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ACCOUNTING: INFORMATION FOR DECISION MAKING


WorldCom began in 1983 as a small company called Long Distance Discount Services, Inc., in Jackson, Mississippi. Within 15 years it became one of the largest telecommunications companies in the world. In 2002, WorldCom filed the largest bankruptcy in U.S. history. WorldCom renamed itself MCI and is in the process of being acquired by Verizon Communications, Inc. With more than 20 million business and residential customers, MCI has a workforce that includes 55,000 employees deployed around the world. MCI service spans six continents and over 200 countries.

How does a company as global and large as WorldCom (MCI) come under the careful scrutiny of federal bankruptcy regulators and the Securities and Exchange Commission (SEC)?

Acting on a hunch and a few tips, Cynthia Cooper and two other WorldCom internal auditors investigated the accounting practices at WorldCom. What they found—that the company had artificially boosted profits—eventually led to charges by U.S. regulators that WorldCom committed fraud. Its management admitted it hid almost $4 billion of costs. The 2000 and 2001 WorldCom financial accounting statements had to be restated for adjustments to revenue, expenses, and earnings as well as write-downs of assets and adjustments to liabilities resulting in a cumulative net reduction of $74.4 billion to previously reported income numbers. The scandal pushed the now defunct WorldCom stock to an all-time low of just a few cents after being over $60 per share at one point.

SOURCE: "Special Report—The Best and Worst Managers," BusinessWeek, January 13, 2003. Reprinted by permission © 2003 by The McGraw-Hill Companies, Inc., and www.mci.com.

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

Discuss accounting as the language of business and the role of accounting information in making economic decisions.

Discuss the significance of accounting systems in generating reliable accounting information and understand the five components of internal control per COSO's Internal Control– Integrated Framework.

Explain the importance of financial accounting information for external parties—primarily investors and creditors—in terms of the objectives and the characteristics of that information.

Explain the importance of accounting information for internal parties—primarily management—in terms of the objectives and the characteristics of that information.

Discuss elements of the system of external and internal financial reporting that create integrity in the reported information.

Identify and discuss several professional organizations that play important roles in preparing and communicating accounting information.

Discuss the importance of personal competence, professional judgment, and ethical behavior on the part of accounting professionals.

Describe various career opportunities in accounting.





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