Keywords: Xerox, financial fraud, SEC, auditing procedures Financial Research - The Xerox Financial Research Xerox Financial Fraud Case Analysis 3 Introduction of Xerox Xerox Corporation is a global document management company which manufactures and sells a range of color and black-and-white printers, multifunction systems, photo copiers, digital production printing presses, and related consulting services and supplies. Its headquarters is in Norwalk, Connecticut, the scope of its business throughout the United States and other 130 countries. The company's shares are traded on the New York Stock Exchange and the Chi ago Stock
Exchange. In 2000, Xerox achieved a total income of $18. 7 billion, and its earnings per share were $1. 99, $2. 33 and $1. 95 through 1997 to 1999, respectively. Different from the rapid growth of World or Enron, Xerox has always kept an image of steady growth to the public. As a renowned multinational company, Xerox is the representative of Innovation Technology Company in America. Fraud Motivation Analysis: Xerox's financial fraud or primary motivation for benefits, due to several points: 1 . To meet the market's earnings expectations, prompting the company to maintain a good price trend.
To adjust the book profit by changing the accounting procedures. Illegally make profits early or delayed confirmation, in order to improve liquidity and transaction arrangements, these measures has a common direct goal which is to meet or exceed securities analysts' earnings forecasts and develop within the company's profitability targets. By meaner of these accounting 4 practices would inflate and mitigate the company's earnings, then help the company's share price maintained with a good trend. 2. To get the preservation of jobs for senior corporate managers and let them obtain high returns.
The reason why Xerox use accounting manipulation measures to achieve the performance of the company within the company profit targets and market expectations, mainly because it relates to the vital interests of the company's management, including the paid and the position. Just because it was depend on the results of company's operating revenue and the share income which directly relate to the stock price, the company's management tries its best to reap high returns with the usage of illegal accounting treatment. Except for the compensation, the Job security is one of the other motivations.
Due to the market competition, management people who without excellent performance would facing the risk of dismissal, while accounting profit is an important indicator of performance evaluation of the management, the management has a full motivation for the preservation of Jobs by manipulating accounting profits. 3. Agencies try to retain the PIP customers and to obtain from a huge service income. Lured by the huge profits, KEMP 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 meaner 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 Street's expectations.
In addition, Xerox specifically adopted the measures of "return on equity" and "profits standardized" to 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. "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. 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 assure. In the U. S. Capital markets, various violation of reserve especially refers to as a reservoir or buffer for the preparation of reporting the company's performance. And Xerox to prepare their own violation of reserve mainly relies on the following measures: "manipulation of tax revenue" and "amortize ready'.
In short, the accounting techniques used by Xerox violated the generally accepted accounting principles (GAP). Revenues were inaccurately assigned to time periods in which they were not yet received, which resulted in inflated revenues, and also provided investors with inaccurate information pertaining to the company's income/assets. It was reported that management was aware of and even approved these accounting methods. 3. Other ways of accounting operations: a. Randomly increase the rental equipment's net residual value b.
Raise the rental prices and leasing renewal period c. In advance to confirm the revenue of contract regards rental income portfolio return d. To approve the account receivables with discounting business. Financial Research - The Xerox Fraud consequence analysis: 1 . Self-influence: directly results to Xerox's bankruptcy. Since 1906, Xerox has kept a steady growth and for decades, Xerox created so many myths, it has been called as "copiers of 6 the King", or a veteran of 500 companies within the nation, or "the most reliable 50 enterprises. But in the later of ass's, Xerox's technology began to fall behind and eventually squeezed in the United States and descended from the first chair, lost 1/3 of the market, coupled with short-term maturity of the bonds, cash debt, with a full- blown crisis, the company's revenue continued to be declining, profits decreased rapidly. And because of the financial fraud, Xerox ultimately goes to bankruptcy. . Social Impact: Capital markets suffered a serious crisis of trust. The scandal greatly reduced investors' confidence and minimized the trust from all over the world to the American companies.
When Xerox's case came out, the company's stock plunged for 25% at the same day. Wall Street's Vanguard Group Founder John Boggle pointed out that this is a trust issue, which meaner the disclosed accounting figures would accurately reflect the reality, the company operates in a good faith, the Wall Street runs Justly, the investors do not be fooled, and without credibility, the capital markets could not run even. The U. S. Market has now reached a critical moment; there is a must for carrying out the reforms in order to gain sufficient number from investor's confidence.
Summary: The change of the century was marked with a number of accounting and ethics scandals that would significantly alter the importance of corporate ethics and compliance. During Xerox's post-scandal transformation, Serbians-Solely came into effect to improve financial and Financial Research - The Xerox accounting compliance. Today, Xerox has turned their practices around and secured a spot on numerous ethical company lists. So impasses must learn from the mistakes that other organizations have made in the past in order to avoid making similar ones in the future.