The more I read the reaction to Dell's financial audit the more annoyed I get.
Dell on Thursday concluded its audit, restated four years of results and uncovered a few accounting shenanigans to make its quarterly targets. Granted, the restatements weren't huge, but they a penny a share here and there matters when it's the difference between hitting Wall Street's estimates.
Dell said it's dealing with the problem (see Techmeme) and fixing internal controls. In other words, trust Dell that it won't happen again.
Fair enough--especially since CEO Michael Dell wasn't implicated (he was chairman though).
But analysts and the press are pretending Dell's restatement is nothing. To wit:
A News.com's headline says "Goals lead to Dell cooking the books." I have goals. You have goals. Did we cook the books?
ThinkEquity Partners analyst Eric Ross says Dell's restatement is "meaningless."
"Dell announced yesterday after the close that it has completed its audit and will restate four years of financial results. We think the restatements will likely have no impact, as they represent a small amount compared to the billions in earnings that Dell has reported. In our view, Dell has finally cleared things up and the company will now be able to focus solely on turning itself around."
JP Morgan analyst Bill Shope said the investigation uncovered some "troubling details" about Dell's accounting, but "investors are likely to be encouraged this long-standing issue is coming to a close."
The wild-card in Dell's restatements will be the SEC investigation and whether any Michael Dell exposure surfaces.
While the restatements were small, Citigroup analyst Richard Gardner notes that Dell would have missed estimates during its first fiscal quarter of 2003, second quarter of 2003 and fourth quarter of 2005 without the accounting hijinx. That's hardly meaningless.
Dennis Howlett also knocks the consensus thinking that these accounting follies aren't a big deal. He also wonders how the auditors missed Dell's accounting.
I am more concerned as to why it was not discovered as part of the systems audit testing by incumbent auditors Pricewaterhousecoopers (PwC). We will no doubt hear their version of events in due course but there is no escaping the fact that they didn’t do a good job.
Dennis raises a good point. Something tells me we haven't heard the end of this.