US regulator probes accounting practices at Xerox’ ACS unit

The US Securities and Exchange Commission (SEC) has launched an investigation into the accounting practices at IT outsourcing firm Affiliated Computer Services (ACS), a unit of Xerox Corp.

Xerox, run by chairman and CEO, Ursula Burns, yesterday said that the SEC is investigating the accounting practices at ACS, a company it had acquired in 2010 for $6.4 billion. (See: Xerox to acquire outsourcing firm ACS for $6.4 billion)

Xerox said that the investigation is focused on whether revenue associated with certain ACS equipment resale transactions with several customers should have been presented on a net rather than gross basis, primarily in periods prior to the acquisition.

The transactions were not material to Xerox's post-acquisition consolidated financial statements.

''Neither ACS's nor Xerox's net income or cash flow associated with these transactions would have been affected by the change in accounting from gross to net revenue recognition. Xerox has cooperated, and will continue to cooperate, fully with the SEC,'' Xerox said in a statement.

The SEC has advised that it will not recommend charges against Xerox.

Xerox has been informed by Lynn Blodgett, executive vice president of Xerox and president, Xerox Services, that he has received a ''Wells Notice'' from the SEC in connection with the matters underlying the investigation.

A Wells Notice is not a formal allegation or a finding of wrongdoing; it is an indication that the SEC is considering recommending civil enforcement actions.

Under the SEC's procedures, a recipient of a Wells notice can respond in the form of a submission that seeks to persuade the SEC that such an action should not be brought.

Xerox said that it understands that two other individuals, one a current employee and one a former employee, also have received Wells Notices in connection with these matters.

All three individuals have advised Xerox that they intend to make such submissions.