Dell's Fraud Report Raises Questions about SarbOx, Earnings
from the just-a-few-pennies dept
This evening, Dell announced the preliminary results of a multi-month investigation into past accounting irregularities. As many had expected, the company revealed that management had deliberately massaged results to hit Wall Street targets. That being said, the total size of the fraud was not particularly significant. Overstating earnings between $50 million – $150 million between 2003-2006 is not all that big for a company as big as Dell. This doesn’t excuse what the company did, but it does raise some questions about the incentives facing business managers. In the post-SarbOx era, these kinds of infractions can lead to serious penalties, and yet managers felt it was worthwhile to add a penny here and there in order to satisfy the Street’s demands. Not only did SarbOx not do anything to prevent the fraud, but it didn’t even prove to be a deterrent. The event should call into question the usefulness of the law, while also reigniting debate about the ‘tyranny’ of quarterly earnings, which pushes companies to make these choices.