Xerox has delayed publication of its 2000 annual report after auditors KPMG decided to investigate documents relating to its Mexican subsidiary and its accounting practices.


"The result of this is that we cannot issue an annual report, nor hold a shareholders meeting, or acquire any new equity or new debt until it has been resolved," said a Xerox spokesman.


Shares fell 17.5% to 3.45 ($4.95) on the news.


The investigation by KPMG follows an independent investigation by Xerox into accounting and ethical breaches at the Mexican unit last year.


KPMG advised Xerox that it felt a fuller review was required to satisfy auditing responsibilities, before any sign-off of the financial statements could proceed.


Following the investigation 13 employees were dismissed and a Securities and Exchange Commission inquiry into the affair continues.


"The business is still moving ahead, although we do not have a timetable as to when these enquiries will be completed by," said the spokesman.


Standard & Poor has also warned Xerox that its credit rating could be downgraded to junk status.


By Andy Scott