Problem:
From 1998 until the third quarter of fiscal 2000,WorldCom, Inc. did not write off numerous accounts of customers who were in default and unlikely to pay their bills. In the third quarter of 2000,WorldCom management, who had earlier refused to approve any writeoffs, told the accounting area to write off $405 million of accounts receivable. Wall Street analysts viewed this write-off as a one-time nonrecurring event.
Q1. Explain the significance of this transaction to an analyst.
Q2. Explain the consequences of poor quality reporting.
Q3. What has the U.S. government done to improve the quality of reporting after recent financial scandals, such as Enron?