1 of 4 | The world’s largest courier service, UPS, will pay $45 million in fines after settling claims one of its units misrepresented earnings, the U.S. Securities and Exchange Commission confirmed in a release this week. File Photo by Bill Greenblatt |
License PhotoNov. 23 (UPI) — The world’s largest courier service, UPS, will pay $45 million in fines after settling claims one of its units misrepresented earnings, the U.S. Securities and Exchange Commission confirmed in a release this week.
The SEC has now settled charges with the Atlanta-based shipping and receiving firm after accusing UPS of “materially misrepresenting its earnings because it failed to follow generally accepted accounting principles (GAAP) in valuing one of its worst performing businesses.”
The charges stem from incidents in 2019 and 2020 when the company was twice accused of violating GAAP rules relating to the bluebook value of UPS Freight, its business unit responsible for transporting shipments that amounted to less than a full truckload.
As part of Friday’s agreement with the SEC, UPS will not deny or admit to the wrongdoing, which violated Sections 17(a)(2) and (3) of the Securities Act.
The company also promised not to commit the same violations in the future.
In 2019, the company is accused of valuing the UPS Freight business unit at $650 million should it be sold. However, the company failed to properly calculate the value of the goodwill associated with that unit.
Goodwill represents future economic benefits like a potential sale and must be tested each year, according to a definition by the Association of Chartered Certified Accountants.
Accountants for UPS failed to record on its balance sheet that approximately $500 million of that $650 million valuation was impaired.
“Companies need to perform impairment tests annually or whenever a triggering event causes the fair market value of goodwill to drop below its carrying value,” reads an accounting definition of the term by the Corporate Finance Institute.
“Business assets should be properly measured at their fair market value before testing for impairment. If goodwill has been assessed and identified as being impaired, the full impairment amount must be immediately written off as a loss. An impairment is recognized as a loss on the income statement and as a reduction in the goodwill account on the balance sheet.”
The company’s settlement with the SEC also includes a requirement to employ an independent compliance consultant moving forward to assess goodwill impairment.
“Goodwill balances provide investors with valuable insight into whether companies are successfully operating the businesses they own,” SEC Associate Director Melissa Hodgman said in the agency’s statement.
“Therefore, it is essential for companies to prepare reliable fair value estimates and impair goodwill when required. UPS fell short of these obligations, repeatedly ignoring its own well-founded sale price estimates for Freight in favor of unreliable third-party valuations.”
