Xerox Essay example

Words: 5955
Pages: 24

American Accounting Association
DOI: 10.2308/iace.2011.26.1.219

Vol. 26, No. 1
pp. 219–240

Xerox, Inc.
Edward Seipp, Sean Kinsella, and Deborah L. Lindberg
ABSTRACT: This audit case examines an interesting real-life instance of financial statement manipulation by a client ͑Xerox, Inc.͒ and the related audit failure by the audit firm ͑KPMG͒. The facts of this case are drawn from several SEC Accounting Enforcement and Administrative Proceedings Releases. Learning objectives specific to this case include an increased awareness of the importance of reserves, including when their use is appropriate or inappropriate; better understanding of the role of a concurring partner; improved perception of when
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During the period 1997–1999, Romeril, Philip
Fishbach, Xerox’s corporate Controller, and Daniel Marchibroda, the Assistant Controller who reported to Fishbach, released $415 million of reserves held in the cookie jar to “close the gap” between actual results and analysts’ expectations ͑SEC 2003a͒. Gregory Tayler, who served in various capacities of Xerox management during this time, participated in the release of $100 million of these reserves. Exhibit 1 summarizes the key personnel involved in this case for both
Xerox and KPMG.
Reserves were tracked on schedules prepared by employees in Fishbach’s office. Marchibroda and Fishbach reviewed these schedules quarterly and released the reserves, as needed, to meet the projected earnings for the quarter. Romeril received copies of these schedules as well as schedules prepared by the independent auditors that tracked the reserve balances on a quarterly and annual basis. The “cookie jar” contained 22 reserves ͑SEC 2005a͒, including:

Issues in Accounting Education
American Accounting Association

Volume 26, No. 1, 2011


Xerox, Inc.

Xerox, Inc.

Source: SEC (2005a).

• The Rank Reserve. In 1997, Xerox purchased the remaining 20 percent interest that the
Rank Group plc held in Rank Xerox Ltd., making Xerox the sole owner.2 At the time of the purchase and at KPMG’s suggestion,