Dell accounting probe finds possible 'misconduct'

The company will delay its annual report as the investigation continues into its accounting practices.

Dell's internal investigation into accounting problems has found "evidence of misconduct," the company said Thursday, and therefore it will delay the release of its annual report.

The Securities and Exchange Commission is also looking into Dell's accounting practices over the last several years, poking around the company's methods for recognizing revenue and reserve accounts, among other things. Dell has released only preliminary earnings results and has canceled conference calls with financial analysts and the media as it attempts to sort out the mess, which could require it to restate earnings for prior periods.

"The Audit Committee's investigation has identified a number of accounting errors, evidence of misconduct, and deficiencies in the financial control environment," Dell said in a press release. The two men in charge of Dell's finances over the last several years, former CEO Kevin Rollins and former CFO Jim Schneider, have both left the company in recent months.

A Dell representative said the company was unable to comment beyond its press release.

The ongoing investigation threatens to derail much of the turnaround work that Michael Dell has undertaken since returning to the helm of the company he founded. Several new executives have set up shop at Dell as the company attempts to recover from problems ranging from poor customer service to market share losses.

It's not known specifically what type of accounting practices are at issue in the investigation, but last September Dell said it might have improperly recorded its financial position concerning "accruals, reserves and other balance sheet items." Accruals are items on a balance sheet for which a company hasn't yet distributed or acquired cash, such as accounts receivable or accounts payable. They also include items like goodwill, where a company assigns a numerical value to an asset that doesn't otherwise have a tangible value, such as a brand.

Last year analyst firm Friedman Billings Ramsey criticized the way Dell accounted for warranties, saying the company used an "unusual" method for accounting for the money it takes in from warranty sales and the money it reserves to handle expected warranty claims. Dell has not specifically addressed the issue of warranty accruals in its public statements and filings with the SEC.

Dell was supposed to file its annual report by April 3, but it will be unable to meet that deadline or the extended deadline of April 18. The company also said that as of today executives and directors have been cut off from buying or selling the company's stock until the required reports have been filed with the SEC.

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