https://is.muni.cz/el/1456/podzim2016/MPF_AAUD/um/65606574/Audit_Xerox_Slides.

pdf

https://www.scribd.com/document/119046223/Xerox-Corporation-Fraud-Case

Xerox Corporation is the world's largest supplier of toner-based photocopier machines

andassociated supplies.

On April 11, 2002, the Securities and Exchange Commission filed a complaint against Xerox. The
complaint alleged Xerox deceived the public between 1997 and 2000 by employing several
"accounting maneuvers," the most significant of which was a change in when Xerox recorded
revenue from copy machine leases - recognizing a "sale" in the period a lease contract was
signed, instead of recognizing revenue ratably over the entire length of the contract. The issue
was when the revenue was recognized, not the validity of the revenue. Xerox's restatement only
changed what year the revenue was stated. Prior to 1997, Xerox had recognized revenue from
equipment rentals, or leases, as required by U.S. generally accepted accounting principles.

The U.S. GAAP prohibits companies from recognizing the entire proceeds of the sale of equipment unless
certain criteria are met, such as transfer of ownership. If none of the criteria are met, the "sale" is
considered a lease, and only the rental payments owed to the company in the current period can
be treated as revenue in the current period. The SEC charged that the change in how Xerox
applied accounting principles not only violated GAAP, but was intentionally designed to fool
Wall Street into believing the new management team was working wonders, exceeding Wall
Street's expectations nearly every quarter from 1997through 1999.The SEC further charged that
the accounting irregularities increased fiscal year 1997 pretax earnings by $405 million, 1998
pretax earnings by $655 million, and 1999 pretax earnings by$511 million (in each quarter of
each year, earnings were inflated just enough to exceed the Wall Street's First Call Consensus
EPS).The SEC also alleged that Xerox's senior management was aware of, either by directing or
approving, the accounting actions that were taken for the purpose of what management called
"closing the gap" to meet revenue and profit goals.

When Xerox's auditors, KPMG, questioned the legitimacy of the company's accounting practices, senior
management requested that a new partner be assigned to its account.
In order to keep the relationship with Xerox that had lasted nearly 40 years, and to protect the $82million in audit
and non-audit fees KPMG would collect from Xerox between 1997 and 2000, KPMG complied with
management's request.

Of course the deception employed by Xerox's management soon came to light. The "accounting
tricks" employed by Xerox were a double-edged sword: by accelerating future revenues into
present periods, it became increasingly difficult for management to meet investors' expectations
in future periods, especially as the economy began to worsen in 1999 and later years

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1152770&download=yes
 Xerox Corporation is a global American corporation headquartered in Norwalk, Connecticut,
which sells print and digital document and services in more than 160 countries. In the late 1990s Xerox
used creative accounting practices to meet financial targets and Wall Street expectations.
In April 2002, the Securities and Exchange Commission filed a complaint against Xerox
Corporation. The SEC's complaint sustain that, between 1997 and 2000, Xerox used a variety of
"accounting actions or opportunities" to meet or exceed Wall Street expectations and disguise his true
performance operational from investors.
Xerox recorded revenue from copy machine leases by recognizing a "sale" in the period a lease
contract was signed, instead of recognizing revenue over the entire length of the contract. The problem
was when the revenue was recognized, not the validity of the revenue, because Xerox's restatement only
changed what year the revenue was stated. Prior to 1997, Xerox recognized revenue from rentals of
equipment, or lease in accordance with U.S. generally accepted accounting principles.
US GAAP prohibits companies from recognizing the entire proceeds of the sale of equipment
unless certain criteria are met, such as ownership transfer. If none of the criteria are met, "sale" is
considered a lease and only rental payments owed to the company during the current period can be
considered as revenue in the current period.
The Securities and Exchange Commission accused that the change in how the accounting
principles applied by Xerox not only violated GAAP principles, but was deliberately designed to trick
Wall Street into believing that the new management team is working on wonders exceeding Wall Street's
expectations almost every quarter from 1997 to 1999.
The SEC also perceived that accounting irregularities increased the fiscal year 1997 previous
earnings by $405 million, previous earnings in 1998 by $ 655 million and 1999 pretax earnings of $ 511
million (each quarter of each year, earnings inflated enough to exceed the Wall Street's first EPS
consensus call).

https://pubs.aeaweb.org/doi/pdfplus/10.1257/089533003765888412

file:///C:/Users/Andreea.Balaceanu/Downloads/SSRN-id1152770.pdf
https://www.sec.gov/news/headlines/xeroxsettles.htm

http://www.fundinguniverse.com/company-histories/xerox-corporation-history/