A move by WorldCom today to restate financial accounts by more than $2bn is not likely to affect the collapsed long-distance group’s bankruptcy proceedings, according to people involved.
The company is expected to meet the Securities and Exchange Commission today to discuss its third accounting restatement in three months, raising the scale of accounting improprieties at the group to $9bn.
The company is also expected to discuss plans to take a goodwill write-down up to $50bn.
But unlike the $7bn fraud that was revealed earlier this summer, today’s restatement is likely to involve accounting issues that were, in the past, open to interpretation – such as merger and acquisition accounting and asset write-downs.
It is an important distinction for the company’s creditors and bondholders, who are ultimately concerned with WorldCom’s cash position and future earnings projections.
The move to provide more accurate accounts could also speednegotiations between the company and its bondholders for a debt-for-equity swap.
While bondholders have said the additional restatements do add uncertainty to the company’s future prospects, they are more concerned with WorldCom’s ability to retain contracts and not lose customers.
Looming questions about the breadth of accounting improprieties at the company have made it impossible for creditors to assess the level of debt the company could sustain and realistic income projections.
By willingly correcting over-aggressive accounting strategies of the past, WorldCom may also be protecting itself from a full-scale indictment of the company by the Department of Justice, thereby avoiding a fate similar to that of Arthur Andersen, the collapsed Enron auditor.