Xerox's Cookie-Jar Accounting

Xerox Accounting
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December 19, 2022
Description
             Understanding the importance of effective accounting principles is essential for any organization. It allows for various controls for both reportorial, strategic, and risk management capacities, which then improves an organization’s ability to deal with different circumstances. Accordingly, as shown in the case above, some of the main problems that Xerox experienced were the overstating of profits, which have not even occurred yet, thereby violating the Revenue Recognition Principle. According to O’Brien (2022), the Revenue Recognition Principle is a form of accrual accounting wherein “companies recognize revenue as it is earned, not when they receive payment.” Although this is a widely recognized practice and accepted in the Generally Accepted Accounting Principles (GAAP), the overstatements made by Xerox led to billions of dollars of overstated profits, which made the company inflate its income and surpass investors’ expectations (Carruth, 2011). 
             More particularly, reports would show that the company utilized the use of cookie-jar accounting over a span of four (4) quarters, which helped create the idea that the company was overperforming. Little did investors know that the company was already experiencing substantial losses.  
Strengthen Internal Controls
             In order to prevent any other fraudulent statements, the company and third-party auditors must strengthen internal controls. These controls should include (1) better financial audits and (2) performing a self-evaluation of your internal documentation and control. 
             First, it is necessary to improve Xerox’s financial audit, whether internally or externally. However, since this article's main focus is improving its internal controls, audits should be made as regularly, effectively, and strategically as possible. Note that one of the pitfalls was the use of cookie-jar accounting with the hopes of bridging performance with that of investors’ expectations. This made the company complacent by thin...