offer long distance, local service, and data services (Moberg, 2012). Chief Executive Officer Bernie Ebbers led the company’s stock to increase from pennies, to more than $60 per share (Moberg, 2012). Where the unethical behavior of WorldCom occurred was in financial reporting. The company would write down millions of dollars in assets it acquired. According to Moberg (2012), “[It] included in this charge against earnings the cost of company expenses expected in the future. The result was bigger losses in the current quarter but smaller ones in future quarters, so that its profit picture would seem to be improving” (para. 13). WorldCom also reduced the book value of some of the acquired assets from MCI and increase the value of good will (Moberg, 2012). This allowed WorldCom to charge less against its earnings and spread out expenses over decades rather than years. This allowed the company to recognize MCI’s revenue, cut expenses, and increase profits (Moberg, 2012).
This is unethical because it gave a false picture of how the company was truly performing for…...

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