Did Sir Isaac Newton and Gottfried Leibnitz Plagiarize?
Dr George Gheverghese Joseph from The University of Manchester says the 'Kerala School' identified the 'infinite series'- one of the basic components of calculus - in about 1350. The discovery is currently - and wrongly - attributed in books to Sir Isaac Newton and Gottfried Leibnitz at the end of the seventeenth centuries. The team from the Universities of Manchester and Exeter reveal the Kerala School also discovered what amounted to the Pi series and used it to calculate Pi correct to 9, 10 and later 17 decimal places. And there is strong circumstantial evidence that the Indians passed on their discoveries to mathematically knowledgeable Jesuit missionaries who visited India during the fifteenth century. That knowledge, they argue, may have eventually been passed on to Newton himself. Dr Joseph made the revelations while trawling through obscure Indian papers for a yet to be published third edition of his best selling book 'The Crest of the Peacock: the Non-European Roots of Mathematics' by Princeton University Press.
"Indians predated Newton 'discovery' by 250 years ," PhysOrg, August 14, 2007 --- http://physorg.com/news106238636.html

Bob Jensen's threads on plagiarism are at http://www.trinity.edu/rjensen/Plagiarism.htm

Question
Guess which parents most strongly object to grade inflation?
Hint: Parents Say Schools Game System, Let Kids Graduate Without Skills

The Bredemeyers represent a new voice in special education: parents disappointed not because their children are failing, but because they're passing without learning. These families complain that schools give their children an easy academic ride through regular-education classes, undermining a new era of higher expectations for the 14% of U.S. students who are in special education. Years ago, schools assumed that students with disabilities would lag behind their non-disabled peers. They often were taught in separate buildings and left out of standardized testing. But a combination of two federal laws, adopted a quarter-century apart, have made it national policy to hold almost all children with disabilities to the same academic standards as other students.
John Hechinger and Daniel Golden, "Extra Help:  When Special Education Goes Too Easy on Students," The Wall Street Journal, August 21, 2007, Page A1 ---  http://online.wsj.com/article/SB118763976794303235.html?mod=todays_us_page_one

Bob Jensen's threads on grade inflation are at http://www.trinity.edu/rjensen/Assess.htm#GradeInflation

Dirty Tricks Played on Job Seekers
Job hunters using Monster.com, the employment Web site owned by Monster Worldwide, received fake job offers by e-mail that asks for their Bank of America account information. The e-mail contains personal information collected when hackers tricked Monster.com customers into downloading a virus in a fake job-seeking tool, according to researchers at Symantec, the world's biggest maker of security software.
Rochelle Garner, "Monster.com Users Get Fake Offers And Request," The Washington Post, August 23, 2007, Page D04 --- Click Here

Question
Where are the next frontiers of installing malicious viruses on your computer?
What video sites are the most likely places to catch these bad viruses?

Answer
Since email users have become more cautious about opening email, the next frontiers are bound to be popular downloads outside of email. These include videos and wikis. The most likely place to catch these bad viruses are porn sites, particularly the many porn sites maintained by Russians and former Eastern Bloc countries. But there are many other dangerous porn sites as well.

"Online video players could become new vehicle for malicious code," MIT's Technology Review, October 2, 2007 --- http://www.technologyreview.com/Wire/19469/?nlid=578

Online videos aren't just for bloopers and rants -- some might also be conduits for malicious code that can infect your computer.

As anti-spam technology improves, hackers are finding new vehicles to deliver their malicious code. And some could be embedded in online video players, according to a report on Internet threats released Tuesday by the Georgia Tech Information Security Center as it holds its annual summit.

The summit is gathering more than 300 scholars and security experts to discuss emerging threats for 2008 -- and their countermeasures.

Among their biggest foes are the ever-changing vehicles that hackers use to deliver ''malware,'' which can silently install viruses, probe for confidential info or even hijack a computer.

''Just as we see an evolution in messaging, we also see an evolution in threats,'' said Chris Rouland, the chief technology officer for IBM Corp.'s Internet Security Systems unit and a member of the group that helped draft the report. ''As companies have gotten better blocking e-mails, we see people move to more creative techniques.''

With computer users getting wiser to e-mail scams, malicious hackers are looking for sneakier ways to spread the codes. Over the past few years, hackers have moved from sending their spam in text-based messages to more devious means, embedding them in images or disguised as Portable Document Format, or PDF, files.

''The next logical step seems to be the media players,'' Rouland said.

There have only been a few cases of video-related hacking so far.

One worm discovered in November 2006 launches a corrupt Web site without prompting after a user opens a media file in a player. Another program silently installs spyware when a video file is opened. Attackers have also tried to spread fake video links via postings on YouTube.

That reflects the lowered guard many computer users would have on such popular forums.

''People are accustomed to not clicking on messages from banks, but they all want to see videos from YouTube,'' Rouland said.

Another soft spot involves social networking sites, blogs and wikis. These community-focused sites, which are driving the next generation of Web applications, are also becoming one of the juiciest targets for malicious hackers.

Computers surfing the sites silently communicate with a Web application in the background, but hackers sometimes secretly embed malicious code when they edit the open sites, and a Web browser will unknowingly execute the code. These chinks in the armor could let hackers steal private data, hijack Web transactions or spy on users.

Tuesday's forum gathers experts from around the globe to ''try to get ahead of emerging threats rather than having to chase them,'' said Mustaque Ahamad, director of the Georgia Tech center.

They are expected to discuss new countermeasures, including tighter validation standards and programs that analyze malicious code. Ahamad also hopes the summit will be a launching pad of sorts for an informal network of security-minded programmers.

"Online Videos May Be Conduits for Viruses," by Greg Bluestein, The Washington Post, October 2, 2007 --- Click Here

Online videos aren't just for bloopers and rants _ some might also be conduits for malicious code that can infect your computer.

As anti-spam technology improves, hackers are finding new vehicles to deliver their malicious code. And some could be embedded in online video players, according to a report on Internet threats released Tuesday by the Georgia Tech Information Security Center as it holds its annual summit

The summit is gathering more than 300 scholars and security experts to discuss emerging threats for 2008 _ and their countermeasures.

Among their biggest foes are the ever-changing vehicles that hackers use to deliver "malware," which can silently install viruses, probe for confidential info or even hijack a computer.

