WorldCom: The Final Catalyst on pp. 114-118
1. Describe the mechanisms that WorldCom's management used to transfer profit from other time periods to inflate the current period.
3. How should WorldCom's board of directors have prevented the manipulations that management used?
4. Bernie Ebbers was not an accountant, so he needed the cooperation of accountants to make his manipulations work. Why did WorldCom's accountants go along?
5. Why would a board of directors approve giving its Chairman and CEO loans of over $408 million?
1. WorldCom used the infamous 'cookie jar' accounting technique where companies will build up reserves of expenses in one period and take advantage of them in another period. Basically, to use this technique, you would report your expenses during bad quarters since you stand to gain nothing from that period anyway. After 'washing' them out, you would wait until you have a great period, and simply put the expenses from that quarter into a 'cookie jar' thereby artificially ...
The solution describes techniques used by WorldCom to manipulate the public.