Xerox Financial Fraud Case Analysis Essay - 1620 Words

Financial Research – The Xerox 1 Financial Research Xerox Financial Fraud Case Analysis This paper was prepared for Auditing Procedures Financial Research – The Xerox Abstract On April 8th, 2002, the Xerox Corporation (Xerox) announced its willingness to accept the U.S. Securities and Exchange Commission (SEC) to reach a settlement with the conditions. Thereafter, its financial fraud became surfaced. On June 28th, Xerox Corporation in accordance with the requirements of the settlement, submitted the unaudited 1997-2000 restated annual financial statements to the SEC, and recognized fraud interest income of $6.4 billion, pre-tax profit of $1.4 billion (SEC thought that should be $1.5 billion) during this period, which sparked†¦show more content†¦Lured by the huge profits, KPMG who providing the accounting services for many years has surrendered its violations, lose the principles in the front of professional standards and ethics. 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, Financial Research – The Xerox and to make the current profit targets meet with Wall Streets expectations. In addition, Xerox specifically adopted the measures of return on equity and profits standardized to 5 overestimate the fair value of the leased asset. If the given book value of the leased asset, its fair value is greater, then the recognized sales profits with inception of the lease period will be greater. â€Å"The commission alleged that Xerox management accelerated the revenue recognition of leasing equipment over a four-year period by more than $3 billion, and inflated pre-tax earnings by $1.5 billion, to meet or exceed Wall Street expectations and hide its true operating performance.† 2. Manipulation of various violation of reserve. This is the second greatest Xerox accounting fraud measure. 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