Xerox - Accounting Irregularities

Accounting Irregularities

On April 11, 2002, the U.S. Securities and Exchange Commission filed a complaint against Xerox. The complaint alleged Xerox deceived the public between 1997 and 2000 by employing several "accounting maneuvers," the most significant of which was a change in which Xerox recorded revenue from copy machine leases – recognizing a "sale" when a lease contract was signed, instead of recognizing revenue over the entire length of the contract. At issue was when the revenue was recognized, not the validity of the revenue. Xerox's restatement only changed what year the revenue was recognized.

In response to the SEC's complaint, Xerox Corporation neither admitted nor denied wrongdoing. It agreed to pay a $10 million penalty and to restate its financial results for the years 1997 through 2000. On June 5, 2003, six Xerox senior executives accused of securities fraud settled their issues with the SEC and neither admitted nor denied wrongdoing. They agreed to pay $22 million in penalties, disgorgement, and interest.

On January 29, 2003, the SEC filed a complaint against Xerox's auditors, KPMG, alleging four partners in the "Big Five" accounting firm permitted Xerox to "cook the books" to fill a $3 billion "gap" in revenue and $1.4 billion "gap" in pre-tax earnings. In April 2005 KPMG settled with the SEC by paying a US$22.48 million fine. As part of the settlement KPMG neither admits nor denies wrongdoings. During settlement with the Securities and Exchange Commission, Xerox began to revamp itself once more. As a symbol of this transformation, the relative size of the word "Xerox" was increased in proportion to "The Document Company" on the corporate signature and the latter was dropped altogether in September-2004, along with the digital X. However, the digital X and "The Document Company" were still used by Fuji Xerox until April-2008.