What Statement of Financial Accounting Concepts did WorldCom violate?
WorldCom accounting fraud was astonishing for both the magnitude of the errors in the financial statements, and the simplicity of the accounting. We’re not talkin’ ’bout complex financial arrangements, arcane consolidation, pension, stock option or revenue recognition rules; we’re talkin’ the third week of Accounting 101. We’re talkin’ about capitalizing telephone line access fees (“line costs”) that should have been expensed. Over a number of quarters, $3 billion in payments that should have been reported as expenses on the income statement were parked in property and equipment (P&E) accounts on the balance sheet.
