Xerox Accounting Scandal

The Enron and WorldCom scandals were arguably the incidents that permanently changed the procedures for accounting controls. In response to these incidents, the Sarbanes-Oxley Act (SOX) of 2002 was passed. Once the knowledge of these scandals was made public, a number of subsequent accounting scandals were discovered in public companies such as Tyco International, HealthSouth, and American Insurance Group. In addition, a then-employee-owned company, Post, Buckley, Schuh & Jernigan, Inc. (dba PBS&J, now known as “Atkins North America, Inc.”), was also hit by a similar accounting scandal. Henceforth, a case study of PBS&J is presented where we will examine the fraudulent transactions that

Organizational misconduct is the chief cause behind corporate accounting scandals. The trusted executives of the corporation participation in actions during a scandal are corrupt and illegal. In the United States, the Securities and Exchange Commission (SEC) is typically the government agency that investigates such scandals. One of the most notorious corporate accounting scandals in the United States is the HealthSouth Corporation scandal of 2003. HealthSouth Corporation is one of the United States largest health care providers with locations nationwide. A deeper inspection of the HealthSouth scandal is needed to understand how it transpired by assessing how it was executed, the accounting issues and root of the issue, how it was exposed, the results to the company and its officers, and warranted ramifications as an outcome of the scandal.

Xerox reported stellar performance figures for 2005 and it appears set to match or exceed those figures for 2006. In 2005 Xerox reported earnings of $978m which amounted to 94 cents per outstanding share and represented an increase of 9% year on year over the previous reporting period (“True” 5). While it is certain that Xerox, being technology company heavily dependent on a value chain centred on intangible services, is susceptible to a certain amount of instability in the global market, its financial health should allow it to weather any periodic downturn. Especially since Xerox has reduced its debt structure from approximately $10b to $7.3b which is offset by operating cash flows of $1.4b (“True” 5). It is clear the Xerox not only redefined its value chain but it correctly assigned the appropriate resources to its key profit centres as well.

Access the "Litigation" section of the SEC's website at www.sec.gov/litigation.shtml. Click on "Accounting and Auditing Enforcement Releases." Click on "AAER-3234" filed January 20, 2011. Read the release and the related SEC Complaint. Summarize the release and complaint in 2-3 pages (12-point, double spaced).

This particular case, involving the SEC, Coopers & Lybrand, and California Micro Devices, Inc. encompasses charges for neglecting to comply with auditing standards. The Securities and Exchange Commission makes these charges against Michael Marrie, audit partner, and Brian Berry, manager, of Coopers & Lybrand. There are three main areas in which the auditing standards were not in compliance, a write-off of accounts receivable, confirmation of accounts receivable and sales returns and allowances. The Securities and Exchange Commission make these accusations against Michael and Brian for failure

“The SEC works closely with many other institutions, including Congress, other federal departments and agencies, the self-regulatory organizations (e.g. the stock exchanges), state securities regulators, and various private sector organizations. In particular, the Chairman of the SEC, together with the Chairman of the Federal Reserve, the Secretary of the Treasury, and the Chairman of the Commodity Futures Trading Commission, serves as a member of the President's Working Group on Financial Markets (The Investors Advocate, 2013)”. The SEC is one of the main sources that helps protect the general public form fraud within a corporation. However, the Sarbanes - Oxley will play an important role with the SEC to help protect the public form fraud within corporation.

The audit world was transformed more than ten years ago due to a series of accounting scandals. This change took place when The Sarbanes–Oxley Act of 2002, otherwise known as SOX, was passed affecting not only business entities but also the firms that audit those companies (Thomas). One of the companies whose fraud was unmasked by the passage of SOX was HealthSouth Corporation. A company in the healthcare industry who had overstated about $2.7 billion dollars in earnings since 1996. The company’s CEO, Richard Scrushy, was the first to be tried under SOX for misrepresenting and signing off on misleading financial statements(Accounting Fraud at HealthSouth).

Our team demands that the management provide us with all financial records and related information. We will require that your management team provide us with a letter to confirm management responsibility for the preparation of a financial statement in conformity with GAAP and provide all information necessary in a timely basis for our audit process.

ClearOne, was charged approximately of $9.7 million in damages as part of the trade secret

Excello Telecommunications was presented with a dilemma on how the company should report earnings so that they would appear to have met earning estimates for the 2010 financial year. The CFO, Terry Reed, was concerned with how failure to meet earning estimates would affect bonuses, stock options, and the share price of Excello stock. On December 201, 2010, the company sold $1.2 million of equipment to Data Equipment Systems. However, Data Equipment Systems requested that Excello hold on to the product until January 11, 2011, because they do not have the

“Any claim that we acquiesced to client demands is unsupportable,” Ginsburg said. “KPMG acted in accordance with professional standards in New Century, and we will vigorously defend our audit work.”

In response, “We voluntarily contacted the SEC regarding the Audit Committee’s review. In late August 2006, the SEC initiated an inquiry related to our historical stock option grant practices. In October 2006, we met with the SEC and provided it with a review of the status of the Audit Committee’s review. In November 2006, we voluntarily provided the SEC with additional documents. We continued to cooperate with the SEC throughout its inquiry. On October 26, 2007, the SEC formally notified us that the SEC 's investigation concerning our historical stock option granting practices had been terminated and that no enforcement action was recommended.” [12]

Xerox, with over 100,000m employees worldwide and revenues in excess of $20 billion, is the global leader in the document management business, offering the widest array of products, services and solutions in the industry. Xerox and its partner, Fuji Xerox Co. of Japan, offer the broadest array of document products, services and solutions in the industry: copiers, printers, fax machines, scanners, desktop software, digital printing and publishing systems supplies and comprehensive document-management services from the running of in-house production centres to the creation of networks.

KPMG has been able to rebound from some past legal troubles. The drawn-out drama began in 2005 when the firm admitted to unlawful conduct in an investigation by the Department of Justice. Former partners of the firm created abusive tax shelters for more than 600 wealthy customers between 1996 and 2002; the unpaid taxes cost the Treasury more than $100 million. KPMG avoided criminal prosecution by agreeing to pay $456 million in fines, restitution, and penalties. (A criminal indictment led to the collapse of KPMG 's former rival Arthur Andersen.) A federal jury found three ex-KPMG employees guilty in the tax-shelter trial in 2008 (a fourth defendant was acquitted). Those former managers were ordered to pay nearly $10 million in fines and received

Fraud Analysis: The case of Xerox involved the accounting operating practices can be summarized into two main categories: advance to confirm rental income and the use of illegal ready adjustment of profits. 1. Advance to confirm rental revenue. The greatest means of fraud accounting profit is to use the sales-type leasing. Before the lease beginning date to confirm the lease-related revenue,