WorldCom Finds $3.8 Billion Error, Fires CFO

[Roland]

"Worldcom says, with a straight face, that GAAP tells us to capitalize this switching equipment, which GAAP says has a life of 10 years. Reality is that the equipment will be technically obsolete in two years, so it shoud either be expensed or have a 50% depreciation rate."

Sure it's easy in principle, but on that scale ? I still find it a bit puzzling.

"What upset you? Do you think Jack is a complete fake? What was the specific issue?"

After the EC blocked his honeywell takeover he gave the jack Welch memorial lecture on european integration. I hope he knows his genuine business stuff better than that. Or at least knows his limitations.

[Roland]

About total fake - if I understand you correctly what you mean by that, I'd rather apply that to Immelt. But I know neither enough to judge.

[TCO]

Originally posted by Adam Smith
Not really that hard to do. Worldcom says, with a straight face, that GAAP tells us to capitalize this switching equipment, which GAAP says has a life of 10 years. Reality is that the equipment will be technically obsolete in two years, so it shoud either be expensed or have a 50% depreciation rate. Anderson says that Worldcom never told them about this. But thats exactly the kind of thing an auditor is supposed to check. A friend who works for a telecom told me this morning that this is one of the first things auditors check when they do high-tech companies. Anderson did not even come close to their auditing job. Anybody know if Anderson was earning big bucks in strategy consulting with Worldcom, hence a conflict a la Enron?

Hmmmm. Did they get in trouble for using the same depreciation in their tax accounting as in their regular accounting? Pretty funny if that is the case. Usually people criticize companies for using DIFFERENT rates...not the same one. In most EU countries, you are required to use the same accounting for tax and for statements.

As an aside, PC's used to have a tax depreciation time of 7 years. Maybe a hold over from mainframe days. Of course 2-3 is reasonable. And it would be just as well to treat PC's like a piece of paper.

[TCO]

Originally posted by Roland
"Worldcom says, with a straight face, that GAAP tells us to capitalize this switching equipment, which GAAP says has a life of 10 years. Reality is that the equipment will be technically obsolete in two years, so it shoud either be expensed or have a 50% depreciation rate."

Sure it's easy in principle, but on that scale ? I still find it a bit puzzling.

"What upset you? Do you think Jack is a complete fake? What was the specific issue?"

After the EC blocked his honeywell takeover he gave the jack Welch memorial lecture on european integration. I hope he knows his genuine business stuff better than that. Or at least knows his limitations.

What did he say to set you off?

As I recall, the main issue was wether the EU was protecting competitors or consumers. You differed with AS and I (you defending the EU commission) on that issue, but surely that is a reasonable area for disgreement.

[Roland]

Welch didn't talk about the decision, but about institutions, regulatory frameworks, relationship to national law etc. That's like me talking about baseball memorabilia.

[Roland]

And when you talk about the housing bubble, viola.

" Markets got a respite from their lows following the release of a surprisingly strong report on new home sales. New sales rose 8.1 percent in May to an annual rate of 1.03 million; analysts were expecting only a modest rise to 920,000 from a rate of 915,000 the previous month."

[chequita guevara]

That wasn't an error, it was fraud.

[Roland]

Welcome, echo.

[chequita guevara]

I hadn't gotten to that post yet, Roland.

[Sloth]

[TCO]

Why are you bringing the housing bubble in here?

[Saras]

Originally posted by GP
Why are you bringing the housing bubble in here?

It's all part of the USA crashing down to a Japan style death/recession thing

[TCO]

Originally posted by Roland
Welch didn't talk about the decision, but about institutions, regulatory frameworks, relationship to national law etc. That's like me talking about baseball memorabilia.

but was it in relation to the adverse decision? For instance, that an EU body is more aggressive or adverse becuase it is qausi-independant wrt member nations?

Or was he just 100% talkking about the EU with no relation to the decision?

[Roland]

"Why are you bringing the housing bubble in here?"

Because it's holding the rest of the US economy together. Including the stock market.

"Or was he just 100% talkking about the EU with no relation to the decision?"

General blah, completely unrelated. Like an old prof hellbent on lecturing even on things he knows nothing about.

[TCO]

wrt Welch: Ok.

housing: I prefer to disaggregate issues. You always seem to want to glom everything together. We had a bubble thread. Just throwing in a one-off about housing is distracting.