General Electric Company (NYSE:GE) has announced cooperation with Securities and Exchange Commission (SEC) investigation into its accounting practices. The company disclosed this information during a conference call on earnings update.
It is on the sidelines of the company’s review of GE Capital Insurance portfolio to divert $6.2 billion in Q4, 2017. In the next seven years, the company will invest $15 billion to increase reserves of the portfolio.
Ms. Jamie Miller took the charge of finance chief of GE Capital in November 2017. Ms. Jamie Miller, the Chief Financial Officer at GE said that SEC is conducting the investigation into the Q4 charge and the proposed increase in insurance reserve as well. SEC will also scrutinize the controls implemented for the long term accords and the revenue recognition of GE. She further said that company is fully cooperating with SEC in the investigation process by providing all the relevant records.
She further said her team is well aware of the mistakes committed in the previous years and not worried about the investigation. During the Q4 earnings conference call, she said GE has good inventory. The company’s reserves are appropriately set and ready to incorporate additional changes in GE capital if necessary. However, it is too early to decide what actions are necessary.
The company is still finalizing the updates and she will restate the results of 2016 and 2017. The restatement is obligated to comply with the adjustment of new revenue recognition in accordance with the rules set for long term service contracts.
The company has a set of long term agreements in its jet engine/ power turbine business. The rule is applicable if the revenues from these contracts are recognized.
GE has incurred a loss of $10 billion from its multi billion insurance charge of GE capital in the recent quarter. The company was not collecting sufficient insurance premium in the long term care insurance and hence the necessity for the charge.
GE is one of the dozen insurers offering such a coverage. The company’s revenues have been hurt because of the falling interest rates and increased claims in long term care by the customers. With the lifespan of Americans is increasing, the payouts from GE may continue to rise.
GE is reviewing the operations to set right the business under the new CEO. The company may even divest some of the assets.