By: Arindam Nag

March 15, 2005, Reuters

NEW YORK, March 15 (Reuters) - With his conviction on accounting fraud, Bernard Ebbers, the former chief executive of telecommunications company WorldCom, has cemented himself in the pages of accounting textbooks and is likely to remain there for a long time to come.

It took just eight days for a jury to convict the 63-year-old Ebbers of all nine criminal counts related to an accounting scandal that cost investors billions of dollars.

Among all the fraudulent accounting entries in WorldCom's books the most talked-about wrongdoing is they way WorldCom treated ordinary expenses to the tune of $3.8 billion as assets over five quarters in 2001 and 2002.

Instead of showing them in the income statement, WorldCom accountants capitalized them and showed them as assets in the balance sheet. The simple act of misreporting hid the fact that WorldCom was bleeding in the face of excess industry capacity.

"This is one of those classic frauds which will be repeated over and over in text books," said Pierre Titard, an associate professor of accounting at Southeastern Louisiana University, Titard.

Titard was among those who keenly awaited the verdict on Tuesday as Ebbers' case will be the showpiece of his accounting class on Wednesday in which he will teach his students how to classify costs as expenses and when to show them as assets.

What makes the WorldCom scandal different from several other accounting frauds is the simplicity with which the fraud was carried out. Unlike energy trader Enron Corp, where accounting fraud was committed with help of various complex transactions involving energy trading, WorldCom's fraud was easy to understand.

As Ebbers' trial unfolded over the last few months, what had baffled the accounting industry is the extent to which the former WorldCom boss directed his staff to violate relatively simple-to-understand accounting standards to meet financial numbers.

"You just did not think that a chief executive will direct people the way he did," said Howard Silverstone, director of Forensic Resolutions Inc, a forensic accounting firm.

The WorldCom scandal occurred after Enron had collapsed but experts say that it was the blatant simplicity surrounding the telecom company's fraud that forced regulators to quicken the pace of accounting reforms and improvement in corporate governance.

"It touched so many individuals and many institutions," said Robert Kueppers, a partner at Deloitte & Touche and chair of the AICPA (American Institute of Certified Public Accountants) Center for Public Company Audit Firms.

Apart from becoming a case study, Ebbers' conviction, which could put him behind bars for up to 85 years, is also expected to change the mindset of business school students and young investment bankers. While they get trained in operations and strategy, they are often criticized for not going too deep into financial reporting and accounting.

"One of the things that has always surprised me is that their (new investment bankers) amount of understanding of financial reporting is not anywhere it should be," said Lawrence Revsine, accounting professor at Kellogg Graduate School of Management, Northwestern University.

"Everybody will have to ratchet up their understanding of financial reporting," he said.