Xerox scandal methodology

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Manipulation of Tax-Related Income The company knew or was reckless in not knowing that these accounts were used unlawfully. By using these accounting actions and failing to disclose their use, Xerox violated GAAP as well as disclosure requirements.

Beginning that same year, Xerox violated GAAP by retroactively increasing the estimated residual value of equipment.

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Subprime mortgages were becoming increasingly ordinary in daily life of business for homeowners over the past two decades. Xerox documented the impact in schedules and lists of "one-offs," year-over-year causal reports and monthly and quarterly performance summaries that were distributed to and discussed by Xerox's financial management. In most cases, application of ROE was a "top-side" adjustment directed by corporate headquarters. These accounting actions were directed or approved by senior Xerox management, sometimes over protests from managers in the field who knew the actions distorted their operational results. Enter an order requiring Xerox's Board of Directors to appoint a special committee comprised entirely of outside directors which, within 30 days after the entry of such order, shall retain a qualified consultant, not unacceptable to the Commission, to perform a complete review of Xerox's material internal accounting controls and policies. ROE Stephen King, chief economist at HSBC, said: "It seems to me that we are on verge of some kind of breakdown as far as the dollar is concerned. FAS 5, "Accounting for Contingencies," allows a company to establish reserves for identifiable, probable and estimable risks and precludes the use of reserves for general or unknown business risks, including excess reserves, because they do not meet the accrual requirements of FAS 5. By using these accounting actions and failing to disclose their use, Xerox violated GAAP as well as disclosure requirements. Benefits of internal audit outsourcing include: An independent auditor can be more objective. These actions had a material impact on the financial statements and, like the other "one-offs," undermined the comparability of prior and current reporting periods.

This Court has jurisdiction over this action pursuant to Sections 20 b and 22 a of the Securities Act [15 U. InXerox substantially departed from its historical accounting methods to improperly manage its earnings, accelerate recognition of equipment revenue and earnings growth, and meet Wall Street analyst expectations.

Xerox is a public company whose securities are registered with the Commission pursuant to Section 12 b of the Exchange Act and it is required to file periodic reports with the Commission pursuant to Section 13 of the Act.

Sales and allocation of revenues were initially booked by operating units, which did not use margin normalization. Despite this knowledge, Xerox routinely painted a false portrait of its financial condition in the periodic reports it filed with the Commission, as well as in quarterly earnings releases, financial reviews, and other financial summaries publicly issued by the company.

The complaint alleges that the failure to disclose the changes in accounting methods and estimates was fraudulent. Xerox's senior management was informed of the most material of these accounting actions and the fact that they were taken for the purpose of what the company called "closing the gap" to meet performance targets.

Neither Xerox management nor its outside auditor ever tested Xerox's claim that the top-side adjustments were necessary to arrive at the actual prevailing equipment finance rates appropriate to the customer. Xerox used the return-on-equity method to shift revenue to the "box" that the company had historically allocated to financing.

Xerox's financial reporting was materially misleading as a result of violations of GAAP and the failure to disclose material changes in accounting methods.

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Xerox's Accounting Scandal Recovery Tactics