"Just as we see an evolution in messaging, we also see an evolution in threats," said Chris Rouland, the chief technology officer for IBM Corp.'s Internet Security Systems unit and a member of the group that helped draft the report. "As companies have gotten better blocking e-mails, we see people move to more creative techniques."

With computer users getting wiser to e-mail scams, malicious hackers are looking for sneakier ways to spread the codes. Over the past few years, hackers have moved from sending their spam in text-based messages to more devious means, embedding them in images or disguised as Portable Document Format, or PDF, files.

Continued in article

Storm Worm:  The Perfect Email Storm

"The Worm That Roared," by Lev Grossman, Time Magazine, September 27, 2007 --- http://www.time.com/time/magazine/article/0,9171,1666279,00.html

During the week of Jan. 15, an innocuous-looking e-mail appeared in thousands of inboxes around the world. Its subject line read, "230 dead as storm batters Europe." The e-mail came with a file attached, bearing a plausible-sounding name like Full Story.exe or Read More.exe. Plenty of people clicked on it. After all, storms really were battering Europe at the time; that week high winds and rain had killed 14 in the U.K. alone. But all great cons have a grain of truth in them somewhere.

 

The file that arrived with the e-mail was, of course, a computer virus, immediately christened the Storm Worm by the Finnish computer security firm F-Secure, which was among the first to spot it. Since then, the Storm Worm has proved remarkably hard to kill. Nine months later, it's still out there, infecting something like a million computers worldwide. It's not the most damaging virus in history, but it may be the most sophisticated. Whoever created it is to viruses what Michelangelo was to ceilings.

The Storm Worm is a marvel of social engineering. Its subject line changes constantly. Whoever produced it--and its many later variants--has a lively feel for the seductive come-on and a thorough grounding in human nature. It preys on shock ("Saddam Hussein Alive!") and outrage ("A killer at 11, he's free at 21 and ...") and prurience ("Naked teens attack home director") and romance ("You Asked Me Why"). It mutates at a ferocious rate, constantly changing its size and tactics to evade virus filters, and finds evolving ways to exploit other online media like blogs and bulletin boards. Newer versions might contain, instead of a file, a single link to a fake YouTube page, which crashes your browser while quietly slipping the virus into your computer. "I've heard people talk about this like virus 2.0, just like people talk about Web 2.0, because it's so different from the traditional attacks," says Mikko Hypponen, chief research officer of F-Secure. "It's probably the largest collection of infected machines we've ever seen."

Like any good parasite, the Storm Worm doesn't kill its host. In fact, most of the victims--some of whom are undoubtedly reading this article--will never know their machines are infected. It doesn't cripple your computer (and can be removed once identified), but the Storm Worm does give its authors the power to quietly control your computer. What do they do with this power? Mostly they send out spam. Back in the day, computer viruses were a relatively innocent affair, written as pranks by teenagers with too much time on their hands between Star Wars sequels. Now they're written by organized criminals looking to make money from fake offers.

Nobody knows who's behind the Storm Worm. F-Secure suspects a group based in Russia, but there's no way to be sure, and recent Storm Worm subject lines referring to Labor Day and the start of the football season suggest that those involved have an American connection. What is certain is that they are very smart--prodigious innovators engaged in a cat-and-mouse game with security firms that so far they're winning. "I don't think these guys have day jobs," says Hypponen. "They're really active and really closely watching us. I don't see them stopping anytime soon."

It's also clear that they've been pulling their punches. Right now the Storm Worm gang controls a massive amount of computing power, as much as some of the world's largest supercomputers, and all they do with it is send out spam and conduct the occasional denial-of-service attack (bombarding a specific server with traffic until it shuts down). We're lucky: so far they haven't gone in for more lucrative, damaging activities like online gambling, stock scams and stealing passwords and credit-card information. Is it possible that even a worm can have a conscience?

Bob Jensen's threads on computing and networking security are at http://www.trinity.edu/rjensen/ecommerce/000start.htm

Bob Jensen's best advice at this point in time --- Buy a Mac!

Question
Why has whistleblower protection under the Sarbanes-Oxley Law failed so miserably?

Sarbox's whistleblower provisions were intended "to prevent recurrences of the Enron debacle and similar threats to the nation's financial markets" by protecting those who report fraudulent activity that could damage innocent investors. That was the intent, at least. The reality is something else. About 1,000 whistleblowing claims have been filed under Sarbox. Only 17 were determined after federal investigation to have merit and only six of this group have kept their wins after full evidentiary hearings before administrative law judges. Nevertheless, the plaintiffs bar and others have ready answers for this extremely poor batting average. Critics assert that the 90-day statute of limitation for filing whistleblower claims is too short, the burden of proof placed on complaining employees is too high, that judges are reading the law too narrowly, or even that, as one law professor testified, the whistleblower provisions have "has failed to protect the vast majority of employees who file a Sarbanes-Oxley claim" because they rarely win.
Michael Delikat, "Blowing the Whistle on Sarbox," The Wall Street Journal, August 23, 2007; Page A10 --- http://online.wsj.com/article/SB118783189154206113.html

Bob Jensen's threads on the sad state of whistleblower protections are at http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

Question
Why is SAS 99 fundamentally changing the role of the external auditor in detecting and disclosing fraud, including fraud that may not pass the materiality test as far as the aggregate financial statements are concerned?

Recent professional guidance, such as SAS 99, Consideration of Fraud in a Financial Statement Audit, and Public Company Accounting Oversight Board Auditing Standard 2, has brought more attention to the auditor's responsibility to uncover the warning signs of fraud, but there is still some ambiguity about where the auditor's responsibility ends and the fraud examiner's begins.
AccountingWeb, September 2007 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=104036

Consider this scenario: A staff auditor reviewed various accrual accounts during a routine audit. He uncovered 10 manual entries made after the quarter's close that lacked sufficient supporting documentation and that significantly reduced the reserve balance for each account. The auditor reviewed the entries in the system and found the same explanation for each reduction: "reduce accrual by $1.5 million, per John Davies, corporate controller." The total amount of reductions came to $15 million, and was material to the financial statements of the company.

