Apple, Dell and More: 10 Accounting Slips To Avoid

Between options backdating, faulty financial reporting and shaky numbers crunching, many companies throughout the IT industry continue to grapple with earnings restatements, late SEC filings and threats to be de-listed from various stock exchanges. Here is a look at 10 accounting stories you should know about, as part of your due diligence:


Apple's stock options backdating scandal is the subject of vicious satire in the current hit book, "Options," a work of fiction by Fake Steve Jobs (a.k.a. Dan Lyons, now of Forbes and formerly a CRN Senior Editor.) But in real life, Apple settled with the SEC earlier this year on charges former executives intentionally manipulated stock option dates in violation of law. The case remains open, though.

The SEC charged two former Apple executives, ex-CFO Fred Anderson, and ex-General Counsel Nancy Heinen, with fraud. Anderson subsequently settled with the SEC, but Heinen continues to fight the charges. Apple concluded that CEO Steve Jobs, the real one, knowingly did nothing wrong.

Dell recently announced it was restating several years' worth of earnings and reducing its aggregate profit during that time by $98 million -- the result of fraudulent accounting and financial reporting between 2003 and 2006. Michael Dell, the company's founder, chairman and CEO, has said he knew nothing about the misconduct while it was going on.

To date, Dell has not said precisely which of its senior executives took part in the misconduct, but the SEC and the U.S. Attorney for the Southern District of New York continue their own investigations.

Software maker BEA Systems lrecently restated several quarters worth of earnings -- the result of an options backdating scandal that will cost hundreds of millions of dollars worth of restatements when all is said and done.

The mess came into focus recently when corporate raider Carl Icahn, BEA's largest shareholder, blasted BEA for spurning a takeover attempt from Oracle; Icahn suggested the options mess had been a significant drag on BEA's valuation. BEA filed its restated earnings reports on Nov. 15.

The Waltham, Mass.-based software maker said earlier this year that, after a lengthy review, it determined that it used incorrect grant dates on dozens of stock options between 1997 and 2004. The dollar value was so small, Novell determined, that it wouldn't need to restate earnings.

However, the options issue sparked investor and derivative lawsuits that have dragged Novell into court and could keep the issue alive. Noteworthy fact: Novell's CEO during part of that time was Eric Schmidt, who is now Google's CEO and a member of Apple's Board of Directors.

McAfee, the Santa Clara, Calif.-based maker of security software, has admitted that it will need to restate earnings to the tune of $100 million to $150 million to account for non-cash compensation expenses over a 10-year period. The company faces de-listing from the New York Stock Exchange if it doesn't file its delinquent 10-K annual report with the SEC by the end of the year.

The San Jose, Calif.-based distributor has acknowledged that it incorrectly accounted for the acquisition of foreign businesses in 2004 and 2005, and those errors exposed a "material weakness" in Bell Microproducts' financial controls. The company is in the midst of trying to restate its earnings for several quarters, and has been taking a look at its stock options practices to boot.

CA's former CEO Sanjay Kumar is now in federal prison. Federal prosecutors are no longer monitoring its finances and the Islandia, N.Y.-based software company and it is is in the midst of trying to turn its business around. But CA's long-running accounting scandal, in which executives were caught inflating quarterly earnings results over a period of time, still isn't dead.

CA's Board of Directors has been mulling a lawsuit against former CA executives, including co-founder Charles Wang, charging them with various responsibilities for the scandals. Wang has denied doing anything wrong and has vowed to fight the allegations.

Earlier this year, Insight, the direct market reseller, revealed that an internal investigation uncovered "errors in the Company's accounting related to stock option compensation expenses" over a 10-year period, involving an aggregate of $30.9 million in compensation. The SEC is continuing to investigate.

Gregory Reyes, the former CEO of Brocade Communications, had originally been slated for sentencing on Nov. 21 in U.S. District Court for the Northern District of California, on a conviction of securities fraud for his role in the company's stock options backdating scandal. However, a judge has delayed his sentencing until an alleged co-conspirator is tried.

The SEC is currently suing Lisa Berry, the former general counsel for Juniper Networks, on charges she intentionally backdated stock options for Juniper executives over a period of several years -- and concocted fictitious records to cover her trail in the process. The backdating scandal not only cost Juniper bad press, it forced the company to take a $900 million charge to account for the options.