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: a counterpoint to GM profits- accounting


tturboboy
16th March 2007, 10:05 PM
G.M. Says It Has Found Serious Flaws in Accounting

By NICK BUNKLEY
Published: March 16, 2007

DETROIT, March 15 — General Motors, a company once known as the model of corporate accounting, warned investors on Thursday that its performance was threatened by “ineffective” controls over financial reporting, including inadequately trained personnel and failure to obtain management’s approval for some transactions.

The disclosure, made in G.M.’s annual report filed with federal regulators after a six-week delay, was the latest indication that the automaker is on shakier footing than first thought.

It comes a day after G.M. restated five years of financial results and reported that it lost $2 billion in 2006 — a significant improvement over the previous year’s $10.4 billion loss but a sizable negative number nonetheless.

In the annual report, G.M., whose accounting practices are already under investigation by the Securities and Exchange Commission, said an internal evaluation found its financial reporting methods to be inadequate. “The lack of effective internal controls could adversely affect our financial condition and ability to carry out our strategic business plan,” the company said.

The filing listed 41 other factors that could hinder G.M.’s performance, including the potential for a strike by the United Automobile Workers (http://topics.nytimes.com/top/reference/timestopics/organizations/u/united_automobile_workers/index.html?inline=nyt-org) union, whose contract with the three Detroit automakers expires in September.

G.M., which reduced its fixed costs in North America by $6.8 billion in 2006, largely by offering buyouts to workers, said it would “vigorously” pursue further cost cuts in the new labor contract, particularly related to retiree health benefits. It acknowledged that such demands will be unpopular with the union.

“Any U.A.W. strikes, threats of strikes, or other resistance in connection with the negotiation of a new agreement could materially adversely affect our business,” the filing said.

Shares of G.M. declined 88 cents, or 2.9 percent, to close at $29.38 Thursday.

G.M. said it would address its accounting deficiencies by reorganizing its tax department, hiring more accounting personnel able to deal with its complex corporate structure and requiring more thorough reviews at the end of each quarter.

“This is clearly on the top of mind of many people here,” a G.M. spokeswoman, Renee Rashid-Merem, said. “It’s being addressed in a very prudent and swift way.”

The changes follow several restatements of previous years’ financial data. In some cases revised numbers were later modified again, raising concerns among investors and analysts about how much to trust the figures being reported.

“It has become such a pattern now,” an analyst with Fitch Ratings (http://topics.nytimes.com/top/reference/timestopics/organizations/f/fitch_ratings/index.html?inline=nyt-org), Mark Oline, said of the restatements.

In December, the company hired a former AT&T executive, Nicholas S. Cyprus, to be its controller and chief accounting officer. About a year ago, G.M. vowed to tighten its accounting standards after restating six years of results and disclosing that the S.E.C. was investigating the accounting for certain transactions related to pensions, suppliers and precious metals.

In late 2005, after G.M. said it had discovered accounting errors, the company’s chief financial officer, John Devine, said he would step down; he was succeeded by Frederick A. Henderson. Six weeks ago, when G.M. said it would delay reporting fourth-quarter results, Mr. Henderson told employees in a e-mail message, “Errors that require restatements are unacceptable and embarrassing for the corporation and for me personally,” according to The Detroit News.

G.M.’s accounting problems are yet another reminder how far the automaker has fallen from its peak years. G.M. gave investors audited financial statements in the 1930s, before they were mandatory, and for decades accountants held it up as the most prestigious of employers for their profession.

David Wright, an accounting professor at the University of Michigan (http://topics.nytimes.com/top/reference/timestopics/organizations/u/university_of_michigan/index.html?inline=nyt-org), said G.M. was only one of many companies to disclose accounting problems in recent years since laws were enacted demanding more transparency in financial reporting. “And in some small defense of G.M.,” he said, “it is one of the largest and most complicated multinational organizations.”

Still, Professor Wright described G.M.’s accounting mistakes as “a serious issue.”

93Linear
16th March 2007, 10:18 PM
Not really a counterpoint ... the $2 Billion loss is cited in the same post as the report of the 4Q profit. This is just a open admission of were some of the money has slid through the cracks the past several years & some of the steps that are being taken to address these issues. :confused:

tturboboy
18th March 2007, 10:23 PM
"DETROIT, March 15 — General Motors, a company once known as the model of corporate accounting, warned investors on Thursday that its performance was threatened by “ineffective” controls over financial reporting, including inadequately trained personnel and failure to obtain management’s approval for some transactions.

The disclosure, made in G.M.’s annual report filed with federal regulators after a six-week delay, was the latest indication that the automaker is on shakier footing than first thought.

It comes a day after G.M. restated five years of financial results and reported that it lost $2 billion in 2006 — a significant improvement over the previous year’s $10.4 billion loss but a sizable negative number nonetheless.

In the annual report, G.M., whose accounting practices are already under investigation by the Securities and Exchange Commission, said an internal evaluation found its financial reporting methods to be inadequate. “The lack of effective internal controls could adversely affect our financial condition and ability to carry out our strategic business plan,” the company said."

"just an open admission of where the money has slid through the cracks??

i am not sure GM stockholders and Wall Street will interpet in such a reassuring manner.

Swade
18th March 2007, 11:29 PM
Not too surprising that Gm would regard their beancounters ineffective. All the beancounters are busy re-designing cars :lol: