Accounting Observer > Public Blog - Another Auto Dealer Revises Cash Flow Geography

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Another Auto Dealer Revises Cash Flow Geography

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	2/3/2006 8:17 AM
It's starting to spread... A couple days ago, this space was devoted to the restatement of cash flows and balance sheet debt reclassifications of Group 1 Automotive and United Auto Group. Yesterday afternoon, they were joined by another brother in auto dealing: Asbury Automotive Group. In Asbury's 8-K filing, they mention the same kind of erroneous presentation and correction as the other two, but without quantification of the effects. The company "is still compiling the effect of this classification change on its consolidated statements of cash flows and consolidated balance sheets and will include a reconciliation of the previously reported amounts in its amended filings." The planned restatement, like the other two, appears to be a response to the remarks made by Joel Levine of the SEC at last December's SEC & PCAOB Current Developments Conference, sponsored by the AICPA. Levine outlined exactly the same issues addressed here: that the relevant accounting standard, SFAS 95, calls for operating cash flows to include "principal payments on accounts and both short- and long-term notes payable to suppliers for those materials or goods," while financing cash flows include proceeds and repayments of borrowings from lenders. Thus, the financing provided by auto manufacturers is related to operations; borrowing from a third party lender is a financing activity. (The SEC does not yet have Mr. Levine's remarks published on its website; when they're available, I'll provide a link to them.) Another thing that all three restaters had in common: even though their previous treatment was not in accordance with SFAS 95, each of them stated that their treatment was "consistent with industry practice." Maybe it's just another example that misery loves company; but even when the industry practice is counter to what the relevant accounting standard requires, the SEC is not going to look the other way. It's still a violation, and the will of the SEC to make sure the rules are being followed was amply demonstrated last year in the lease accounting restatement whirlwind. It looks like the SEC is paying attention to the care used in producing the cash flow statement - which is good to see, frankly. Investors pay more attention to the cash flow statement these days, and many of the "alternative" performance measurements lead off with cash from operations. Perhaps the SEC is changing its view of what's most important in the financial statements.

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