World-Class Scandal at Worldcom (cbs)

World-Class Scandal At WorldCom(CBS) The stock markets got another king-sized jolt Tuesday as WorldCom revealed what could turn out to be one of the biggest accounting scandals in U.S. history.

The telecommunications company said it had fired Chief Financial Officer Scott Sullivan, and accepted the resignation of senior vice president and controller David Myers, after an internal audit found improper accounting of more than $3.8 billion in expenses over five quarters.

The misstated billions are also very bad news for ordinary WorldCom workers: 17,000 of them will be fired, with layoffs beginning on Friday.

WorldCom said it will restate its financial results for all of 2001 and the first quarter of 2002 to take almost $3.8 billion in cash flow off its books, wiping out all profit during those times.

The company's shares, among the most heavily traded on Wall Street in the past few months, fell as much as 76 percent in after-hours action following the announcement and at one point were trading at 20 cents each. In January, they were trading at about $15.

"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business, in an interview with CBS MarketWatch. "As these things come out, it just continues to build up."

WorldCom said that accounting irregularities involving expenses and capital expenditures inflated its cash flow and that otherwise it would have reported a net loss for 2001 and the first quarter of 2002.

The company said the accounting irregularities, which did not conform to Generally Accepted Accounting Principles, included transfers between internal accounts of $3.06 billion in 2001 and $797 million in the first quarter of 2002.

Accounting firm Andersen had audited the company's 2001 financial statements for 2001 and reviewed WorldCom's books for the 2002 first quarter. The embattled auditing firm, already reeling from its role in the Enron crash, wasted no time in distancing itself from WorldCom, which had recently hired new auditors.

Andersen said on Tuesday its work for WorldCom Inc. complied with professional and Securities and Exchange Commission standards.

"The WorldCom CFO did not tell Andersen about the line cost transfers nor did he consult with Andersen about the accounting treatment," Andersen said in a statement. "It is of great concern that important information about line costs was withheld from Andersen auditors by the chief financial officer of WorldCom."

The auditing firm said that WorldCom's financial statements for 2001 should not be relied