UPS Settles Charges for Improper Valuation of Freight Division with $45M Payout in the US
UPS has agreed to pay $45 million to settle charges brought by the Securities and Exchange Commission regarding the improper valuation of its freight division. The SEC found that UPS misrepresented its earnings by not following accepted accounting principles when valuing the unit.
In 2019, UPS determined that its freight division was only worth around $650 million, leading to a significant impairment of nearly $500 million in associated goodwill. However, instead of relying on its internal analysis, UPS turned to an outside consultant whose valuation was three times higher, at $2 billion. This discrepancy led to UPS failing to record a goodwill impairment for that year, resulting in inflated earnings.
Similarly, in 2020, despite entering into a potential sale agreement for $800 million, UPS once again used the consultant’s valuation to avoid impairing goodwill, resulting in overstated earnings. The company did not disclose the sale agreement to the consultant, further complicating the situation.
The SEC emphasized the importance of accurate valuations and goodwill impairment, stressing that UPS neglected these responsibilities by prioritizing unreliable third-party valuations over its own estimates. Melissa Hodgman, associate director at the SEC, highlighted the significance of adhering to these accounting standards to ensure transparency and accuracy in financial reporting.