The auditor brought this information to the audit manager, who advised him to discuss the entries with the corporate controller. The controller provided verbal support for each entry. The auditor had no reason to disbelieve the controller, so he cited the lack of supporting documentation as an audit finding and completed the report. Six months later, news came out that the controller was adjusting various accrual accounts to manipulate earnings. The auditor was distraught about the situation, and questioned his or her conduct and the audit procedures. The audit manager was asked to explain why the audit team did not pursue the findings and press for supporting documentation. The controller was terminated, and the company underwent an investigation by the Securities and Exchange Commission (SEC). The auditor continued to wrestle with himself: "I'm an auditor, not an investigator….right?" Auditors and forensic accountants share common attributes, but their roles differ significantly. Sometimes it can be difficult for auditors to understand their responsibilities for fraud detection, investigation, and prevention. Generally, companies call in a fraud examiner to conduct an investigation once fraud is suspected, but the auditor is the person who initially finds the red flags of potential fraud.

The auditor's role in fraud detection has a long history of confusion and controversy. In 1892, the widely used auditing textbook A Practical Matter for Auditors, by Lawrence Dicksee, expressed the view that the objective of an audit was the detection of fraud, technical errors, and errors of principle. It stated, "the detection of fraud is the most important portion of the auditor's duties." Shortly thereafter, the auditor's role in fraud detection started to evolve. In an 1895 British court case (London and General Bank), the court ruled that it was the auditor's responsibility to report to shareholders all dishonest acts, but that the auditor could not be expected to uncover all fraud committed in a company, although they should conduct all audits with reasonable care. Fast-forward to the 21st Century. The nature of the auditor's responsibility to detect fraud is still the subject of confusion. For example, a 2003 study of prospective jurors conducted by Camico, a provider of CPA malpractice insurance, found that 74 percent of respondents believe audits are designed to uncover all types of fraud. In fact, according to a 2006 Association of Certified Fraud Examiners (ACFE) Report, Report to the Nation on Occupational Fraud and Abuse, only 12 percent of fraud is initially detected by external auditors, while 50 percent came from employee tips, 20 percent came from internal audits, and 19 percent was detected by internal controls.

Responsibilities

The management of public companies is required by PCAOB Auditing Standard 2 to develop and implement internal controls to prevent, detect, and deter incidents of fraud in financial reporting, and Section 404 of the Sarbanes-Oxley Act requires management to assess and report on the effectiveness of those internal controls on an annual basis.

Continued in article

Jensen Comment
External auditors are not even close to being the main source of initial detections of frauds. A much better source for early on fraud detection is a whistleblower within the organization being audited. The Sarbanes-Oxley Law in theory affords some protection for whistleblowers, but in reality SOX has been lousy at protecting whistleblowers --- http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing
Also see http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#BillAndHold

In general fraud examination is still fundamentally different from auditing in spite of SOX ---
http://www.amazon.com/Principles-Fraud-Examination-Joseph-Wells/dp/0471517089

Bob Jensen's threads on the professional responsibility of auditors are at http://www.trinity.edu/rjensen/Fraud001.htm#Professionalism

"The Six Signs of Internal Fraud," by Peter Goldmann --- http://accounting.smartpros.com/x59050.xml

However, we can see the signs of fraud, Albrecht said in a speech at the 18th Annual ACFE Fraud Conference. There are six signs in all organizations. By understanding them and looking for them, we significantly improve our chances of detecting and reporting fraud.

Accounting anomalies—representing such countless red flags as inventory shortages, unrecorded transactions, unusual levels of returns, etc.

Internal control weaknesses. These equate to opportunities for insiders to commit fraud. If you identify a weakness, chances are that someone will exploit it if they haven’t already.

Analytical symptoms. When a business function occurs at the wrong time, or is conducted by the wrong person or a similar operational anomaly occurs, chances are it is a sign of fraud.

Lifestyle symptoms. Employees living beyond their means is the most common. Smart internal fraudsters would steal and save. But most steal and spend. When you notice signs of extravagant lifestyle, you’re most likely looking at a sign of fraud.

Behavioral symptoms. People who stop looking you in the eye, sweat more than usual, come in earlier than usual and/or stay late should be monitored as potential fraudsters.

Tips and complaints. When employees report actual or suspected incidents of fraud among their co-workers or bosses, you’ve got good reason to start following up with a search for hard evidence.

Bob Jensen's threads on fraud detection and reporting are at http://www.trinity.edu/rjensen/FraudReporting.htm

Bill-and-Hold Revenue Recognition Tale
Anthony Menedez phoned me several times indicating that he thinks his tale would be interesting for accounting students to study. I think it would be an interesting series of events for a case writer to put into an educational case. The focus of the case, in my viewpoint, should be on a comparison of the KPMG article (quoted below) with the actual bill-in-hold transactions at Halliburton to force students to decide whether KPMG auditors and  Halliburton did or did not violate GAAP on these issues.

A financial press article is also quoted below:
Jonathan Weil, "Halliburton's Accounting Might Make You Wonder," Bloomberg News, July 21, 2007

The case has two really interesting questions:

1. What is the proper accounting (and auditing) for these transactions?
2. Is "whistleblower protection" under the Sarbanes-Oxley law an oxymoron?

June 24, 2007 message from Anthony Menendez [menendez.anthony@gmail.com]

Professor Jensen-

Hello. My name is Tony Menendez. I have enjoyed much of the information you have so generously provided on the web covering accounting issues and financial fraud. I thought you might find my Sarbanes-Oxley whistleblower case interesting. Just in case you have extra time and an interest, I am providing you with my contact information and links to some information concerning my case. I hope you are enjoying retirement but have not given up providing your insight into the ever so important area of accounting and financial fraud.

Sincerely,

Tony (713) 822 3764

Here are a few links to information you can find on the web concerning my case:

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_weil&sid=am_McfuM6i4o 

You can read Menendez's complaint in three parts (I, II, III) on the following website:
http://www.tpmmuckraker.com/archives/003500.php

Question
In accounting, what do the following terms mean and in what context?
bill-and-hold?
Ship-in-Place?

Answer
"Bill-and-Hold Transactions in the Oilfield Services Sector," John C. Christopher, KPMG LLP --- http://www.trinity.edu/rjensen/BillandHold.pdf

Determining and defining appropriate revenue recognition has been a primary focus of companies, regulators, standard setters, and auditors in recent years. Improper revenue recognition has been one of the leading causes of financial statement restatements. Perhaps no area of revenue recognition has received as much scrutiny as "bill-and-hold" transactions. Also known as "ship-inplace" transactions, these transactions generally refer to scenarios where revenue is recognized after a seller has substantially completed its obligations under an arrangement, but prior to the buyer, or a common carrier, taking physical possession of the goods.

