Dell 2006 Annual Report Download - page 75

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Summary of Investigation Findings
The investigation raised questions relating to numerous accounting issues, most of which involved adjustments to various
reserve and accrued liability accounts, and identified evidence that certain adjustments appear to have been motivated by
the objective of attaining financial targets. According to the investigation, these activities typically occurred in the days
immediately following the end of a quarter, when the accounting books were being closed and the results of the quarter were
being compiled. The investigation found evidence that, in that timeframe, account balances were reviewed, sometimes at the
request or with the knowledge of senior executives, with the goal of seeking adjustments so that quarterly performance
objectives could be met. The investigation concluded that a number of these adjustments were 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, as well as 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. The investigation found that sometimes
business unit personnel did not provide complete information to corporate headquarters and, in a number of instances,
purposefully incorrect or incomplete information about these activities was provided to internal or external auditors.
The investigation identified evidence that accounting adjustments were viewed at times as an acceptable device to
compensate for earnings shortfalls that could not be closed through operational means. Often, these adjustments ranged
from several hundred thousand to several million dollars, in the context of a company with annual revenues ranging from
$35.3 billion to $55.8 billion and annual net income ranging from $2.0 billion to $3.6 billion for the periods in question. The
errors and irregularities identified in the course of the investigation revealed deficiencies in Dell's accounting and financial
control environment, some of which were determined to be material weaknesses, that require corrective and remedial
actions.
Other Company Identified Adjustments
Concurrently with the investigation, Dell also conducted extensive internal reviews for the purpose of the preparation and
certification of Dell's Fiscal 2007 financial statements and its assessment of internal controls over financial reporting. Dell's
procedures included expanded account reviews and expanded balance sheet reconciliations to ensure all accounts were
fully reconciled, supported, and appropriately documented. Dell also implemented improvements to its quarterly and annual
accounting close process to provide for more complete review of the various business unit financial results.
Restatement Adjustments
As a result of the issues identified in the Audit Committee independent investigation, as well as issues identified in additional
reviews and procedures conducted by management, the Audit Committee, in consultation with management and
PricewaterhouseCoopers LLP, concluded on August 13, 2007 that Dell's previously issued financial statements for Fiscal
2003, 2004, 2005, and 2006 (including the interim periods within those years), and the first quarter of Fiscal 2007, should no
longer be relied upon because of certain accounting errors and irregularities in those financial statements. Accordingly, Dell
has restated its previously issued financial statements for those periods. Restated financial information is presented in this
report.
The cumulative adjustments required to correct the errors and irregularities in the financial statements prior to Fiscal 2005
are reflected in the restated retained earnings as of the end of Fiscal 2004, as shown in the Statement of Stockholders'
Equity. The cumulative effect of those adjustments reduced retained earnings by $52 million at January 31, 2004.
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