GM warns of accounting problems

NEW YORK (CNNMoney.com) -- General Motors warned investors Thursday that its internal controls over financial reporting are ineffective and could make it difficult for automaker to execute its business plan.

The company made the statement in its annual 10-K report of results for 2006, filed early Thursday with the Securities and Exchange Commission. GM (Charts) said in the filing that management has recognized the problems and is taking steps to correct them.

It acknowledged that the company had not maintained a sufficient complement of personnel with an appropriate level of technical accounting expertise and said it would make greater use of outside experts while it added staff with that necessary level of knowledge.

Among the steps the company detailed in the report were the appointment of more than a half dozen new accounting officers for the corporation and its various units, as well as the reorganization and restructuring of the accounting and tax departments.

GM spokesman Randy Rick said it is important for investors to consider the steps that GM is taking, along with the filing's revelation of a problem.

"As indicated in our 10-K, we have identified a weakness in our internal controls over financial reporting and we are taking swift actions to address and resolve this," he said.

Investors seemed to shrug off the information in the filing. Shares of Dow component GM were down less than 1 percent in morning trading.

The filing showed the company making tremendous progress on its turnaround plan, which is designed to return its core North American auto operations to profitability. The report showed the company making money in the fourth quarter and 2006, compared to large losses in the year-earlier periods. But a financial hit from its sub prime mortgage business left earnings short of forecasts.

GM Chief Financial Officer Fritz Anderson, when he closed a two-hour conference call Wednesday, alerted investors and analysts to look to the section of the report in which "we outline in there, for example, management's assessment of internal controls and material weakness."

The 10-K filing was made two weeks later than the typical deadline for the report after GM had gotten an extension, due to a relatively minor restatement of results dating back to 2002 as well as the closing of the sale of a majority of its stake in its GM AC finance arm, that closed Nov. 30.

The company revealed more than a year ago that the Securities and Exchange Commission had issued subpoenas about its accounting practices. It gave no further details of the status of those probes in its latest filing.

Kevin Tympana, auto analyst with Argus Research, said he doesn't anticipate the stock taking a bit hit due to the comment in the filing.

"These are not the issues this stock trades on. It trades on how it's doing with the turnaround plan," said Tympana. "At this point if you're not aware of accounting issues, you haven't been paying attention. There's the SEC accounting probes going on and the long delay in this filing. It shouldn't be a surprise to anyone keeping half an eye on the company."

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