Background In a recent interview, former SEC Chairman Arthur Levitt referred to recognizing revenue on bill-and-hold transactions as "hocus pocus accounting." He said, "Companies try to boost revenue by manipulating the recognition of revenue. Think about a bottle of wine.You wouldn't pop the cork on that bottle until it was ready. But some companies are doing this with their revenue --- recognizing it before the sale is complete, before the product is delivered to the customer, or at a time when the customer still has options to terminate, void, or delay the sale.

Although the bill-and-hold transaction is not a GAAP violation, unfortunately it has long been associated with incidents of financial fraud. In its October 2002 Report, the General Accounting Office (GAO) said that revenue recognition is the largest single issue involved in restatements. More than half of financial reporting frauds involve the overstatement of revenue, and restatements for revenue recognition have resulted in the largest drops in market capitalization compared with any other type of restatements. There remains an intense scrutiny around a company's revenue recognition principles for these types of transactions, and management and auditors should be unusually skeptical about the appropriateness of recording revenue for these transactions.

Bill-and-hold scenarios frequently arise in the oilfield services sector. It is important to note that the form. of these transactions is neither illegal nor unethical. In fact, most have very good business or economic purposes. For example, there is currently a trend in the oil and gas industry towards developing fields in the deep waters toward the Gulf of Mexico or other more remote locations throughout the world. Development plans for these large deepwater offshore fields. as well as remote onshore fields throughout the world, will commonly have long timelines; therefore, the oilfield service companies have long lead times for delivery of equipment and products. As the development plan gets under way, many of the original timelines and milestones will change along the way as information about the reservoir becomes better. However, many of the products that the oilfield services companies manufacture and deliver are extremely capital intensive and will be manufactured and ready for their fixed delivery dates without regard to any changes in the development plan. These products are generally very large built-tosuit equipment such as wellhead connection equipment and completion products.

There are certain criteria that companies must meet in order to recognize revenue on bill-and-hold transactions. These criteria relate to the risks of ownership. the commitment and request on the part of the buyer, the business purpose of the transaction, the delivery date, and the performance obligations, among others (these criteria are discussed in more detail in the next section). As an example, an oilfield services company may complete the manufacturing of the customer's requested products, have them shipped to a company-owned warehouse, determine a fixed delivery schedule to the customer's well site, obtain a legal acknowledgement from the customer that the risk of loss has been transferred, and have no additional obligations to perform such as installation of the equipment. All of this may take place prior to the particular point in the well development plan that calls for the installation of the product. In this example, the oilfield services company might (although only based on careful analysis of the SEC and FASB guidance related to bill-and-hold transactions) be able to recognize revenue immediately upon completing the manufacturing process and meeting all of the bill-and-hold revenue recognition criteria.

SEC and FASB Guidance on Revenue Recog'nition and Bill-and-Hold Arrangements
EITf- lssue 00.21: Multiple Elements in a bill-and-hold Arrangement

Companies must first apply the separation model described in ElTF lssue 00-21 , Revenue Arrangements with Multiple Deliveries, to determine the number of units of accounting in the bill-and-hold arrangement. Bill-and-hold arrangements in this industry can include both the sale of products and the performance of certain services, such as warehousing for the product if it is shipped to a company-owned warehouse. If the SEC staff's revenue recognition criteria (discussed in the next section) are met for the product element in the bill-and-hold arrangement, revenue may be recognized on the product element when the company has completed the product only if it is a separate unit of accounting, or if there are any services involved in the transaction (e.g., warehousing), and those services are inconsequential or perfunctory to one unit of accounting. The company may need to consider whether the services are a separate unit of accounting, if they are inconsequential or perfunctory, and whether there are other performance obligations yet to be performed in determining the appropriate revenue recognition policy for the entire arrangement.

Inconsequential or Perfunctory Element

According to SAB No. 104, Revenue Recognition, if the-undelivered element is both inconsequential or perfunctory and not essential to the functionality of the delivered element, it would be appropriate to recognize revenue on the arrangement at the time of delivery and accrue the cost of providing the services related to the undelivered element. However, if the undelivered element is neither inconsequential nor perfunctory or is essential to the functionality of the delivered element, the revenue for the delivered element should be deferred and recognized based on the accounting requirements of the undelivered element. The SEC's guidance on the determination of whether an element is inconsequential or perfunctory is related to whether that element is essential to the functionality of the delivered products.

In addition, remaining activities would not be inconsequential or perfunctory if failure to complete the activities would result in the customer receiving a full or partial refund or rejecting, or a right to a refund or to reject the products delivered. The SEC provided the following factors in SAB No.104, which are not all-inclusive, as indicators that a remaining performance obligation is substantive rather than inconsequential or perfunctory:

• The seller does not have a demonstrated history of completing the remaining tasks in a timely manner and reliably estimating their costs.
• The cost or time to perform the remaining obligations for similar contracts historically has varied significantly from one instance to another.
• The skills or equipment required to complete the remaining activity are specialized or are not readily available in the marketplace.
• The cost of completing the obligation, or the fair value of that obligation, is more than insignificant in relation to such items as the contract fee, gross profit, and operating income allocable to the unit of accounting.
• The period before the remaining obligation will be extinguished is lengthy.
• T he timing of payment of a portion of the sales price is coincident with completing performance of the remaining activity.

. . .

SEC Bill-and-Hold Criteria

The SEC has established specific criteria codified in SAB No. 104 that a seller of goods or equipment must meet to recognize revenue for a bill-and-hold transaction, including:

• The risks of ownership must have passed to the buyer.
• The buyer must have a commitment to purchase, preferably in written documentation.
•  The buyer, not the seller, must originate the request that the transaction be on a bill-and-hold basis.
• The buyer must have a substantial business purpose for ordering the goods or equipment on a bill-and-hold basis.
• Delivery must be for a fixed date and on a schedule that is reasonable and consistent with the buyer's purpose (this requirement will generally be difficult for an oilfield services company to meet due to the variable nature of the movement of timelines and milestones for oilfield development).
• The seller must not retain any significant specific performance obligations under the agreement such that the earnings process is not complete. The goods or equipment must be segregated from the seller's inventory and may not be subject to being used to fill other orders.
• The goods or equipment must be complete and ready for shipment.

