SEC keeps a close eye on Tesla’s accounting: two earnings reports or problems

Beijing time on the morning of November 29, according tomedia reports, recently, the U.S. Securities and Exchange Commission (SEC) seems to be closely watching Tesla’s accounting work. The SEC has previously clashed with Tesla’s chief executive, Elon Musk, but the debate has focused on activities outside Musk’s own, such as tweets that may disclose important information.

SEC keeps a close eye on Tesla's accounting: two earnings reports or problems

The SEC accused Musk of manipulating the stock price last year after he expressed interest in privatizing the company on Twitter. In the end, the two sides settled with a $40 million fine from Tesla and Musk, who resigned as chairman and hired a new independent director. The settlement then made more specific provisions on what Musk could post on Twitter because the SEC felt musk’s tweet about the company’s expected production violated the settlement.

Recent events, however, have little to do with Musk. Instead, the company’s new chief financial officer, Zachary Kirkhorn, and Tesla’s legal arm are among the main players. Documents uploaded to the SEC’s online database on Wednesday show that the regulator questioned Tesla’s annual results in February and quarterly results in July.

In the original letter sent to Kirkhorn on September 17, SEC staff asked Kirkhorn to further explain Tesla’s changing financial situation, as well as the third-party sales revenue it received from the acquired company, and the company’s warranty liability policy. All of this is disclosed in the 2018 annual results. The regulator also asked Tesla to explain how it accounted for rental vehicles after new accounting standards were issued for car rental.

In his response to the SEC, Kirkhorn detailed Tesla’s expansion of Model 3 production in 2018, which was the main reason for the company’s financial changes, in response to the SEC’s challenge to the company’s significant increase in vehicle revenue costs. Mr. Kirkhorn also explained that some of the companies Tesla acquired continued to sell to third parties after the acquisition because of pre-acquisition agreements.

Mr. Kirkhorn’s explanation for warranty liabilities and lease accounting is that Tesla’s actions are within accounting standards. The company does not disclose any other material information other than what has been in Tesla’s filingwith WITH the SEC. On October 28, the SEC terminated its investigation.

In a letter sent to the company’s legal team on September 17, the SEC asked Tesla to provide an unedited copy of certain information so that the SEC could decide whether it could be not included in documents filed with the SEC.

Tesla did not immediately respond to a request for comment on the communications.

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