Saturday, March 18, 2006

GM's Growing Accounting Problems

General Motors filed a notice with the SEC that it would not be able to make a timely filing of its annual 10-K financial report because of accounting problems at its mortgage subsidiary, ResCap.  This comes on top of previously-disclosed SEC investigations of the company's pension accounting and treatment of supplier rebates, the latter investigation also catching its former parts subsidiary, Delphi.  According to GM's recent filing (here):

[GM] is unable to file its Annual Report on Form 10-K by March 16, 2006, due to an accounting issue regarding the classification of cash flows at ResCap, the residential mortgage subsidiary of GMAC, a wholly owned subsidiary of GM. The ResCap accounting issue relates to the erroneous classification of cash flows from certain mortgage loan transactions as cash flows from operating activities instead of cash flows from investing activities. Although GM has not completed its review of this matter, the issue will not impact either net income or the balance sheet presentation but is expected to impact the presentation of cash flows from operating and investing activities. This issue may impact the statements of cash flows for 2005 and prior periods at ResCap, GMAC and GM, and the impact may be material in some or all of the affected periods.

Adding to the confusion, GM filed an 8-K (here) warning that its most recent financial statements should not be relied on because of problems with its accounting for vehicles leased to rental car companies.  GM will also have to restate its earnings for 2000 to 2004 related to, among other things, its accounting for supplier rebates that will knock out over $350 million in earnings from those years. 

Under the Sarbanes-Oxley Act, a company's CEO and CFO must certify that the financial statements are correct, so there are a number of filings with CEO Rick Wagoner's signature that contained incorrect information.  At some point, as the accounting problems keep piling up, the issue arises whether the case may move beyond just a civil investigation into a criminal inquiry.  If subpoenas start coming from the grand jury, the pressure on GM and its senior executives will be increased substantially. (ph)

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As noted in an earlier post (here), GM had to delay the filing of its annual 10-K due to accounting problems that cropped up at its ResCap residential mortgage division. The company filed the report on March 28, and it [Read More]

Tracked on Mar 29, 2006 6:31:26 AM


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