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What’s the Penalty for Non-gaap Accounting? Just Ask Tesla!

“Based on your response, it is not clear whether you intend to revise your disclosure as requested in our prior comment.”

Yikes! This quote is an excerpt from a recently released series of letters between the SEC and Tesla Motors, Inc. regarding the company’s 2016 financial statements.

According to the reports, Tesla received several memos from the SEC asking the company to revisit its financials after using outlawed accounting metrics and subsequently releasing the information to investors and the public.

As you may know, the SEC revised its guidelines on custom accounting earlier this year and has since increased supervision over non-GAAP accounting practices. Such was the case for Tesla.

Over the past two years, Tesla has struggled to make positive cash flows, damaging both investor confidence and even sales. However, the company’s accounting did not accurately reflect this cash flow issue. According to the memos, the SEC asked Tesla to “…clearly state that you have not generated positive operating cash flows in the past two fiscal years and when you anticipate that you will generate positive operating cash flows, if at all.”

In response, a Tesla spokesman noted that the company “responded promptly to the SEC’s May guidance. When Tesla announced its Q2 earnings, it stated that it was evaluating the SEC’s guidance and was determining whether any changes should be made.”

After months of letters and exchanges, Tesla has now released more transparent Q3 financials that comply with the SEC’s disclosure guidelines.

In short, Tesla’s received some stern memos from the SEC and negative publicity regarding its accounting – which is a far cry from jail time for executives – but there’s no telling how regulations may change in the future.

To be sure you’re on the straight and narrow with SOX and Internal Controls over Financial Reporting (ICRF), sign up for SkyStem’s upcoming webinar, “SOX for the Holidays”, and learn more about why we have such controls. Sign up here!

By |2023-03-11T14:51:58+00:00December 7th, 2016|Uncategorized Archives - Page 2 of 2|0 Comments
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