New accounting scandal looms

XEROX became the latest American group to admit to cooking its books today after it unveiled a $2bn (£1.4bn) hole in its accounts. News that the photocopying giant is to restate its official sales figures came only says after an admission by telecoms group WorldCom it had hidden $4bn of expenses sent global stock markets into a tailspin.

Xerox, which has already admitted to one huge accounting error earlier this year, today said a new audit had found fresh accounting mis-statements and that it will now have to correct stated earnings for the past five years either today or on Monday.

With a wave of accounting scandals gripping corporate America, President Bush is set to use a national radio address tomorrow to call for further reform of company accounting. He will also urge Congress to push through measures to tighten controls on companies.

Like WorldCom and Enron, today's admission shows that for years Xerox used bogus accounting methods to bolster earnings, which kept the share price artificially high.

Concerns about the firm's accounting practices first surfaced more than a year ago, and it reached a settlement with American regulators in April after finding the company mis-stated $3bn in revenue between 1997 and 2000.

It now appears that the company's dubious accounting practices continued even after regulators began investigating. KPMG was the auditor during the five years in question. KPMG and Xerox both face civil suits over cooked books but KPMG has defended its work, saying it was fired after initially discovering the problems and pressuring Xerox into an earlier restatement.

PricewaterhouseCoopers was then brought in to review previous accounts, and has discovered the latest hole its the firm's books. Xerox has so far survived by slashing costs and arranging new financing with its banks.

Xerox was today trying to play down the impact of the latest accounting errors. Reports had earlier suggested that the company may have falsely accounted for up to $6bn in sales.

A spokeswoman said the accounting error - booking sales before they had been sealed - will lower Xerox's earnings in earlier years but boost revenue in the future and that a total reduction of less than $2bn was expected.

The company's sales over the five years in question originally totalled $92.5bn. 'Over the five years, that is less than two% of the revenue we recorded,' said the spokeswoman.