IT Value

Dell Restates, Reshuffling Finance

The computer company will fix up financial-reporting back to 2003 worth and restructure its finance department.
Sarah JohnsonAugust 16, 2007

Two years after the Securities and Exchange Commission launched an informal probe into Dell’s accounting practices, the computer company has announced it will restate more than four years’ worth of financials. Divvying up accounting and financial reporting from planning and forecasting, the company also plans to restructure the functions of its finance department.

Aimed at correcting accounting errors and irregularities, the computer company said its restatement could cut its net income by $50 million to $150 million.

Dell will restate its financials for the fiscal years 2003 through 2006, as well as the first quarter of fiscal 2007. Most of the redos involved adjustments to reserve and accrued liability accounts, Dell said. Some adjustments “appear to have been motivated by the objective of attaining financial targets” around the close of a quarter. In fact, senior executives sometimes asked that account balances be reviewed so that adjustments could be made to meet quarterly performance objectives, the company added.

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Dell called some of the adjustments 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.”

Other improprieties included “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,” according to the company.

Dell’s own internal probe found that at times employees didn’t share complete information with corporate headquarters and provided incorrect or incomplete information on purpose to internal or external auditors.

The company’s internal investigation led it to also take a second glance at its processes, including the structure of its finance department. The company said it will reorganize its finance function and split off accounting and financial reporting responsibilities from planning and forecasting to strengthen the groups’ independence. The company has also boosted the role of its chief accounting officer and made that person responsible for all accounting and financial reporting tasks worldwide.

For its restatement, the company expects the largest percentage of changes in quarterly net income and earnings-per-share to be in the first quarter of fiscal 2003 and the second quarter of fiscal 2004, each with expected reductions of between 10 percent and 13 percent; the fourth quarter of fiscal 2005, with an expected cut of about 7 percent; and the second quarter of fiscal 2005 and the third and fourth quarters of fiscal 2006, each with an expected increase of 5 percent to 7 percent. Dell expects net income and earnings per share for each of the other quarters are expected to change by 5 percent or less.

“The rigorous examination of our accounting and finance processes, along with the remedial actions taken and planned, have made and will continue to make Dell a far stronger company and provide a solid foundation on which to move the business forward, reinforce our standards, and focus our energy on serving our customers,” said Donald Carty, who became Dell’s CFO in December.

Dell says it will make sure its financial leaders take ongoing training in accounting standards and policies. As a result of the restatement, the company has already fired and reassigned people and will fire and shift more, it stated. In late January, the company made headlines by putting its founder, Michael Dell, back in the CEO spot to replace Kevin Rollins, whose three-year tenure ended “immediately.”

As for the SEC probe, Dell acknowledged it’s still ongoing. More than 374 people took part in Dell’s own investigation, which was led by its audit committee starting last August. They looked over more than 5 million documents, reviewed thousands of journal entries, and conducted more than 200 interviews across the company.

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