Financial Statement Fraud Analysis
The objective of the assignment was to do an analysis of a company’s financial statement and identify areas in where financial fraud may be occurring or has occurred. The company I chose for the assignment was Xerox Corporation (“Xerox”). In my opinion based on the analysis of Xerox financial statements from 1998 to 2000, a review of outside sources such as Securities Exchange Commission (“SEC”) filings, and other periodical resources, I believe that red flags existed prior to the fraudulent schemes being uncovered. The senior management of the Xerox Corporation misled investors about earnings to meet Wall Street expectations and to boost the company's stock price which in turn resulted in higher compensation and higher prices for personal sales of stock for the parties involved. One of the main fraudulent schemes that the company used was manipulation of income.
Xerox Corporation is publicly traded company. It’s incorporated in New York which manufactures sells and leases document imaging products, services and supplies in the United States and 130 other countries. In 2000, Xerox employed approximately 92,500 people worldwide, 50,000 of them in the United States. For the year ended December 31, 2000, Xerox reported total revenues of $18.7 billion and a net loss of $273 million.
In order to see if fraud had occurred, a fraud examiner would have to gain an understanding of management and what factors motivate them. This area is just as important as understanding the financial statements information. As a fraud examiner some of the key questions that should be covered are: Is management under pressure from Wall Street investors and analysts to meet earning expectations? Is management’s compensation primarily performance based, such as bonuses, stock options? Does management set unduly aggressive financial targets? What is the “tone at the top”? In addition, the fraud examiner should compare the...
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