Thursday, November 16, 2006

SEC Goes Formal with Dell Accounting Investigation

Dell Inc. announced that it will postpone disclosure of its current financial results and that the SEC has upgraded its inquiry of the company's accounting to a formal investigation.  Dell disclosed in August 2006 (here) that the "SEC has requested information relating to revenue recognition and other accounting and financial reporting matters for certain past fiscal years."  The company downplayed the investigation earlier, stating that "[w]hile the company does not believe that these issues have had or will have any material impact on its financial position or the reported results of operations for the relevant years, the company's audit committee, upon the recommendation of management, has initiated an independent investigation."  No such disclaimer in the current press release (here): "The company also announced it has been informed that the SEC has entered a formal order of investigation. The delay in announcing earnings is not related to that development. Dell continues to cooperate with the SEC, and is committed to resolving all issues in connection with the investigation and regaining compliance with all SEC filing requirements as soon as possible."  It's still not clear exactly what the focus of the SEC investigation is, but a formal order gives the Enforcement Division staff the authority to issue subpoenas to compel testimony and the production of documents, so the case may involve third-party transactions.  Subpoenas will give some clue as to the time periods involved and the types of transactions under scrutiny, so information may leak out over the next few months.  (ph)

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