Dell 2006 Annual Report Download - page 74

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS 157"), which defines fair value,
provides a framework for measuring fair value, and expands the disclosures required for assets and liabilities measured at
fair value. SFAS 157 applies to existing accounting pronouncements that require fair value measurements; it does not
require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and is
required to be adopted by Dell beginning in the first quarter of Fiscal 2009. Management is currently evaluating the impact
that SFAS 157 may have on Dell's results of operations, financial position, and cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
("SFAS 159"), which provides companies with an option to report selected financial assets and liabilities at fair value with the
changes in fair value recognized in earnings at each subsequent reporting date. SFAS 159 provides an opportunity to
mitigate potential volatility in earnings caused by measuring related assets and liabilities differently, and it may reduce the
need for applying complex hedge accounting provisions. If elected, SFAS 159 is effective for fiscal years beginning after
November 15, 2007, which is Dell's Fiscal 2009. Management is currently evaluating the impact that this statement may have
on Dell's results of operations and financial position, and has yet to make a decision on the elective adoption of SFAS 159.
Reclassifications — To maintain comparability among the periods presented, Dell has revised the presentation of certain
prior period amounts reported within the Notes to Consolidated Financial Statements. For further discussion regarding the
presentation of service obligations honored, see Note 8 of Notes to Consolidated Financial Statements and for a detailed
discussion addressing the change in classification of enhanced services see Note 10 of Notes to Consolidated Financial
Statements.
NOTE 2 — Audit Committee Independent Investigation and Restatement
Background and Scope of the Investigation
In August 2005, the Division of Enforcement of the SEC initiated an inquiry into certain of Dell's accounting and financial
reporting matters and requested that Dell provide certain documents. Over the course of several months, Dell produced
documents and provided information in response to the SEC's initial request and subsequent requests.
In June 2006, the SEC sent Dell an additional request for documents and information that appeared to expand the scope of
the inquiry, with respect to both issues and periods. As documents and information were collected in response to this
additional request, Dell's management was made aware of information that raised significant accounting and financial
reporting concerns, including whether accruals, reserves, and other balance sheet items had been recorded and reported
properly. After evaluating this information and in consultation with PricewaterhouseCoopers LLP, Dell's independent
registered public accounting firm, management determined that the identified issues warranted an independent investigation
and recommended such to the Audit Committee of Dell's Board of Directors.
On August 16, 2006, the Audit Committee, acting on management's recommendation, approved the initiation of an
independent investigation. The Audit Committee engaged Willkie Farr & Gallagher LLP ("Willkie Farr") to lead the
investigation as the independent legal counsel to the Audit Committee. Willkie Farr in turn engaged KPMG LLP ("KPMG") to
serve as its independent forensic accountants.
The scope of the investigation was determined by Willkie Farr, in consultation with the Audit Committee and KPMG. The
investigation involved a program of forensic analysis and inquiry directed to aspects of Dell's accounting and financial
reporting practices throughout the world, and evaluated aspects of its historical accounting and financial reporting practices
since Fiscal 2002 and, with respect to certain issues, prior fiscal years.
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