Friday, March 30, 2007
Dell Inc. issued a press release that it will not be able to file its annual financials because of a continuing internal investigation of account problems, and its cryptic press release hints that the issues may involve violations of the federal securities laws. The press release (here) states, "The Audit Committee’s investigation has identified a number of accounting errors, evidence of misconduct, and deficiencies in the financial control environment. The Audit Committee is working with management and the company’s independent auditors to determine whether the accounting errors necessitate any restatements of prior period financial statements, and to assess whether the control deficiencies constitute a material weakness in Dell’s internal control over financial reporting." (Italics added) Notice how the mention of "evidence of misconduct" gets slipped into the middle of the recounted issues, and there is no further discussion of what that misconduct entails, or whether it was intentional. Dell has not discussed the particular accounting issues it faces, but the computer industry has seen problems related to revenue recognition issues, such as timing or the proper treatment of reserves.
The SEC has been investigating Dell, and surely it will be interested in hearing about any improprieties. Perhaps more ominiously, such a statement may well draw the interest of federal prosecutors because of the size of Dell and the deterrent effect a case could have. The company's disclosure gives only the bare minimum, so look for details to emerge over the next few weeks as Dell pushes to complete its annual audit so that it does not risk possible delisting from NASDAQ for filing tardy reports. (ph)