UPS to Pay $45 Million Settlement for Improper Valuation of Freight Division in 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 adhering to accepted accounting principles when valuing the unit.
In 2019, UPS estimated the potential sales value of its freight division to be around $650 million, with approximately $500 million of associated goodwill considered impaired. However, instead of relying on its own assessment, UPS used an external consultant’s valuation that was significantly higher at $2 billion, three times the company’s initial estimate.
As a result, UPS did not account for a goodwill impairment in 2019, leading to an inaccurate reflection of its financial performance. Similarly, in 2020, despite entering into a term sheet to sell the division for $800 million, UPS again leaned on the consultant’s valuation, which did not consider the pending sale, resulting in inflated earnings and reported figures.
Melissa Hodgman, associate director at the SEC, emphasized the importance of accurate valuation and impairment recognition, stating that UPS neglected its responsibilities by prioritizing unreliable third-party valuations over its own well-founded estimates. In essence, it is crucial for companies to maintain integrity in financial reporting to ensure transparency and compliance with accounting standards.