Accounting problem goes back 20 years

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Investors who were paying attention to General Electric Co.’s financial reporting over the years shouldn’t have been surprised at the company’s decline, according to an article on www.marketwatch.com.

(In April it was announced that General Electric’s stock were near its lowest levels in more than six years after plummeting more than 56 percent last year.)

“MarketWatch has reported on issues with GE’s GE, +1.88% accounting for years, highlighting practices that we deemed at best confusing and potentially misleading for investors, if not actually in breach of Securities and Exchange Commission rules. Quarter after quarter, GE has featured in stories on the use of nonstandard metrics in reporting earnings and how they can obscure the true state of a business. If a company’s earnings release is not presented in a clear way that is easy to follow, if it’s cluttered with numbers that are difficult to understand, it can be a red flag.

“The 54% decline in the stock over the last year, which triggered GE’s expulsion from the Dow Jones Industrial Average last week, underscores that point. It was the revelation in December of an accounting problem going back 20 years that accelerated the latest downdraft for the stock. For anyone still holding GE stock in their portfolio, it’s more important than ever to closely scrutinize the company’s disclosures.

MarketWatch says GE’s accounting issues date back years. “They were evident under the high-profile Jack Welch and continued under his successor, Jeff Immelt, but the cult of personality around Welch likely discouraged anyone from questioning reports that he’d signed off on.”

According to the article, Tom Selling, a professor emeritus at the Thunderbird School of Global Management, wrote on his blog that “managers aspiring to Welch’s inner circle evidently must not only have been required to fill their own accounting cookie jars, but as team players they were expected to share with their playmates.”

Read the article here.