Managing/Manipulating the Numbers
Introduction
Dell is a multinational company that has its headquarters in Round Rock in Texas in the US. Its
major business activities is in developing and selling computers, their accessories and other
related services and products. It’s listed as DELL in NASDAQ. It was founded in 1984 by
Michael Dell when he was still a student at the University of Texas in Austin. Dell is a private
company that was founded by Michael Dell in 1984. It currently has a revenue base of $56.94
billion and 108800 employees. It total current assets are $47.54 billion dollars as at the end of the
year 2013 while its equities for the same period amounted to $10.68 billion. Dell has several
subsidiaries among them are Alien Corporation, Compellent Technologies Inc, Force 10
Networks, Inc, Perot Systems Corporations, SonicWall Inc and SecureWorks Inc. (Dell Inc
Annual report, 2012)
Dell organized its marketing strategies and made a lot of successes in selling personal computers,
data storage devices, network switches, software, servers, MP3 players, cameras, printers and
other computer peripherals. Dell was number 51 in Fortune 500 listings but was later dropped
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from the listing when it went under private control in the year 2013 and also its present
confidential nature. Dell still maintains its number one status as the world’s leading shipper of
PC monitors and it’s currently the sixth largest multinational company in Texas as per its
revenues. (Dell Inc Annual report, 2012) Dell’s greatest competitor is Hewlett Packard while
others are Compaq, IBM, Gateway and AST Research. The advent of the Apples tablets and
the expansion of the laptop market affected Dell’s PC market especially in the US where its
original market had a lot of demand and which sustained most of its revenues. (Dell Inc Annual
report, 2012)
1.) Dell computers senior executives in 2003 adjusted the company’s balance sheets to reflect
that its performance had improved hence it had achieved its targeted financial goals. The United
States Securities and Exchange Commission also confirmed that stock options that were granted
to senior executives were also backdated intentionally and they were not included as expenses in
the balance sheets. The errors and financial irregularities that were identified by the commission
included deficiencies in the company’s operation, accounting and other relevant financial
controls systems that also required immediate corrective and remedial measures.
The commission discovered that between the financial period 2003 and 2006 most of the account
balances were actually reviewed. Some of the reviews were carried out at the behest of the senior
executives and whose knowledge or approvals were sought before the malpractices. The
adjustments were sought to improve the quarterly performance targets that were to be achieved.
The investigation by the commission finally concluded that the transactions were improper and
which included creation of accruals and reserves that were purposely created to incorrectly
enhance the internal performance growth rates to influence the financial results. The transfers of
extra liability from one account to another in excess accrual balances that mostly targeted the
Managing/Manipulating the Numbers 3
offsetting of unrelated future expenses. Also the investigation revealed that some head of
departments failed to provide relevant and complete information to the company’s head office
and in some instances false information were also presented to the company’s internal and also
external auditors purposefully to mislead them. (Fulton, 2007)
The consistency approach in accounting makes it mandatory for private and public companies to
maintain a constant policy of stock valuation and depreciation methods that the company adopts.
(Hermanson, Edwards & Invacevich, 2011) Companies can opt for historical valuations or the
first in first out stock valuation or the last in last out methods. Whatever the method adopted it
must be maintained throughout the financial period. The methods adopted by Dell computers
were not well defined and at one time the company’s head offices were not being given adequate
information to make the right conclusions. (Fulton, 2007)
2.) Dell computers major objective when they made the adjustments was basically motivated by
their desire to attain specific financial targets that the company had set several months ago. An
internal company audit that was carried out Willkie Farr & Gallagher LLP and also LLP
KPMG.UL revealed that adjustments to the company books of reserves and also the Owings
liability accounts or the accounts payable were also affected by the financial irregularities. The
investigations also revealed the Dell never disclosed large amounts of exclusivity payments that
were primarily received from Intel computers ltd for the sole purpose of disagreeing to purchase
processors from Intel’s rivals, the AMD. Dell was fined $100 million for the fraud by US
Securities and Exchange Commission together with Michael Dell, the CEO and owner of Dell
computers and other senior Dell executives were also fined also sanctioned on specific financial
company issues. They neither admitted nor denied the charges that were leveled against them.
(Gollner, 2007)
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3.) Dells form 8-K report the financial misappropriation consisted of movement of money or the
transfer of funds from one financial account to another to assist in account padding. These
activities were actually compensating each account as the amount available in the accounts were
just being restated, a fact which made the actual differences to be marginally low. The
differences were estimated to be about less than 1% of the company’s net income and which
were actually reversible. (Hermanson, Edwards & Invacevich, 2011)
The investigation by the commission eventually concluded that the transactions were improper
and which included the creation of outstanding creditors and reserves that were purposely
created to incorrectly enhance the internal performance growth rates to influence the financial
results. The transfers of extra liability from one account to another in excess accrual balances
that mostly targeted the offsetting of unrelated future expenses. Also the investigation revealed
that some head of departments failed to provide relevant and complete information to the
company’s head office and in some instances false information were also presented by senior
Dell executives to the company’s internal or external auditors purposefully to mislead them. The
motive of the whole exercise was however discovered that it was for the purposes of inflating the
average rate of growth and the general performance of the company.
4.) The restated amounts for the four years amounted to $50 million and which would eventually
reduce the net income to $150 million. The average amounts would reduce the restated annual
average for the four year period to 1% of the total reported amounts or 2 cents for every 7 cents
available per share. The investigations also revealed the Dell never disclosed large amounts of
exclusivity payments that were primarily received from Intel computers ltd for the sole purpose
of disagreeing to purchase processors from Intel’s rivals, the AMD Microprocessors. Dell was
fined $100 million for the fraud by US Securities and Exchange Commission together with
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Michael Dell, the CEO and owner of Dell computers and other senior Dell executives were also
fined also sanctioned on specific financial company issues. They neither admitted nor denied the
charges that were leveled against them.
To conclude, in their effort to inflate the rate of sales and other revenues earned, Dell computers
recognized revenues inappropriately. These efforts led to the adjustment to attain specific
financial targets that the company had set by the company as revealed by the internal audit
investigation that was carried out by Willkie Farr & Gallagher LLP and also LLP KPMG.UL
which discovered that adjustments to the company books of reserves, the accruals and some
other current liability accounts were also affected by the financial irregularities. The total
cumulative amounts that were adjusted amounted to $50 million and the resulting effected
reduced the net income for the consequent years by an average of 1% of the net income for the
entire four year period. The net income was reduced to $150 million after the revelations by the
US Securities and Exchange Commission. Because of this financial improprieties Dell was fined
$100 million for the fraud by US Securities and Exchange Commission while its current CEO
who was also the CEO at the time the problem started Michael Dell and other senior Dell
executives were also fined and sanctioned on several financial company issues but they neither
admitted nor denied the allegations that were leveled against them.
Managing/Manipulating the Numbers 6
References
Dell Inc Annual Report for the financial period 2012.
Fulton, S.M. (2007) Dell Admits Fraud in Financial Reporting Will Restate Earnings Since 2003,
Betanews,
Gollner, P. (2007, August) Dell Founder in Sportlight after Accounting Audit, Reuters, August 9
2007,
Hermanson, R.H., Edwards, J.D., & Invacevich, S.D. (2011) Accounting Principles: A Business
Perspective, First Global Text Edition, Volume 2 Managerial Accounting, 37-73.
