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Dell accountants spank themselves

$50m to $150m up in smoke

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Dell has released the results of its internal accounting probe today, stemming from allegations they mis-dated earnings or backdated share options to reach their financial goals.

The probe has obviously been a huge thorn in the computer maker's paw, delaying the filing of current financial results and prompting an expensive corporate restructuring.

The company will restate all the company's financial results relating to the fiscal years 2003, 2004, 2005 and 2006.

Restatement

The restated earnings will correct the accounting shenanigans identified through the investigation. Dell said it expects the restatement to have the following effects on the bottom line:

  • Revenue for each year will be reduced by less than 1 per cent than was previously reported.

  • The total income during the period - originally put at $12bn - will be reduced by between $50m and $150m.

  • The income for the first quarter of fiscal 2003 and the second quarter of fiscal 2004 will be reduced by between 10 per cent and 13 per cent. Figures for the fourth quarter of fiscal 2005 will be reduced by about 7 per cent. And numbers for the second quarter of fiscal 2005 and the third quarter of fiscal 2006 will increase by 5 to 7 per cent.

Dell does not expect the adjustments, however, to have a material impact on cash flow during the period or change the results of future earnings.

Whoops, our bad

The investigation found evidence that account balances were fixed to show quarterly performance objects had been met, sometimes at the request or with the knowledge of senior executives. Sometimes Dell's business units did not provide complete information to corporate HQ and, in a number of instances, purposefully provided incomplete or false information to auditors.

"We are committed to achieving and maintaining a strong control environment, high ethical standards and financial reporting integrity," said Michael Dell, CEO. "This commitment will be communicated to every Dell employee and external stakeholder. It is accompanied by renewed management focus on decision-making and processes intended to drive long-term shareholder value."

In response to the findings, Dell said its management has taken action. Personnel have been sacked, reassigned, reprimanded, trained or are being watched closely. The company's financial leaders will be required to take accounting ethics training. Dell will segregate accounting and financial reporting responsibility. Finally, they have eliminated manual processes in accounting to improve the reliability of financial reporting.

Dell will hold an investor call later today to discuss the results. We'll have more as it develops.

Update

During the investor call, Dell CFO Don Carty would not answer several questions asking whether executives still working at Dell knew about the financial chicanery.

"I'm not going to talk about any individuals by name," said Carty. "We've taken what we perceive to be the appropriate actions with personnel involved with this."

Carty said the company has taken steps including but not limited to terminations, but he would not go into further detail.

"I think we are all comfortable that we have taken the proper actions to ensure this never happens at Dell again."

Carty went on to say the investigation was "enormously comprehensive," and found no evidence to suggest the scandal goes back further than the time period stated. He said the SEC investigation is still ongoing, and the company will focus on filing the proper documents with the SEC and cooperating with the investigation fully.

Dell plans to file the revised finances as well as results delayed due to the SEC investigation no later than the first week of December. ®

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