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To: Charles Tutt who wrote (169967)	6/27/2002 1:24:47 PM
From: stockman_scott	Respond to of 176387

Another One Falls Washington Post Editorial Thursday, June 27, 2002 IT'S ALMOST too poignant that, on the day that President Bush headed off to the G-8 summit of world leaders in Canada, WorldCom announced the biggest financial restatement in corporate history. Past G-8 summits have been occasions for American triumphalism, but this one takes place against a background of a falling dollar, a dramatic shift from budget surpluses to deficits and a string of corporate scandals that have shaken market confidence. On Tuesday Paul Volcker, the former chairman of the Fed, questioned the mantra that U.S. accounting standards are the best in the world. And that was before WorldCom's extraordinary announcement. WorldCom is the nation's second-biggest long-distance phone company; it employs 80,000 people and serves 20 million customers; it is the sort of institution of which someone might have said, "What's good for WorldCom is good for America." But now its survival is in doubt. Its share price has collapsed from a peak of more than $60 to somewhere below $1, representing a loss of wealth of more than $100 billion. It's as though an entire year's worth of output in Portugal or Israel were to vanish from the planet. The accounting tricks that triggered the latest stage of WorldCom's collapse in some ways recall Enron. Like Enron, WorldCom was a 1990s stock market darling that apparently resorted to cheating rather than disappointing investors' utterly unrealistic expections. Like Enron, WorldCom employed Arthur Andersen to audit its accounts, a duty that Andersen failed to take seriously. Andersen happily signed off on WorldCom's 2001 books, which announced an illusory profit of $1.4 billion. Later, when the illusion had been exposed, Andersen helpfully informed WorldCom that its audit reports "could not be relied upon." Yet in other ways WorldCom is worse than Enron. The extent of its deceit -- profits were overstated by $3.8 billion -- appears to be greater, and the manner of the deceit is more troubling. Enron resorted to complex off-balance-sheet partnerships and other devices, encouraging the idea that the impenetrable sophistication of modern corporate finance was a big reason for its implosion. Don't blame the auditors and board members and Wall Street analysts, the argument went; nobody could understand Enron's byzantine structure. But WorldCom makes that sort of excuse impossible. It cheated investors with the crudest of all scams, taking current expenses and counting them as capital costs that could be spread over an extended period. This violates Accounting 101. The fact that WorldCom executives dared to pull this trick shows how confident they were in their auditors' compliant attitude. The good news is that, in the Senate at least, support seems to be growing for the Sarbanes bill, which is the best bet for restoring faith in audits. Sen. Tom Daschle, the majority leader, yesterday promised to bring the bill to the floor right after the July 4 recess. But the House Republicans have passed a weak bill; the Bush administration is timid on reform; and Treasury Secretary Paul O'Neill recently complained of "an unbelievable movement . . . in the market without what I believe to be substantive information." Mr. O'Neill and others need to accept that it is precisely the lack of substantive information in corporate accounts that explains the market's jitters. © 2002 The Washington Post Company

To: Charles Tutt who wrote (169967)	6/27/2002 2:46:44 PM
From: BWAC	Respond to of 176387

<maintenance costs (which can sometimes be a gray area -- what is maintenance and what is expansion?)> Better yet what if possibly the maintenance EXTENDED the life of the circuit, or INCREASED the bandwidth or functionanlity. Don't know? Haven't heard? Can't say? Don't know anybody who can? Yet its already been classed as a fraud? What I want to know: 1.) What was the rationale behind the capitalization. 2.) What was the items or items or particular expense category. (Ie Paper Clips = Fraud; Bettering circuit = Gray area) 3.) Only 5 Quarters? Wouldn't a $700 Million lessening on an expense line item raise an eyebrow? I see little difference 6 Quarters back as compared to 5 Quarters back?