Xerox Corporation served notice on Monday that it plans to dispute the Securities and Exchange Commission's ruling of improper treatment of accounting for leases.

The SEC has been investigating Xerox for the past 18 months and has concluded that the method Xerox uses for accounting for sales leases has resulted in financial reporting that is not in accordance with generally accepted accounting principles.

Much of Xerox's income is derived from leasing equipment. Reporting such leases as sales leases, Xerox records a lease contract as a sale, offset by the liability of the lease. Lease payments are then allocated to various items such as supplies, services, financing, and equipment.

The SEC has accused Xerox of inappropriately allocating lease payments, which affects the timing of income that is reported. If SEC guidelines were applied, income would be reported in different time periods. The portion of the lease payment that is allocated to equipment affects the amount of income derived from the lease sale. Xerox contends that its methods are correct and also notes that when the lease term is up the bottom line is the same using either the SEC's recommended allocation method or the method used by Xerox.

Xerox refuses to change its method, insisting its reporting is correct. The SEC has the right to prevent a company from selling stock or bonds to the public if filings of the company have been rejected by the agency.

"Right now, we are restricted from accessing the public markets," said Christa Carone, a spokesperson for Xerox.

Thus, Xerox is planning a $500 million offering of securities that will not be registered with the SEC. The senior notes will be due in seven years and will be sold only to foreign buyers and to qualified U.S. institutional investors under the SEC's Rule 144A which allows sales of unregistered securities to certain institutions.