GE Again – Being Big Is No Excuse
How long does KPMG have as their auditor? Should have happened long ago. And how can they keep giving them unqualified opinions on their financial statements when their internal controls are getting adverse opinions? Maybe because GE’s management is making excuses for KPMG, saying that their employees were, “…engaged in intentional misconduct” to mislead auditors.
The process is biased towards “profitable” companies. GE also gets the halo effect of the cult of personality.
GE’s Accounting Draws Fresh Focus On News of Improper Sales Bookings
“General Electric Co.’s accounting practices are again in the spotlight after GE revealed that employees had improperly booked locomotive sales in 2000 through 2003.
The dollar figures involved were relatively small for a company of GE’s size. In 2002, for example, the changes reduced revenue by $158 million and net income by $22 million, less than 0.2% of GE’s net income, according to a quarterly filing with the Securities and Exchange Commission. GE said the differences were so small that it wouldn’t restate its financial results.
GE said it is firing a handful of employees and is cooperating with the SEC’s investigation.
But the matter leaves open the possibility that the SEC could find additional accounting issues. According to the filing, the locomotive problems were uncovered by GE’s board audit committee during an unrelated SEC investigation into derivative transactions. GE said the SEC staff continues to review “our use of hedge accounting for derivatives, the rail transactions and other accounting practices and procedures, including revenue recognition matters,” according to the filing.
GE said the rail unit had accelerated revenue in each of the fourth quarters from 2000 to 2003, shifting revenue that should have been recorded in the first quarter of the next years.
GE said its audit committee determined that “several individuals in our rail business and in our capital markets group engaged in intentional misconduct” to mislead auditors and that the transactions “were also not adequately examined by those responsible for accounting oversight.”
In January 2005, GE said the SEC was investigating its use of derivative transactions. The review came amid scrutiny of other companies’ use of derivative transactions to hedge financial risks.
Since then, GE has twice restated earnings in connection with the derivative accounting, once in May 2005 and again in January of this year. Those two restatements also had minimal impact on GE’s annual earnings, but the revised figures show that GE’s quarterly earnings would have been more volatile and the company might have missed analysts’ estimates in certain quarters.
GE mentioned in its first-quarter filing that the SEC was looking at its rail transactions but gave no details.”