Corporate fraud: detection, prevention, and legal consequences

¶ … cross examine the accounting fraud scandal that took place at Xerox, the main intention of this analysis is to know the causes and the effects of the scandal as well as the need of a good practice in business ethics, corporate management and the general oversight. Xerox was able to utilize a creative technique of accounting to give false presentation of its assets and liabilities, they also deceive the investors and lastly they were able to inflate their socks. The main players of the scandal were the chairman, CEO and other high ranking officials who took the advantage and enriched themselves (Gara, D. 2004). The high ranked officials made away millions of shillings at the expense of the stakeholders. This scandal highlighted the need for accountability and ethics in the governance of finance as well as corporate.

The analysis also aims to examine the strategic mistakes that led the Xerox Corporation into tough economical environment. Another focus of this analysis is how the fraud was perpetrated, the amount of money that was involved in the Xerox Corporation scandal. The manner in which the scandal was uncovered, the investigation and the prosecution of the crime, the laws that were violated, the outcome of the case as well as the best outcome that will be fair given the circumstance of the case.

The main source of earnings for Xerox Corporation came through sale type leases and equipment sales (Comer, M. 2003). The company had a tendency of entering into long-term sales type equipment leases. A series of changes in accounting practices that took place during 1997-2000 resulted into significant impacts on the financial statements in the company. The areas that were critically affected in the view of the financial statement are the techniques that were used in the recognition of revenues (Gara, D. 2004). For any change to occur in short period of time in the accounting sector, it calls for a serious scrutiny has to be conducted. According to the standards of accounting that are internationally accepted, the only items of revenue that are recognized should have accrued and pertained the current accounting period (Comer, M. 2003). This means that revenue that is yet to be earned or accrued should not affect the current annual earnings. On the other hand, the allocation of expense that would otherwise follow this principle that is there between the future incomes that are yet to be earned and the other revenue that had already accrue.

The perpetration of fraud at Xerox Corporation was mainly facilitated by shifting of future lease payments (Gara, D. 2004). This kind of payment meant that the payments that were made for the equipments sales did not play a role in boosting the immediate sales, this sales was however based on fiction that reduced or had negative effect on the future periods. Both the investor and the stakeholder were not aware of the company's profit that the changes that were there in accounting. The only thing that the investors and stakeholders were aware of is the operational performance (Comer, M. 2003).

The high ranking officials of Xerox Corporation technique was the unjustified revenue acceleration. The adoption of this method by the company was to estimate the fair value of services financing. This method depressed the finance component and this is done without justification of reporting the most heightened equipment sales (Comer, M. 2003). The company never conducted any kind of test to determine whether the method was arbitrary Roe that would result in an economical realistic financial reporting; this was to ensure that there was fair market value of the equipments which were under sales or the prevailing difference of finance rates in other markets. The investors and stakeholders were also left on the dark on the basis of the rates determination; the company achieved this without even selling a single copier.

Through this one is able to tell that the company deliberately failed to disclose the material facts that were very essential for the reported huge earnings hence resorting to the unusual accounting treatment and business practices that do not give the actual picture of the financial health of the company (Comer, M. 2003). Investors and stakeholders are also deceived when you consider the fact the company was facing a stiff competition in the market with the declining margins all across the continent.

The scandal that involved Xerox corporation laws approximated to be over $6 billion in revenue that led to an overstatement of earning close to $2 billion (Gara, D. 2004). This was discovered when the Securities and Exchange Commission stated to investigate the producer of copier and other related services which accounted for the manipulation. The amount that was involved was estimated to half of what is now stated (Coenen, T. 2008).

Xerox corporation was having a better than expected restatement results, they also lost close to 13% in the midday trading. Looking closely this was much less than the 35% decline that they incurred in the office equipment stock just hours before trading closed on Friday. According to the reports from the audit, the fresh accounts proved that there were problems in 2001. The filling of the 2001 10-K will have help in resolving the company's accounting issues (Gara, D. 2004). Despite all this problems that were taking place at the company, other problems emerged. The downgraded Xerox shares showed that the short-term sell and long-term neutral ratings were not balanced (Comer, M. 2003). With this entire taking place, the investors, stakeholders and the general public uncover the fraud that was taking places at Xerox Corporation.

There was allegation that the accounting actions and accounting opportunities were expected to meet or exceed Wall Street expectations, thus disguising the true operating performance from the investors (Coenen, T. 2008). This was not the case in Xerox Corporation; these actions by the company violated the general accepted accounting principle. Hosting of undisclosed accounting action by the Xerox Corporation in its bid to report equipment revenues and profit had an enormous impact on the company's performance. According to the expectation of the market Xerox would have fallen by a wider margin following its earlier actual reports.