Dell Inc. and Financial Restatement

CASE STUDY

INTERMEDIATE ACCOUNTING - Dr. Vijay Sampath

DELL INC. AND FINANCIAL RESTATEMENT

Jesenia Gonzalez

Duy Anh Pham Vu

Manuel Jimenez

May 4, 2016

Dell Case Study

1.A Discuss whether the accounting rule seems reasonable

Our group agrees the rules for Vendor-Specific Objective Evidence are reasonable. We believe it is fair to recognize revenue product and service revenue in separate accounts. Excerpt from ASU 2009-14 Software (Topic 985) Certain Revenue Arrangements that include software Elements: “If the only undelivered element is services that do not involve significant production, modification, or customization of software (for example, training or installation), the entire fee shall be recognized over the period during which the services are expected to be performed (see paragraphs 985-605-25-76 through 25-85)” Exhibit two states that, During the course of its internal reviews, Dell determined that its application of SOP 97-2 for these high volume software products was not correct.” We believe Dell’s accounting methods were unreasonable and Dell reported revenue during incorrect fiscal years.

Our group agrees the rules for Reporting Revenue Gross as a Principal vs. Net as an Agent are reasonable. The example provided in the text allows for a company to report its Revenue Gross by nearly twenty times the Net as an Agent amount by changing its basis of revenue reporting. This misinforms investors to believe there is exponential growth in the company. Exhibit two states that “Additionally, during the course of its reviews, Dell identified certain software offerings where it had previously recognized the gross amount of revenue from the sale but where it functions more as a selling agent as opposed to the principal in the sale to the customer.” We believe this practice is unreasonable because the net income in the income statement is inaccurate.

Our group agrees the rules for Warehouse Arrangements is reasonable. The four guidelines to recognize revenue in a warehouse arrangement include persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured. We believe all of these are fair. For example, if delivery has occurred, then there are no further requirements to adjust the trial balance to recognize revenue.

Our group agrees the rules for Deferred Warranty Revenue is reasonable. FASB issued Recognition of Guarantees which in summary states that the product and the extended warranty be treated as two separate sales and that the revenue for the extended warranty must be recognized only during the warranty period.  Exhibit 2 says that, “Additionally, an error was identified in the amount of deferred revenue recognized and amortized during the statement period.” Our group agrees this practice is unreasonable because investors are not informed of correct revenue throughout different periods.