UPS will pay $45 million in fines according to SEC decision

Nov. 23 (UPI)— The world’s largest courier service, UPS, will pay a $45 million fine after settling claims by one of its units that it misrepresented earnings, the U.S. Securities and Exchange Commission confirmed in a release this week.

The Securities and Exchange Commission (SEC) settled charges with the Atlanta-based shipping and receiving firm after it accused UPS of “materially misrepresenting its earnings because it failed to follow generally accepted accounting principles (GAAP) in valuing one from their worst enterprises.”

The charges stem from incidents in 2019 and 2020 in which the company was twice accused of violating GAAP rules relating to the cost of UPS Freight, its business unit responsible for transporting freight less than a full truck load.

As part of Friday’s agreement with the SEC, UPS will not deny or admit wrongdoing that violated Sections 17(a)(2) and (3) of the Securities Act.

The company also promised not to allow such violations in the future.

In 2019, the company was accused of valuing its UPS Freight business unit at $650 million if it were sold. However, the company was unable to correctly calculate the value of goodwill associated with this division.

Goodwill represents future economic benefits, such as a potential sale, and must be tested annually, as defined by the Association of Certified Public Accountants.

UPS’s accountants failed to show on its balance sheet that about $500 million of that $650 million valuation was impaired.

“Companies need to perform impairment tests annually or whenever a trigger event causes the fair market value of goodwill to fall below its carrying amount,” says the Corporate Finance Institute’s accounting definition of the term.

“Business assets must be properly measured at their fair market value before being tested for impairment. If goodwill has been assessed and identified as impaired, the full amount of the impairment must be written off immediately as a loss. Impairment is recognized as an impairment loss. income statement and how to reduce the amount of goodwill on the balance sheet.”

The company’s settlement with the SEC also includes a requirement to hire an independent compliance consultant to assess goodwill impairment.

“The balance sheet of goodwill provides investors with valuable information about whether companies are successfully managing their businesses,” SEC Deputy Director Melissa Hodgman said in a statement to the agency.

“It is therefore critical for companies to prepare reliable fair value estimates and, where necessary, to impairment goodwill. “UPS has failed to meet these obligations by repeatedly ignoring its own reasonable estimates of the selling price of freight shipments in favor of unreliable estimates from third parties.”