US regulators are investigating whether Boeing Co. properly accounted for the costs and expected sales of two of its best known jetliners.
Acting on a whistleblower’s complaint, the US Securities and Exchange Commission is focusing its probe on projections Boeing made about the long-term profitability for the 787 Dreamliner and the 747 jumbo aircraft, Bloomberg News reported, citing people with knowledge of the matter.
In particular, it is probing Boeing’s financial reporting method known as program accounting, which allows the company to spread the upfront costs of making planes over many years, the report said.
While the SEC has broadly allowed its use in the aerospace industry, critics have said the system can give too much leeway to smooth earnings and obscure potential losses.
SEC enforcement officials have yet to reach any conclusions and could decide against bringing a case, the sources said.
The issues involved are complex and there are few black-and-white rules governing how companies apply program accounting, one of the sources said.
Program accounting has been around for decades.
The method, which is fully compliant with Generally Accepted Accounting Principles, lets companies average out the costs and anticipated profits over the duration of the “program” for a specific jet, a period that can last decades and encompass hundreds or even thousands of aircraft, Bloomberg said.
The expected costs and sales are estimates and they must be updated — and a loss recorded — when the program is determined to have reached a point where earnings won’t catch up to losses.
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