Financial Research – The Xerox
Financial Research Xerox Financial Fraud Case Analysis
This paper was prepared for Auditing Procedures
Financial Research – The Xerox Abstract On April 8th, 2002, the Xerox Corporation ("Xerox") announced its willingness to accept the U.S. Securities and Exchange Commission (SEC) to reach a settlement with the conditions. Thereafter, its financial fraud became surfaced. On June 28th, Xerox Corporation in accordance with the requirements of the settlement, submitted the unaudited 1997-2000 restated annual financial statements to the SEC, and recognized fraud interest income of $6.4 billion, pre-tax profit of $1.4 billion (SEC thought that should be $1.5 billion) during this period, which sparked an uproar in the capital markets. The financial fraud case of the Xerox and the World Communication (WorldCom) both became the hot issues after Enron’s scandal. This paper will introduce the Xerox Company and expand a detailed analysis with its
mainly used financial fraud approach. Though reviewing this real case, we will better understand the importance of the strict auditing procedures for cash, receivables, inventory, payables, longterm debt, equity balances and related income statement accounts. Keywords: Xerox, financial fraud, SEC, auditing procedures
Financial Research – The Xerox Financial Research Xerox Financial Fraud Case Analysis
Introduction of Xerox Xerox Corporation is a global document management company which manufactures and sells a range of color and black-and-white printers, multifunction systems, photo copiers, digital production printing presses, and related consulting services and supplies. Its headquarters is in Norwalk, Connecticut, the scope of its business throughout the United States and other 130 countries. The company's shares are traded on the New York Stock Exchange and the Chi cago Stock Exchange. In 2000, Xerox achieved a total income of $18.7 billion, and its earnings per share were $1.99, $2.33 and $1.95 through 1997 to 1999, respectively. Different from the rapid growth of WorldCom or Enron, Xerox has always kept an image of steady growth to the public. As a renowned multinational company, Xerox is the representative of Innovation Technology Company in America.
Fraud Motivation Analysis: Xerox's financial fraud or primary motivation for benefits, due to several points: 1. To meet the market's earnings expectations, prompting the company to maintain a good price trend. To adjust the book profit by changing the accounting procedures. Illegally make profits early or delayed confirmation, in order to improve liquidity and transaction arrangements, these measures has a common direct goal which is to meet or exceed securities analysts' earnings forecasts and develop within the company's profitability targets. By means of these accounting
Financial Research – The Xerox
practices would inflate and mitigate the company’s earnings, then help the company's share price maintained with a good trend. 2. To get the preservation of jobs for senior corporate managers and let them obtain high returns. The reason why Xerox use accounting manipulation measures to achieve the performance of the company within the company profit targets and market expectations, mainly because it relates to the vital interests of the company's management, including the paid and the position. Just because it was depend on the results of company's operating revenue and the share income which directly relate to the stock price, the company's management tries its best to reap high returns with the usage of illegal accounting treatment. Except for the compensation, the job security is one of the other motivations. Due to the market competition, management people who without excellent performance would facing the risk of dismissal, while accounting profit is an important indicator of performance evaluation of the management, the management has a full motivation...
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