In a statement on its Web site, Dell said 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.
Evidence showed that 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.
According to Dell a number of these adjustments were improper, including the creation and release of accruals and reserves that appear to have been made for the purpose of enhancing internal performance measures or reported results, as well as the transfer of excess accruals from one liability account to another, and the use of the excess balances to offset unrelated expenses in later periods.
In addition, the investigation found that sometimes business unit personnel did not provide complete information to corporate headquarters and, in a number of instances, purposefully provided incorrect or incomplete information about these activities to internal or external auditors.
As a result of the investigation, current management concluded the company did not maintain effective controls over the period-end reporting process, including controls with respect to the review, supervision and monitoring of accounting operations. The statement said personnel actions – including terminations, reassignments, reprimands, increased supervision, training and financial penalties – have been or will be taken.
The largest percentage changes in quarterly net income and earnings per share (EPS) in the restatements are expected to be in the first quarter of fiscal 2003 and the second quarter of fiscal 2004, each with expected reductions of between 10% and 13%.
The fourth quarter of fiscal 2005 will show an expected reduction of approximately 7%; and the second quarter of fiscal 2005 and the third and fourth quarters of fiscal 2006, each will show an expected increase of approximately 5% to 7%. Net income and EPS for each of the other quarters are expected to change by 5% or less. The adjustments are not expected to have a material impact on the current balance sheet, according to the Web statement.
The investigation was prompted by concerns raised by documents and information discovered in the course of responding to requests from the Enforcement Division of the U.S. Securities and Exchange Commission in connection with an ongoing investigation into certain Dell accounting and financial reporting practices.