Automotive giant General Motors has agreed a $1m (£810,000) penalty with US regulator, the Securities and Exchange Commission (SEC), to settle charges that failures in its internal accounting controls meant the company did not properly assess the potential impact on its financial statements of a defective ignition switch found in some vehicles
The SEC maintained that when loss contingencies such as a potential vehicle recall arise, accounting guidance requires companies like General Motors to assess the likelihood of whether the potential recall will occur, and provide an estimate of the associated loss or range of loss or a statement that such an estimate cannot be made.
However, the regulator says the manufacturer’s accountants were not made aware of the company’s internal investigation involving the defective ignition switch until November 2013, even though other General Motors personnel understood in the spring of 2012 that there was a safety issue at hand.
The SEC says there was a period of at least 18 months when accountants at General Motors did not properly evaluate the likelihood of a recall occurring or the potential losses resulting from a recall of cars with the defective ignition switch.
Andrew Calamari, director of the SEC’s New York regional office, said: ‘Internal accounting controls at General Motors failed to consider relevant accounting guidance when it came to considering disclosure of potential vehicle recalls.
‘Proper consideration of loss contingencies and assessment of the need for disclosure are vital to the preparation of financial statements that conform with GAAP.’
The auto manufacturer, which is the largest in the US, said in a statement that it consented to the SEC order, without admitting or denying any wrongdoing, and added: ‘The SEC settlement does not call into question any of General Motor’s current or prior financial statements or its disclosures. Also, no material weakness or significant deficiency was found by the SEC.’
The flaw in the ignition switch led to the deaths of at least 124 people and injured a further 275. General Motors GM incurred ignition switch-related costs of more than $2bn and set aside billions more for other recalls in 2014 and 2015.
In 2015, the company paid $900m to settle a US Justice Department criminal investigation. It also set aside nearly $1.1bn to settle lawsuits from investors and owners, and pay injury and death claims.
