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Article Review

TOPIC: Business

SUBJECT: Business

TYPE: Article Review

Read the below article and and write a 8-10 page paper on these questions. REQUIRED: Referring to the attached financials and notes and Wall Street Journal article dated June 27, 2002, please prepare an 8-10 page paper (in question and answer format) incorporating the answers to the following (9) discussion questions:

1. FASB Statement o f Concepts (SCON) N o . 6, Elements of Financial Statements, describes the building blocks with which financial statements are constructed. Explain how SCON 6 defines “asset” and “expense.” In general, when should costs be expensed and when should they be capitalized as assets?

2. What becomes of “costs” after their initial capitalization? Describe how the balance sheet and the income statement are affected by a decision to capitalize a given cost.

3. What did the company report as line costs on the statement of operations for the year ended December 31, 2001? Explain what these “line costs” might be.

4. According to the Wall Street Journal article, what types of costs were improperly capitalized by WorldCom? What gave rise to these costs and do they meet the SCON 6 definition of assets?

5. How did these improperly capitalized costs impact the statement of operations, the balance sheet and the statement of cash flows?

6. In a sworn statement to the Securities and Exchange Commission (SEC), WorldCom revealed details of the improperly capitalized amounts (in millions) in 2001: $771 in the first quarter, $610 in the second quarter, $743 in the third quarter, and $931 in the fourth quarter. If WorldCom correctly depreciated these assets as equipment as disclosed in Note 1, approximately what would have been the depreciation expense for 2001? How would the net income have been affected?

7. “… former employees and people familiar with WorldCom’s operations, reveal a grow-at-anycost culture that made it possible for employees and managers to game the system internally and to deceive investors about the health of the business.” (Washington Post, August 29, 2002). What incentives did WorldCom management have to maintain this culture and defer costs?

8. In your opinion, what rules and internal controls might have been put in place at WorldCom to detect this sort of improper accounting? Who were the auditors? What was their responsibility?

9. What e c o n o m i c c o n s e q u e n c e s a r i s e when a publicly-traded company’s f i n a n c i a l reports are revealed as fraudulent? How have Enron and WorldCom impacted the accounting and auditing procedures conducted in the United States? *****WILL SEND ARTICLE VIA CHAT***

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