GE 2005 Annual Report Download - page 74

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(74)
Note 1
Summary of Significant Accounting Policies (Restated)
2007 Restatement
On January 19, 2007, we amended General Electric Company’ s (GE) Annual Report on Form 10-K for the year
ended December 31, 2005, to amend and restate financial statements and other financial information for the years
2005, 2004 and 2003 and financial information for the years 2002 and 2001, and for each of the quarters in the years
2005 and 2004. The restatement adjusts our accounting for interest rate swap transactions related to a portion of the
commercial paper issued by General Electric Capital Corporation (GECC) and General Electric Capital Services,
Inc. (GECS), each wholly-owned subsidiaries of GE, from January 1, 2001, the date we adopted Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended. The restatement has no effect on our cash flows or liquidity, and its effects on our financial position at the
ends of the respective restated periods are immaterial. This adjustment affects disclosure in the following footnotes:
8, 9, 17, 18, 21, 23, 25, 26, 27 and 30.
Background
As previously disclosed, the Boston Office of the U.S. Securities and Exchange Commission (SEC) is conducting a
formal investigation of our application of SFAS 133. In the course of that investigation, the SEC Enforcement staff
raised certain concerns about our accounting for the use of interest rate swaps to fix certain otherwise variable
interest costs in a portion of our commercial paper program at GECC and GECS. The SEC Enforcement staff
referred such concerns to the Office of Chief Accountant. We and our auditors determined that our accounting for
the commercial paper hedging program satisfied the requirements of SFAS 133 and conveyed our views to the staff
of the Office of Chief Accountant. Following our discussions, however, the Office of Chief Accountant
communicated its view to us that our commercial paper hedging program as structured did not meet the SFAS 133
specificity requirement.
After considering the staff’ s view, management recommended to the Audit Committee of our Board of
Directors that previously reported financial results be restated to eliminate hedge accounting for the interest rate
swaps entered into as part of our commercial paper hedging program from January 1, 2001. The Audit Committee
discussed and agreed with this recommendation. At a meeting on January 18, 2007, the Board of Directors adopted
the recommendation of the Audit Committee and determined that previously reported results for GE should be
restated and, therefore, that the previously filed financial statements and other financial information referred to
above should not be relied upon. The restatement resulted from a material weakness in internal control over
financial reporting, namely, that we did not have adequately designed procedures to designate, with the specificity
required under SFAS 133, each hedged commercial paper transaction.
The SEC investigation into our application of SFAS 133 and hedge accounting is continuing. We continue
to cooperate fully.