WorldCom Inc., already facing civil charges for accounting fraud, said it would expand its planned financial restatement to $7.2 billion as a result of additional accounting irregularities. 

The telecommunications giant, which previously planned to restate $3.85 billion for last year and part of this year, disclosed that an internal review of its accounting produced additional improperly booked items. The Clinton, Miss., company, which had warned its revision would grow, says it will have to revise its financials for the year 2000, in addition to the planned restatements for 2001 and the first quarter of 2002.

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The new charges effectively would wipe out WorldCom's profits for all of 2000, just as the prior ones erased earnings for 2001. The new information also raises questions about whether the bulk of the company's profits during the end of the telecom boom were generated through accounting gimmicks.

The disclosure indicates the company inflated profits by an additional $3.3 billion starting in 1999 and continuing through 2002. The company also said it could be forced to take a massive $50 billion write-off related to goodwill -- a figure roughly double the $20 billion to $30 billion it estimated just a few months ago.

The new items were discovered by a team that included WorldCom audit and finance staffers and its external auditor, KPMG LLP. WorldCom, which has filed for Chapter 11 bankruptcy protection, told the Securities and Exchange Commission more than a month ago that it had found "odd" transactions and clarified their nature to the agency again last week, said a person familiar with the matter.

The latest disclosure could put top executives in charge at the time -- including WorldCom's former chief financial officer Scott Sullivan -- in more legal jeopardy. The timing of the items is significant because they occurred at a time when Mr. Sullivan and other executives and board members were selling stock.

The previous restatement by WorldCom of $3.8 billion occurred during the year 2001 and the first quarter of 2002, a five-quarter period during which insider sales were relatively sparse.

Mr. Sullivan, who was charged by the U.S. Justice Department last week with securities fraud and making false filings, sold shares valued at $18.1 million, according to Thomson Financial/Lancer Analytics. Other executives and board members, including ousted chief executive Bernie Ebbers, his successor John Sidgmore and director Francesco Galesi also sold shares during 2000.

Mr. Sidgmore said he had no knowledge of the accounting improprieties at the time he sold, and that he still owns half of his original stock. Mr. Ebbers, Mr. Sullivan and Mr. Galesi couldn't be reached for comment.

But the latest revelations could potentially result in investigators charging some WorldCom executives with insider selling in addition to fraud charges, said one person familiar with the situation.

Prosecutors generally are reluctant to go to trial if they can't easily establish a motive, but the latest restatements during a period of insider sales could provide them with a possible motive. Prosecutors also are likely to use the latest revelations in their efforts to convince Mr. Sullivan to cooperate with their investigation.

Revelation of the improperly booked expenses -- which collectively amount to a restatement of more than 12 times those disclosed at Enron Corp. last year -- also is expected to delay WorldCom's plans to deliver a turnaround business plan and financial results scrubbed clean of the fraud.

For example, a business plan was on track to be delivered to lenders and others as soon as this week, said people familiar with the situation. It may now be the end of the month, those people said. Until KPMG can deliver its audited report, it isn't even clear whether WorldCom has positive or negative cash flow.

Another question stemming from the latest accounting problems is whether WorldCom will need more money from its lenders. WorldCom has received $750 million of interim financing as part of a debtor-in-possession loan that could total as much as $2 billion. Within the next month, the bankers providing the loan -- Citigroup Inc., J.P. Morgan Chase & Co. and General Electric Co.'s GE Capital -- had planned to try to find other banks to help provide the financing.

WorldCom had said the interim funding would be enough to keep it operating until a Sept. 4 bankruptcy-court hearing, where it had been expected to get approval for access to the full bank loan. But even that process could be delayed, said the people familiar with the situation.

Though WorldCom has warned its restatement could grow, the larger-than-expected amount raises the question of whether the company, which has hired its own internal investigator and appointed two new board members with accounting and enforcement expertise, can ever overcome its tremendous loss of credibility.

"It makes it very difficult for the creditors to work effectively with the company when these surprises keep emerging," said Jim Harris, a professor of management at Columbia University in New York. Mr. Harris said he thinks the company needs new management. Mr. Sidgmore said the latest disclosure "shows this company is willing to stand up and do the right thing."

Some of the items in question relate to overstatement of revenue and the same improper capitalizing of expenses that constituted the original $3.85 billion scandal, said people familiar with the matter. Other improprieties include a series of so-called reserve reversals, which are funds companies typically set aside to cover the estimated cost of a future event. Once the cost is incurred, any additional funds can be reversed back into earnings. Reserves at WorldCom related to taxes, litigation, uncollectible receivables and acquisition-related expenses.

Generally accepted accounting principles permit companies to estimate reserves, but the SEC, which began investigating WorldCom's accounting of reserves in March, requires that the estimates aren't overly aggressive.

Regulators have contended that some companies wrongly set aside reserves and later reverse these actions to pad or massage earnings when they fall short of expectations. Regulators, auditors and investigators have already been looking at whether WorldCom used such reserves in order to meet Wall Street's earnings estimates.

-- Carrick Mollenkamp in Atlanta and Deborah Solomon in New York contributed to this story.

Write to Jared Sandberg at jared.sandberg@wsj.com⁴ and Susan Pulliam at susan.pulliam@wsj.com⁵

Updated August 9, 2002 10:00 a.m. EDT