A case study on disclosure and accounting violation of Dell.

The Securities and Exchange Commission charged Dell Inc. with failing to disclose material information and using fraudulent accounting on July 22, 2010, thus violating securities law and generally accepted accounting principles. Dell agreed to pay $100 million penalty to settle the SEC's charges. From Q1FY2003 to Q1FY2007, the rebate that Dell received from Intel Corporation allowed it to adjust its operating income to meet the analysts' earnings consensus. Dell did not disclose these adjustments or misrepresented material information regarding the nature of rebates. And from FY2002 to FY2005, the company used improper accounting by maintaining a series of “cookie jar” reserves such as restructuring charges to cover shortfalls in operating results in the following periods. Dell's deficient internal control systems allowed the company to engage in improper accounting and disclosure practice. This case emphasizes the importance of full disclosure and the risk of improper income smoothing using cookie jar reserves. It is meaningful to examine Dell's disclosure and accounting violation case since Korean listed companies were required to apply K-IFRS that demands more disclosure and accounting transparency based upon principle-based approach rather than rule-based approach.