The SEC emphasized that that the above criteria are not a simple checklist. A transaction might meet all of the criteria and still fail the revenue recognition guidelines . . .

Continued in article

Jensen Comment
Tony Menendez, while working for Halliburton, encountered what he considered a classic violation of GAAP for bill-an-hold transactions in Halliburton's oilfield operations. He says he first confronted his superiors in the company and then a KPMG auditor, who purportedly agreed with Tony on this issue. But Halliburton countered by saying that since "title passed," revenue could be recognized. The amount in terms of dollars was material in amount.

Since Halliburton did not restate its financial statements, or purportedly, its subsequent accounting for these transactions, Tony then took the added step of blowing the whistle with the SEC. The SEC purportedly turned it back to Halliburton for further internal investigation. Soon thereafter Tony Menendez became an unemployed whistle blower

Bill-and-Hold Revenue Recognition Tale
Anthony Menedez phoned me several times indicating that he thinks his tale would be interesting for accounting students to study. I think it would be an interesting series of events for a case writer to put into an educational case. The focus of the case, in my viewpoint, should be on a comparison of the KPMG article (quoted above) with the actual bill-in-hold transactions at Halliburton to force students to decide whether KPMG auditors at Halliburton did or did not violate GAAP on these issues.

By the way, Mr. Menedez is currently still unemployed and is considering applying for doctoral study in accountancy.

August 8, 2007 message from Anthony Menendez [menendez.anthony@gmail.com]

Please see attached. The very examples described by KPMG as bill-and-hold transactions at a company like Halliburton, were the same transactions, I also believed were bill-and-hold. Interestingly, Halliburton apparantly claims, that these transactions, are not, in fact bill-and-hold and thereby avoiding the bill-and-hold hold criteria which requires that the equipment is ready for its intended use, a fixed delivery date exists for the equipment, and that there are no ongoing obligations on the part of Halliburton ( e.g. installing the equipment and performing the necessary oilfield services, the typical services provided by an "oilfield service" company. Personally, I believe that Halliburton's claim is the most absurb argument I have ever seen and worse yet, I struggle to see how KPMG allows Halliburton to deviate from the very guidance it suggests to companies that are not "Halliburton" should apply. Enjoy.

Best Regards,
Tony

You can read Menendez's complaint in three parts (I, II, III) on the following website: ---
http://www.tpmmuckraker.com/archives/003500.php

Bob Jensen's threads on whistle blowing are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

Bob Jensen's threads on revenue reporting and frauds can be found at http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

Here's an older example of bill and hold fraud
Death by Accounting
To get companies to participate in a flu vaccine stockpile the government is dangling tons of new funding. Cash in hand is usually a very strong incentive. But a Clinton administration SEC policy prevents the vaccine makers from recognizing the revenue until the vaccine is delivered to the doctors, countering the very purpose of a stockpile. The Department of Health and Human Services' National Vaccine Advisory Committee concluded in early 2005 that for the stockpile program to be successful, "the revenue recognition issue must be resolved as soon as possible." It all began in late 1999, when the SEC issued "Staff Accounting Bulletin 101," which it painted as a modest clarification "not intended to change current guidance in the accounting literature." But in reality it was a radical change to the way companies could book revenue from "bill and hold" orders. This change would, at its least, lead to hindrances for innovative new companies. At its worst, it would discourage production of lifesaving products like vaccines.
John Berlau, "Death by Accounting?" The Wall Street Journal, October 21, 2005 --- http://online.wsj.com/article/SB112985642561675193.html?mod=opinion&ojcontent=otep

SEC SAB 101 "Revenue Recognition in Financial Statements" --- http://www.sec.gov/interps/account/sab101.htm

Anthony Menendez, who was Halliburton's director of technical accounting research and training, has accused the world's second-largest oilfield-services company of using so- called bill-and-hold accounting and other undisclosed practices to ``distort the timing of billions of dollars in revenue.'' In short, Menendez says this allowed Halliburton to book product sales improperly, before they occurred.
Jonathan Weil, "Halliburton's Accounting Might Make You Wonder," Bloomberg News, July 21, 2007 --- Click Here

The allegations are part of a 54-page complaint Menendez filed against Halliburton with a Labor Department administrative- law judge in Covington, Louisiana, who released the records in response to a Freedom of Information Act request. Menendez, who resigned last year and is seeking unspecified damages, says Halliburton retaliated against him in violation of the Sarbanes- Oxley Act's whistleblower provisions after he reported his concerns to the Securities and Exchange Commission and the company's audit committee.

Halliburton has denied the allegations. A company spokeswoman, Cathy Mann, says Halliburton's audit committee ``directed an independent investigation'' and ``concluded that the allegations were without merit.'' She declined to comment on bill-and-hold issues, and Halliburton's court filings in the case don't provide any details about its accounting practices.

Menendez, a 36-year-old former Ernst & Young LLP auditor, filed his complaint in December, shortly after a Labor Department investigator in Dallas rejected his retaliation claim. Mann says the company expects to prevail at trial.

Cause of Concern

Investors, of course, will care more about the reliability of Halliburton's numbers than whether Menendez wins. And a look at internal Halliburton documents Menendez filed with the court suggests there's reason for concern.

Here's how Menendez, who reported to Halliburton's chief accounting officer, summed up the bill-and-hold issue in his complaint:

``For example, the company recognizes revenue when the goods are parked in company warehouses, rather than delivered to the customer. Typically, these goods are not even assembled and ready for the customer. Furthermore, it is unknown as to when the goods will be ultimately assembled, tested, delivered to the customer and, finally, used by the company to perform the required oilfield services for the customer.''

If true, that would violate generally accepted accounting principles. For companies to recognize revenue before delivery, ``the risks of ownership must have passed to the buyer,'' the SEC's staff wrote in a 2003 accounting bulletin. There also ``must be a fixed schedule for delivery of the goods,'' and the product ``must be complete and ready for shipment,'' among other things.

`Terribly Flawed'

Shortly after joining Halliburton in March 2005, Menendez says he discovered a ``terribly flawed'' flow chart on the company's in-house Web site, called the Bill and Hold Decision Tree. The flow chart, a copy of which Menendez included in his complaint, walks through what to do in a situation where a ``customer has been billed for completed inventory which is being stored at a Halliburton facility.''

First, it asks: Based on the contract terms, ``has title passed to customer?'' If the answer is no -- and here's where it gets strange -- the employee is asked: ``Does transaction meet all of the `bill and hold' criteria for revenue recognition?'' If the answer to that question is yes, the decision tree says to do this: ``Recognize revenue.'' The decision tree didn't specify what the other criteria were.

At Odds

In other words, Halliburton told employees to recognize revenue even though the company still owned the product.

You don't have to be an accountant to see the problem.

``The policy in the chart is clearly at odds with generally accepted accounting principles,'' says Charles Mulford, a Georgia Institute of Technology accounting professor, who reviewed the court records. ``It's very clear cut. It's not gray.''

Bill-and-hold was at the heart of Sunbeam Corp.'s collapse in the late 1990s, and later blowups at Qwest Communications International Inc. and Nortel Networks Corp.

It is possible to use bill-and-hold and comply with the rules. But it's hard. The customer, not the seller, must request such treatment. The customer also must have a compelling reason for doing so. Customers rarely do.

SEC Inquiry

Menendez, who now works as a consultant, also accuses Halliburton of improper accounting for income taxes, off-balance- sheet entities and foreign-currency adjustments. Court records show he first alerted the SEC's enforcement division in November 2005, three months before he complained to Halliburton's audit committee.

In a Jan. 3 court filing, Halliburton said the SEC had closed its inquiry into the company's accounting practices.

Menendez told me, though, that he met with SEC investigators at the agency's Fort Worth, Texas, office as recently as March 28. He also shared a March 14 letter from an enforcement-division attorney there, which shows the travel itinerary the SEC arranged for him to attend that meeting. Mann, the Halliburton spokeswoman, declined to comment on whether the company has been notified of further SEC inquiries into Menendez's allegations.

Halliburton seemed to quell doubts about its books back in August 2004, when it paid $7.5 million to settle a two-year SEC probe. The agency faulted Halliburton's disclosures, but not its accounting. As long as investors trust a company's profits, they generally don't care how the company earns them. If they begin to suspect they shouldn't, though, look out.

Bob Jensen's threads on whistle blowing are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

Bob Jensen's threads on revenue reporting and frauds can be found at http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

SEC SAB 101 "Revenue Recognition in Financial Statements" --- http://www.sec.gov/interps/account/sab101.htm

Question
Why doesn't Section 401 of the Sarbanes-Oxley Act apply to attestation of internal controls in the World Bank?

"World Bank Reckoning," The Wall Street Journal, September 13, 2007; Page A16 --- http://online.wsj.com/article/SB118964274677625838.html

Since we're talking about the world's second most out-of-control international bureaucracy -- no prizes for guessing the first -- we shouldn't get our hopes up. But in the past week some prominent outsiders have been forcing the World Bank to reckon with the alien concept of accountability. Now it's up to new bank President Robert Zoellick to see that their efforts bear fruit.

First up is former Federal Reserve Chairman Paul Volcker. For the past five months, Mr. Volcker and a panel of international experts have been conducting an independent review of the Department of Institutional Integrity, the bank's anticorruption unit known internally as the INT. Their report, which readers can find on OpinionJournal.com, is being released to the public today.

In sober and measured terms, Mr. Volcker's report provides a devastating indictment of what it calls the bank's "ambivalence" toward both corruption and its own anticorruption unit. "There was then, and remains now, resistance among important parts of the Bank staff and some of its leadership to the work of INT," the report says (our emphasis).

It goes on to say that, "Some resistance is more parochial. There is a natural discomfort among some line staff, who are generally encouraged by the pay and performance evaluation system to make loans for promising projects, to have those projects investigated ex post, exposed as rife with corruption, creating an awkward problem in relations with borrowing clients." To put it more plainly, the report is saying that every incentive at the bank is to push more money out the door, and bank employees hate the anticorruption effort because it interferes with that imperative.

The report endorses the work of the INT, which was created a mere six years ago and which has been under what it calls a "particularly strong" institutional attack ever since. The INT, the Volcker panel says, "is staffed by competent and dedicated investigators who work hard and long hours with professionalism" and deploy "advanced investigative methods to detect and substantiate allegations of fraud and corruption." And it goes on to recommend that the anticorruption crusaders "should be nurtured and maintained as an exemplary investigative organization" within the bank.

In a phone interview yesterday, Mr. Volcker added that he gives "high marks" to current INT director Suzanne Rich Folsom. Mr. Volcker's endorsement should stop cold the recent attempts by some in the bank's entrenched bureaucracy to run Ms. Folsom out of the bank, as they did Paul Wolfowitz.

The bank is also being put on notice by the U.S. Senate through provisions in its foreign operations appropriations bill. The provision threatens to withhold 20% of U.S. funds to the bank's International Development Association arm (which provides interest-free loans to the world's poorest countries) until it is assured that the bank "has adequately staffed and sufficiently funded the Department of Institutional Integrity." The bill also demands that the bank provide "financial disclosure forms of all senior World bank personnel." Now, that will get the bureaucracy's attention.

Notably, it's a Democrat -- Evan Bayh of Indiana -- who's taken the lead on this issue. Mr. Bayh has ordered a Government Accountability Office report on the effectiveness of IDA loans and their susceptibility to corruption, the bank's procurement procedures, as well as the legendary pay packages enjoyed by its senior management. "There's a tendency [at the bank] to say 'just give us the money and go away,'" the Senator told us by phone yesterday. "Until there are some tangible consequences, they won't take us seriously. We shouldn't let that happen."

