Last January the Security and Exchange Commission sent letters to chief financial officers of major auto manufacturers informing them that their current accounting practices did not comply with generally accepted accounting principles.
The SEC's plan was to change these methods from dealer finances and leases.
Instead the SEC wanted the automakers to account for these leases correctly in the future by operations and also present three years worth of back information of past impact.
Automakers such as Ford and General Motors must now have their accounting methods approved by the Security and Exchange Commission before employee benefits can any longer take place.
However, last year the automakers during negotiations with United Auto Workers agreed to take a specific amount of money to a health care fund which would be responsible for retiree healthcare funds.
The result of this would be removing these liabilities from their books.
By having this argument between the SEC and companies the automakers are the ones who are feeling the effect of this problem the worst.
For employees who work for a percentage of their funds to be given to them through healthcare it is important to know that these funds are available and sufficient.
The past method involved gave the automobile companies an advantage by having the healthcare funds constantly available.
With the SEC cracking down the ways in which these companies are reporting, the automobile companies are feeling an effect.
According to the report the SEC does not believe that any accounting fraud has taken place or asking them to restate their past results.
Chief Accountant Carol Stacey of the SEC's corporate finance division told Dow Jones "It is just the classification that is wrong.
" However the change would ultimately reduce net cash flows from operations which are what investors and venders like to look at.
In due course the SEC's plan would be to have the companies be able to show that the cash flows from dealer finance and leases coming not from investment which has been the practice in auto industry for years.
Instead the plan would be to have these cash flows coming from operations.
The part of the problem that is being felt the most is that the retired automakers healthcare procedures cannot go into affect until their bookkeeping is examined by federal officials.
If these officials object the new procedures current employees would be able to quit out on the deal on short notice.
Under the deals of the contract in which the workers signed with the United Auto Workers, if the officials do reject these plans the negotiations can be reopened in order to suit the needs of the SEC or completely terminate the agreements.
A spokesperson from General Motors stated that if the agreement is shot down that the company may immediately cease the settlement agreement if while in discussion with the SEC the terms go behind the accounting treatment that General Motors believes if satisfactory.
This is a contract that can go either way for the employees of these companies.
The terms of the agreement most definitely are helping the companies by providing the direct write off on the liabilities on their books.
The real question is if this process would have an impact on the employees and how much the SEC will want to change the plans of this contact.
By the SEC taking the time to review these guidelines and the process that large corporation such as these are taking in their accounting practices shows how the need for accounting reviews are needed today.
The retired autoworkers are the ones who are feeling the effects of this growing turmoil the hardest by having their healthcare put in the air.
This was an agreement that these people signed as currently employees to have enforced when they retire from the company.
From the SEC's view it is as if the automobile companies are doing the wrong thing in this case but from the automaker's view the employees are being robbed of a benefit that they worked for.
From now on the only thing that can be done is hope that the negotiations between the companies and SEC are solved in a timely pattern and the employees will be able to keep their health care.
If the automobile manufactures find that the new SEC adapted accounting practices are satisfactory then the employees will not have to pull out of the agreement.
Until this point comes we will just have to wait and see what terms are agreed on.