"The senior management of Dell regularly falsified quarterly returns from 2003 through 2006 to create the appearance that the company had met sales targets, the computer maker disclosed Thursday. The accounting misconduct also resulted in inflated earnings, so the company will restate its net income for the period by $50 million to $150 million, it said. The disclosures came after a yearlong internal probe. The Securities and Exchange Commission is also investigating the company’s behavior."While classes have not started yet here at SBU, I am sure this will be talked about in class.
Some suggested ways of bringing it into the classroom:
- Why might a manager want to do this?
- What can be done to prevent it? Lower the likelihood?
- Do incentive based pay plans (be it accounting-based or market-based) increase the likelihood of such behavior? Do the benefits of these plans outweigh the problems?
- How might an auditor find such problems?
- Are there red flags for an investor that would suggest earnings management?