Continued in article

Bob Jensen's "Rotten to the Core" threads are at http://www.trinity.edu/rjensen/FraudRotten.htm

Note that there's a pretty good summary of the Sarbanes-Oxley Act at http://en.wikipedia.org/wiki/Sarbanes-Oxley

Graft in Military Contracts Spread From Base
Less than 24 hours later Major Cockerham was behind bars, accused of orchestrating the largest single bribery scheme against the military since the start of the Iraq war. According to the authorities, the 41-year-old officer, with his wife and a sister, used an elaborate network of offshore bank accounts and safe deposit boxes to hide nearly $10 million in bribes from companies seeking military contracts. The accusations against Major Cockerham are tied to a crisis of corruption inside the behemoth bureaucracy that sustains America’s troops. Pentagon officials are investigating some $6 billion in military contracts, most covering supplies as varied as bottled water, tents and latrines for troops in Kuwait, Iraq and Afghanistan.
Ginger Thompson and Eric Schmitt, The New York Times, September 24, 2007 --- http://www.nytimes.com/2007/09/24/world/middleeast/24contractor.html

While it won't sue Apple for Nancy Heinen's alleged backdating of options, the SEC does want to talk to CEO Steve Jobs, most likely about the timing of events
Though Apple (AAPL) was given a clean bill of health by regulators over its involvement in the backdating of stock options, the investigation of a former executive continues to dog Chief Executive Steve Jobs. Securities & Exchange Commission lawyers suing former Apple General Counsel Nancy Heinen over her alleged role in the matter have issued subpoenas to Jobs. The SEC has said it won't sue Apple over the backdating of grants, praising the company for its cooperation with the investigation. Attorneys say the company and current executives are unlikely to face criminal charges from the Justice Dept. or civil charges from the SEC.
Arik Hesseldahl, "SEC Subpoenas Jobs On Backdating," Business Week, September 20, 2007 --- http://www.businessweek.com/technology/content/sep2007/tc20070920_913875.htm?link_position=link2

Bob Jensen's threads on options backdating are at http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm

IRS "Member Satisfaction Survey" is a Scam
The Internal Revenue Service has issued a consumer alert regarding a new, two-step e-mail scam that falsely promises recipients they will receive $80 for participating in an online customer satisfaction survey. In the scam, an unsuspecting taxpayer receives an unsolicited e-mail that appears to come from the IRS. The e-mail contains a URL linking to an online "Member Satisfaction Survey."
AccountingWeb, August 31, 2007 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=103950

August 31, 2007 reply from Ganesh M. Pandit, [profgmp@HOTMAIL.COM]

Today I received an email asking me to log on to a site in order to claim my income tax "refund"...$109.30! Just for fun, I clicked on the link given and was taken to a screen that asked for my name, SSN, birthdate, debit card number, PIN, expiration date and secret 3-digit code on the back of the card! :)

Of course, if you put your cursor over the link given in the scam email message, you can see the underlying "fake" web site location.

Ganesh

Bob Jensen's threads on tax scams are at http://www.trinity.edu/rjensen/FraudReporting.htm#TaxScams

Bob Jensen's tax helpers are at http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation

CPA auditors have always considered their primary role as attesting to full and fair corporate disclosures to investors and creditors under Generally Accepted Accounting Principles (GAAP). Now it turns out that this extends, perhaps unexpectedly, to the government as well.

"How Accounting Rule (FIN 48) Led to Probe Disclosure of Tax Savings Firms Regard as Vulnerable Leaves Senate Panel a Trail," by Jesse Drucker, The Wall Street Journal, September 11, 2007; Page A5 ---
http://online.wsj.com/article/SB118947026768923240.html?mod=todays_us_page_one

The probe, by the Senate's Permanent Subcommittee on Investigations, appears to have been sparked by an accounting rule known as FIN 48, which took effect in January. The rule for the first time requires companies to disclose how much they have set aside to pay tax authorities if certain tax-cutting transactions are successfully challenged by the government. The disclosures require companies to attach a dollar figure to tax-savings arrangements they think could be vulnerable.

Although intended to inform investors, the disclosures also serve as a kind of road map for government authorities, guiding them to companies that may have taken an aggressive stance on tax-related arrangements.

The probe, by the Senate's Permanent Subcommittee on Investigations, appears to have been sparked by an accounting rule known as FIN 48, which took effect in January. The rule for the first time requires companies to disclose how much they have set aside to pay tax authorities if certain tax-cutting transactions are successfully challenged by the government. The disclosures require companies to attach a dollar figure to tax-savings arrangements they think could be vulnerable.

Although intended to inform investors, the disclosures also serve as a kind of road map for government authorities, guiding them to companies that may have taken an aggressive stance on tax-related arrangements.

The FIN 48 disclosures generally reveal how much a company has set aside in an accounting reserve called "unrecognized tax benefits." The reserve represents the portion of the tax benefits realized on a company's tax return that also hasn't been recognized in its financial reporting.

In the letters, sent Aug. 23, Senate investigators seek to obtain more details about the underlying transactions in the FIN 48 disclosures. One letter viewed by The Wall Street Journal asks the companies to "describe any United States tax position or group of similar tax positions that represents five percent or more of your total [unrecognized tax benefit] for the period, including in the description of each whether the tax position involved foreign entities or jurisdictions."

The subcommittee, led by Sen. Carl Levin (D., Mich.), has held numerous hearings on tax shelters, tax avoidance, and the law firms and accounting firms that set up such structures.

The Senate's inquiry also includes questions about other tax-cutting arrangements. For tax-cutting transactions on which companies spent at least $1 million for legal fees or other costs, Senate investigators are asking companies to identify the amount of the tax benefit, as well as "the tax professional(s) who planned or designed the transaction or structure and the law firm(s) that authored the tax opinion or advice."

Continued in article

Tutorial:  FIN 48 from different perspectives
Financial Accounting Standards Board Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, is intended to substantially reduce uncertainty in accounting for income taxes. Its implementation and infrastructure requirements, however, generate a great deal of uncertainty. This feature provides an overview of FIN 48, addresses some of its federal and international tax issues, as well as issues arising at the state and local level.
AccountingWeb, June 2007 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=103625

From The Wall Street Journal Accounting Weekly Review on June 1, 2007

Bob Jensen's threads on FIN 48 are at http://www.trinity.edu/rjensen/Theory01.htm#FIN48

Now Here is a Sad Example of Terrible Internal Control
A small South Carolina parts supplier collected about $20.5 million over six years from the Pentagon for fraudulent shipping costs, including $998,798 for sending two 19-cent washers to a Texas base, U.S. officials said. The company also billed and was paid $455,009 to ship three machine screws costing $1.31 each to Marines in Habbaniyah, Iraq, and $293,451 to ship an 89-cent split washer to Patrick Air Force Base in Cape Canaveral, Florida, Pentagon records show. The owners of C&D Distributors in Lexington, South Carolina -- twin sisters -- exploited a flaw in an automated Defense Department...
Tony Capaccio , "Pentagon Paid $999,798 to Ship Two 19-Cent Washers to Texas," Yahoo News, August 16, 2007 --- http://news.yahoo.com/s/bloomberg/20070816/pl_bloomberg/ajkoyhuchw0m 

The company also billed and was paid $455,009 to ship three machine screws costing $1.31 each to Marines in Habbaniyah, Iraq, and $293,451 to ship an 89-cent split washer to Patrick Air Force Base in Cape Canaveral, Florida, Pentagon records show.

