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Friday, 28 June, 2002, 20:25 GMT 21:25 UK
Accounting panic hits Xerox
Xerox headquarter
Xerox has agreed to restate its accounts
Office equipment giant Xerox has admitted overstating profits and sales, casting a further shadow over corporate America and auditing procedures.

The firm revised down its pre-tax profits by $1.4bn over the 1997-2001 period.

In a 1,000-page filing to the Securities and Exchange Commission, the company owned up to overstating equipment sales by $6.4bn - although other revenues, including services, rentals or outsourcing made up $5.1bn of that.

The news came three days after WorldCom shocked investors worldwide by revealing a $3.85bn accounting fraud.

And it cast further doubt on the robustness of US accounting procedures, which have come under the spotlight since the collapse of energy giant Enron.

Investor reaction

But, following reports in the Wall Street Journal that Xerox's accounting hole could be as large as $6bn, the relatively low level of the restatement reassured investors on Friday.

Xerox shares closed $1.03 lower at $6.97 after earlier tumbling almost 25% to $6.10.

The firm had also been widely expected to announce a restatement after an agreement last month with US financial watchdog the Securities and Exchange Commission.

The agreement saw Xerox fined $10m, although the firm has continued to refused to admit or deny any wrongdoing.

Watchdog deal

Xerox spokeswoman Christa Carone continued to take the no comment tack on Friday when asked by BBC World Service whether the photocopier giant had misled investors.

"I'm really not in a position to go further," Ms Carone said.

But she added: "We did settle with the SEC because our feeling was we have a new management team in place, and we really want to get this issue behind us.

"So we made the difficult, but the right decision to settle."

She said that, in Friday's restatement, no sales had been removed from the balance sheet.

"This isn't about phoney revenue, or fictitious transactions. It is primarily about the timing and the allocation of the revenue over a period of time and in different revenue streams."

Auditor hits back

While the revision has cast doubt on accounting practices at Xerox, former auditors KPMG said it would "stand behind" its reports.

Friday's restatements "defy economic reality", the firm said.

Its audit reports on Xerox from 1991 to 2001 were "fairly presented in accordance with generally accepted accounting principles", KPMG said.

'Zero sum game'

Some analysts took a cautious view of the restatements, with Salomon Smith Barney (SSB) voicing concerns of apparent new issues uncovered in the review of Xerox accounts.

And Xerox's decision initially sent the dollar lower, near to parity with the euro.

But SSB also noted that the accounting irregularities centred around timing issues, meaning that "this is a zero sum game over the longer haul".

"An adjustment downwards in one period drives an adjustment upward at a subsequent time," analysts Jonathan Rosenzweig and Stephanie Crane said.

The BBC's Alison Gee
"It's been known for some time that Xerox has been experiencing problems"
The BBC's Jenny Scott
"The company has now come clean"

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