Financial Statement Restatement Paper
Shhh, hear the sound of the geek’s laughter? Anyone would have, if they were an HP employee in the summer of 2010. On June 10, 2010, Erica Ogg reported Dell’s earnings would be restated due to disclosure and accounting fraud. The PC maker will take a $100 million hit on its first quarter earnings. The New York Times headline read: “Dell to Pay $100 Million Settlement.” Edward Jones states, “The SEC had accused Dell of misleading investors by using money the company received from the chip maker Intel to pad its quarterly earnings statements.” The restatement would include all quarters for its fiscal years 2002 – 2006 and the first quarter of 2007. Dell, Inc. presented a picture perfect company to the public. Dell’s direct market approach was touted as a superior business model. The company met and exceeded earnings expectations quarter after quarter. Are the results too good to be true? Yes. The SEC charged Dell with disclosure violations relating to large payments from Intel, fraudulently misrepresenting Dell’s profitability. A separate charge of fraud and improper accounting was made with regard to Dell appearing to meet Wall Street earnings while reducing its operating expenses every quarter in 2002 -2006 and the first quarter of 2007. An internal audit found certain employees were adjusting corporate account balances to meet quarterly goals. “Cookie jar” reserves such as a corporate restructuring reserves. Bonus and profit-sharing accruals, relocation accruals, etc. were created to cover excess liabilities and maintain profits. SFAS No. 5 sets the standards for contingencies, by stating any over-accrual of a reserve should be reversed by a credit to income as soon as it is discovered. The scheme to boost revenues and meet market expectations cost Dell, the owner Michael Dell, and former CEOs and CFOs millions of dollars. The company once considered to be the leader in PCs has perhaps faced its darkest...
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