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Goals led Dell to cook the books
Written by Daniel   
Friday, 17 August 2007 10:44

Goals led Dell to cook the books
By Erica Ogg
Staff Writer, CNET
Published: August 16, 2007, 7:55 PM PDT

 news analysis Though Dell has finished an internal investigation into its accounting practices, there are still plenty of questions about the company, which not long ago could do no wrong in the minds of investors and customers.

What we know now is that Dell's finance department was apparently willing to fudge numbers to ensure it would hit or surpass its quarterly earnings forecasts. The unit seems to have done that with the knowledge of, or sometimes at the request of, senior executives. And the guilty parties did it because Dell's accounting department didn't strictly follow generally accepted accounting principles, or GAAP, Chief Financial Officer Donald Carty said in a conference call Thursday afternoon. Carty became CFO after Jim Schneider stepped down in January.

The department used "inappropriate accounting decisions and entries that appear to have been largely motivated to achieve desired accounting results," Carty said during the call with investors, apparently reading from a document filed with the Securities and Exchange Commission explaining the results of the company's investigation.

Dell felt so pressured to meet Wall Street expectations that its finance department bent accounting rules to make up for shortfalls in certain quarters and underreported earnings results in others, each time ensuring that Dell seemed to hit earnings targets that financial analysts were expecting. Carty didn't go into detail, but it appears much of the accounting manipulation involved the timing of expenses and payments recognized on Dell's balance sheets.

So who knew about the financial shenanigans, and when? Carty said executives knew and even encouraged it, but he won't say exactly who those executives were, and is so far refusing to single anyone out for responsibility. "I'm not going to talk about any individual by name," Carty said. "We've taken what we believe to be appropriate actions with respect to personnel involved in this, up to and including terminations."

More importantly, how did this happen at a company widely considered to be conservative and, above all, trustworthy? Dell's explanation is that not only did it not maintain a culture that emphasized strict adherence to GAAP rules, it didn't have enough employees with the proper accounting training or experience to know better... More

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