Dell Under Investigation

The computer making company, Dell, has recently said that it will delay filling its
Fiscal second-quarter report due to a widening Securities and Exchange Commission investigation and its own probe into its financial accounting. Dell has also stated that it has been subpoenaed by the US attorney of New York over its financial reporting. This intensifying investigation is only one of the several setbacks dell is facing. Over the last year Dell has seen sales and profits slow, and competition increase. In addition, Dell had already been under investigation for issues related to accruals, reserves, and other balance sheet items. In Dell’s case, the company usually sets aside funds from current operations to cover the cost of future warranty claims. Outside accounting experts have said that Dell may be engaged in “cookie jar reserves.” This term is used when a company creates a rainy day fund by setting up excess provisions on its balance sheet for future expenses that it does not expect to incur. It can then dip into this fund during leaner times in order to create the appearance of profit.
In a report issued by accounting expert Albert Meyer, Dell used this cookie jar method to ad a possible increase of 5% to their earnings-per-share growth rate in 2006.
Shannon Cross, an analyst with cross research predicts that the news coverage of these and other issues at Dell will add “a layer of uncertainty” to their already plummeting stock.
San Diego Union Tribune. B4. 11/19/07