worldcom accounting fraud, how did they do it?

Question

how did they do it?

Answer 1

They manipulated earnings, primarily by capitalizing as fixed assets certain 'line costs' which should have been expensed.

Here's a quote from the SEC complaint, linked below:

From at least as early as 1999 through the first quarter of 2002, defendant WorldCom Inc. ("WorldCom") misled investors. Defendant WorldCom has acknowledged that during this period, as a result of undisclosed and improper accounting, it materially overstated the income it reported in its financial statements by approximately $9 billion.

In general, WorldCom manipulated its financial results in two ways. First, WorldCom reduced its operating expenses by improperly releasing certain reserves held against operating expenses. Second, WorldCom improperly reduced its operating expenses by recharacterizing certain expenses as capital assets. Neither practice was in conformity with generally accepted accounting principles ("GAAP"). Neither practice was disclosed to WorldCom's investors, despite the fact that both practices constituted changes from WorldCom's previous accounting practices. Both practices falsely reduced WorldCom's expenses and, accordingly, had the effect of artificially inflating the income WorldCom reported to the public on its financial statements from 1999 through the first quarter of 2002. As a result of, among other things, WorldCom's chronic and pervasive failures to follow GAAP standards, and to mandate and institute appropriate internal controls, the exact amount and extent of WorldCom's overstatement of its income has not yet been quantified.