Worldcom yesterday revealed it had widened its accounting probe beyond the alleged $3.8 billion (€3.8 million) fraud disclosed last week, opening new questions about its handling of big acquisitions in the 1990s. The deeper inquiry into its accounts in 1999 and 2000 immediately following the biggest of WorldCom's takeovers, its $37 billion purchase of MCI, could draw more top executives into the fray.
It is also set to raise fresh questions about an accounting practice used by many US firms involved in big mergers during the 1990s. The practice was also at the heart of the irregularities at Cendant, another US firm that came to prominence during the bull market.
WorldCom said in a sworn statement lodged with the Securities and Exchange Commission that it was reviewing "certain material reversals of reserve accounts" during 1999 and 2000, after questions were raised.
There have been widespread questions about whether some firms have deliberately taken excessive charges against profits when restructuring or merging. By creating bigger reserves than are needed, it might be possible later to feed some of the excess back into the profit and loss account to boost reported earnings.
"Almost every company has been restructuring its operations," said Mr Robert Willens, accounting specialist at Lehman Brothers in New York. "My guess would be that the reversal related to changes in acquisition reserves at opportune times. It would have the same effect as capitalising expenses and would enhance income."
The SEC forced WorldCom to reduce the write-off it wanted to take on the MCI takeover in 1998 from $6-$7 billion to $3.1 billion.
Mr Scott Sullivan, chief financial officer, was fired from World Com last week after an inquiry into its capital expenses in 2001 and the first quarter of 2002.
How WorldCom accounted for the billions it spent on acquisitions made during the boom of the telecoms market has already come under scrutiny from the SEC, which began its own probe of WorldCom's accounts this year.
The widening investigation could also prove uncomfortable for Mr John Sidgmore, who replaced Mr Bernie Ebbers as chief executive in April and who has repeatedly expressed surprise and outrage about the scandal.
But an inquiry into the firm's accounting in 1999 when Mr Sidgmore still worked closely with Mr Ebbers and was touted as a possible successor could lead to more questions about how much the vice-chairman might have known.
