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Accounting

Dell files restated accounts after probe

Wednesday, 31 October 2007

Computer manufacturer Dell has filed its past due periodic reports with the US Securities and Exchange Commission, including all financial accounts since 2003 restated after a probe.

The filed reports relate to Fiscal 2003, 2004, 2005 and 2006 and the interim periods within those years, and the first quarter of Fiscal 2007. They include the annual report for Fiscal 2007, an amended quarterly report for the first quarter of Fiscal 2007 and quarterly reports for the second and third quarters of Fiscal 2007, and the first and second quarters of Fiscal 2008.

The company had previously announced on 16 August that it was restating its financial statements for those periods because of accounting errors and irregularities in the previously issued financial statements.

Dell’s announcement came after its Audit Committee completed an independent investigation into the firm’s accounting and financial reporting matters found that senior executives wilfully cooked the books in order to meet quarterly performance targets.

Investigation

Dell said at the time that the investigation raised questions relating to numerous accounting issues, most of which involved adjustments to various reserve and accrued liability accounts. The investigation identified evidence that certain adjustments appear to have been motivated by the objective of attaining financial targets and typically occurred at the close of a quarter.

"The investigation found evidence that, in that timeframe, account balances were reviewed, sometimes at the request or with the knowledge of senior executives, with the goal of seeking adjustments so that quarterly performance objectives could be met."

In order to meet the expectations of shareholders and Wall Street analysts, Dell's finance department bent accounting rules to make up for shortfalls in certain quarters and under-reported results in others, each time ensuring that Dell did in fact hit profits targets that financial analysts were expecting.

Dell's chief financial officer Jim Schneider stepped down in January and was replaced by Donald Carty.

Five million documents

The Audit Committee investigation began as a result of concerns raised by documents and information discovered in the course of responding to requests from the Enforcement Division of the US Securities and Exchange Commission (the “SEC”) in connection with an investigation into Dell's accounting and financial reporting practices.

The investigation, which began August 2006, involved more than 375 professionals deployed across all the company’s major regions. The investigation team evaluated more than five million documents, conducted more than 200 interviews of company personnel and reviewed thousands of journal entries and supporting documentation.

Dell said it believes that, with the filing of these reports, it will achieve compliance with NASDAQ’s continued listing requirements, and expects that NASDAQ will send the company an acknowledgement to that effect in the near future.

The company said it expects to resume its share repurchase program shortly after it reports its results for the third quarter.

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