The owners of C&D Distributors in Lexington, South Carolina -- twin sisters -- exploited a flaw in an automated Defense Department purchasing system: bills for shipping to combat areas or U.S. bases that were labeled ``priority'' were usually paid automatically, said Cynthia Stroot, a Pentagon investigator.

C&D's fraudulent billing started in 2000, Stroot, the Defense Criminal Investigative Service's chief agent in Raleigh, North Carolina, said in an interview. ``As time went on they got more aggressive in the amounts they put in.''

The price the military paid for each item shipped rarely reached $100 and totaled just $68,000 over the six years in contrast to the $20.5 million paid for shipping, she said.

``The majority, if not all of these parts, were going to high-priority, conflict areas -- that's why they got paid,'' Stroot said. If the item was earmarked ``priority,'' destined for the military in Iraq, Afghanistan or certain other locations, ``there was no oversight.''

Scheme Detected

The scheme unraveled in September after a purchasing agent noticed a bill for shipping two more 19-cent washers: $969,000. That order was rejected and a review turned up the $998,798 payment earlier that month for shipping two 19-cent washers to Fort Bliss, Texas, Stroot said.

The Pentagon Defense Logistics Agency orders millions of parts a year. Stroot said the agency and the Defense Finance and Accounting Service, which pays contractors, have made major changes, including thorough evaluations of the priciest shipping charges.

A review of paid shipping invoices showed that fraudulent billing is ``is not a widespread problem,'' she said.

``C&D was a rogue contractor,'' Stroot said. While other questionable billing has been uncovered, nothing came close to C&D's, she said. The next-highest contractor billed $2 million in questionable transport costs, she said.

Guilty Pleas

C&D and two of its officials were barred in December from receiving federal contracts. A federal judge in Columbia, South Carolina, today accepted the guilty plea of the company and one sister, Charlene Corley, to one count of conspiracy to commit wire fraud and one count of conspiracy to launder money, Assistant U.S. Attorney Kevin McDonald said.

Corley, 46, faces a maximum prison sentence of 20 years on each count and will be sentenced in the near future, McDonald said in a telephone interview from Columbia. Stroot said her sibling died last year.

Continued in article

Jensen Comment
I would certainly verify that purported "death." She might just be living it up on some island paradise. For the past several years. the GAO has declared auditing of the Pentagon a literal impossibility.

Leader in TJX Fraud Gets 5-Year Sentence
Irving Escobar, a ring leader in a TJX Cos.-linked credit-card fraud, was sentenced to five years in prison and has been ordered to pay nearly $600,000 in restitution for damages resulting from stolen financial information, Florida officials said. The sentencing follows a guilty plea by Mr. Escobar, 19 years old, of Miami, to charges that he participated in a 10-person operation that used counterfeit cards bearing the stolen credit-card data of hundreds of TJX customers to purchase approximately $3 million in goods and gift cards. The penalty is the stiffest handed down so far in the case. The thefts were carried out at a string of Wal-Mart and Sam's Club stores in Florida during the second half of 2006, authorities said. Some of the merchandise was bought with gift cards that had previously been purchased with the fraudulent credit cards, a modern-day version of money laundering, officials said.
Joseph, Perira, The Wall Street Journal, September 14, 2007, Page B5 ---
http://online.wsj.com/article/SB118973246548127272.html?mod=todays_us_marketplace

IBM and PwC Settle With Government
International Business Machines Corp. and PricewaterhouseCoopers LLP have agreed to pay nearly $5.3 million combined to settle allegations that they made improper payments on government technology contracts, the Justice Department said Thursday.
PhysOrg, August 16, 2007 --- http://physorg.com/news106499155.html
Jensen Comment
The sad part about this is the promises made by PwC to abide by ethics and professionalism after the scandals at the end of the last century.

Bob Jensen's threads on PwC are at http://www.trinity.edu/rjensen/Fraud001.htm#PwC

Dell to Restate Results for 4 Years as Audit Ends
Dell Inc said on Thursday it would restate four years of financial results, reducing net income for the period by as much as $150 million, after a lengthy audit found that top executives sought accounting adjustments to reach quarterly performance goals. Dell said it expects the restatements to also reduce revenue by 1 percent or less per year for the period under review.
"Dell to Restate Results for 4 Years as Audit Ends ," The New York Times, August 16, 2007 ---
http://www.nytimes.com/reuters/business/business-dell-accounting.html?_r=1&oref=slogin

Creative Accounting by Creative Michael Dell
Dell said yesterday that the Securities and Exchange Commission had started a formal investigation into its accounting practices, but provided no other details of the inquiry that began in August. As a result, the computer company said it was delaying the release of its third-quarter financial results until the end of the month. It had planned to announce them today after the markets closed. The company said the delay was not because of the new status of the investigation, but rather because of the difficulty of answering government queries, conducting its own inquiry and quickly compiling complex financial information.
Damon Darlin, "Dell Accounting Inquiry Made Formal by S.E.C.," The New York Times, November 16, 2006 --- http://www.nytimes.com/2006/11/16/technology/16dell.html?_r=1&ref=business&oref=slogin

From The Wall Street Journal Accounting Weekly Review on August 24, 2007

"Dell to Restate 4 Years of Results," by Christopher Lawton and Don Clark
The Wall Street Journal, Aug 17, 2007 Page: A3
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB118729623365900062.html?mod=djem_jiewr_ac

TOPICS: Advanced Financial Accounting, Auditing, Financial Accounting, Reserves, Restatement, Revenue Recognition, Software Industry, Vendor Allowances

SUMMARY: 'Dell Inc. said it would restate more than four years of its financial results, after a massive internal investigation found that unidentified senior executives and other employees manipulated company accounts to hit quarterly performance goals." In August 2005 the SEC informed Dell, Inc. that it was investigating the company's accounting and financial reporting practices. Dell disclosed the investigation in August 2006 with little discussion of details even as the investigation progressed through March 2007, "but a company SEC filing disclosed that the investigation uncovered issues about the way Dell recognizes revenue from selling other companies' software, amortizes revenue from some extended warranties, and accounts for reimbursement agreements with vendors." The results of the investigation indicate that various