On the 24th of January, General Electric made an announcement that the accounting methods of the company are currently being investigated by the Security and Exchange Commission. While it is expected that a company as big as GE has investigation insurance, this would be an additional hassle as all their books and records may be scrutinized. The process could take many months and even years before it comes to a resolution.
For the past year, the stock of the company has plummeted by over 40 per cent. The news of an investigation to their accounting department will only add to the current problems faced by the new chief executive of General Electric, John L. Flannery. He is currently aiming for the company’s reorganization.
Previous experience with companies such as World Com and Enron is the reason why the S.E.C. is focused on preventing any accounting problems. It is not surprising to know that the small changes in the financial statements of the company led to bigger frauds which are the reason why Enron and World Com went down. As a company is taken down, thousands of employees are affected with unemployment and shareholders experience a loss in the amount of billions of dollars.
The accounting issue with General Electric was discovered after Jamie S. Miller who is the chief financial officer of the company talked about the loss of the company in the last quarter which amounted to $9.8 billion. He hinted that they have received notification from the S.E.C. that they are going to investigate the processes involved in the insurance reserve of the company as well as the charge they received in the last quarter.
The issue is not easy to cover up especially with the eyes of the analysts on them. After the announcement on that day, the stock price of the company declined further by 2.7 per cent.
G.E. promised to give their full cooperation and according to Ms. Miller she is not worried with anything regarding the accounting investigation. They are covered with investigation insurance and as usual the company will clear their name once everything settles down.