• GE – Will Somebody Please Look Really Hard Under Their Hood?

    By • Apr 21st, 2008 • Category: Bear Stearns, GE, KPMG, Sarbanes-Oxley


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    Update

    GE’s Annual Meeting is this Wednesday. Looks like Immelt will have some explaining to do…

    Can you believe accounting professors are talking about earnings manipulation by GE as if it were expected and par for the course?
    Makes you wonder what they’re teaching their students…

    …Experts familiar with corporate financial reporting say GE officials may have been reworking the numbers right up to the earnings release.

    “They have lots of ways to boost earnings,” said Michael Granof, an accounting professor at the University of Texas at Austin. “You can always time write-offs so if you have a good quarter you save it for then. Obviously, they knew they’d have to consider write-downs. The magnitude is not something they determined until the last minute.”

    J. Edward Ketz, associate professor of accounting at the Smeal College at Pennsylvania State University, said he guesses that GE “did some recalculating in the last minute.”

    “What often takes place in the last days or weeks is that they re-examine the estimates that go into this,
    ” he said “People in the non-accounting world are surprised at how soft the numbers are.”

    Dan Ginsburg, a spokesman for KPMG, GE’s accounting firm, cited client confidentiality and would not comment on accounting done in advance of the earnings release…

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    GE reported “shocking” results late last week.

    The company that could do no wrong in the eyes of investors is now vulnerable.
    And so is their auditor.  Will this be the final death knell now that they have forced GE to fess up?
    GE is no Maserati!
    Those who have been reading this blog know that size and “profits” are not always what they seem, even for a company with GE’s reputation in the marketplace.
    I have reported more than once on the cult of personality with Jack Welch that prohibited anyone from questioning anything about their business activities and results.
    And about his acolytes who took that philosophy to other companies with disastrous results.
    I have also discussed the horrible legacy, in my opinion, of their “forced ranking” approach to culling a significant percentage of their workforce each year to make room for fresh and unsuspecting potential converts to the GE religion.
    Tom Selling doesn’t like Jack Welch’s legacy any more than I do.  He  has thoroughly debunked the myth of GE given their ongoing shady accounting.
    ‘Shocking’ GE results show size of crisis
    General Electric underlined the depth of the global financial crisis on Friday, announcing its worst quarter in five years and slashing full-year forecasts.

    Liam Denning says there is more to GE’s problems than the “Bear Stearns effect”

    The news, described as “shocking” by a senior GE executive, combined with data showing that US consumer confidence was at a 26-year low to send shares lower. The S&P 500 fell 2 per cent in New York to 1,332.83.

    Shares in GE, which derives more than half its revenues overseas and is seen as a bellwether of the global economy, led the way, falling 12.8 per cent – its biggest loss since the 1987 stock market crash.

    The results are a blow to Jeffrey Immelt, chairman and chief executive, and could increase pressure for action at the group’s underperforming financial and healthcare divisions…

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    6 Responses »

    1. GE has had the reputation as an unprincipled actor in some quarters for many years. I can remember my father talking about it when I was still in college.

    2. I have been a “GE Hater” ever since 1994 with the Joseph Jett fiasco at Kidder. William Greider wrote a book titled, “Who Will Tell the People?” In it he listed a number of companies which had had felony convictions. If my recollection serves me properly, GE headed the list with 17!
      PS: Nice shot at CAQ by you at Accounting Onion. Way to go girl!

    3. I like the blurb in the presser that said something like “the challenged credit market prevented us from selling some real estate like we had planned”. A classic earnings management trick–sell appreciated property to fill the hole between actual results and market predictions…beautiful

    4. It is generally well known and understood that GE manages earnings. In fact the well known “cookie jar” speech during 1998 from the Chief Accountant Levitt was partially triggered by GE concerns. Whether they continue to manage earnings I have no idea. I will say that I’m a shareholder of GE, so therefore I may have benefitted from their actual or allegeded management of earnings. In reality, a company such as GE has much oppty to manage their earnings, and the only people that really know what they do are the senior accountants that respond to the pressure of the operational folks.

      Regards,

      Final Four Guy

    5. Welch’s memoir (from the gut) is very revealing. On one page he claims earnings management never occured.

      About a hundred pages later he talks about the Jett fiasco and mentions how the non-Kidder GE people were trying to “help” by finding some money “here and there” to “improve” the forthcoming financials.

      In the book he praises the helpers for their initiative.

      Um, excuse me? You just slammed the idea of managing earnings, and now you’re complimenting people who are suggesting it?

      I was shocked though not necessarily surprised to see that little dissonant note of truth sneak through.

    6. […] on how people all over the corporate world are measured and rewarded, and their history as a bad actor when it comes to internal controls and accounting […]

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