Ford Expects Boost In Profits After Change In Accounting Procedure

The new accounting procedure will help Ford to report a $1.5 bn increase in profits.

Ford’s new accounting procedure might help it to record different financial figures. The American automaker would be reporting a $1.5 billion worth increase to its earnings before tax for the last year after it made a change to the procedure to account for the performance of pension policies that have catered to its large number of retired and current workers.

Ford – the second biggest vehicle maker by sales – said that it was shifting to ‘mark to market’ accounting for its pension liabilities to report like its competitors and offer better transparency for business’ performance. The Michigan based organization earlier amortized quarterly loss and profits regarding its pension policies over many years, creating a long lasting impact on its financial performance from losses and gains. It will switch instead to report non-cash special items every quarter to be reflective of the losses or gains of schemes.

A senior accounting executive of the company, Stuart Rowley, said the company changed after many years of cutting down the risk from its global plans through moves like the closure of defined-benefit schemes. “We’ve been looking at this at the same time that we have been on a very deliberate journey to fund and de-risk our global pension funds,” Mr. Stuart stated.

Ford exclaimed it was expecting change for boosting in 2015 profits before tax exclusive of special items by $1.5 billion to a range of $10 billion to $11 billion when the declaration of the results was made in January.

The revised financial figures calculated by the newly introduced accounting method were also published by the automotive organization. Net income earned in the first 3 quarters of the past year would have been $5.5bn under the new accounting principles, instead of the $4.72 billion reported.

Ford‘s shares declined by 3.1% at trading closed in New York, at $12.70. The company’s stock has decreased by about $17% in the past 12 months even though the profits of the enterprise were generated mainly from the American vehicle market, where sales have reached record levels.

Stuart has been stressing that the change will have an impact only on the recording of the pension policies' performance. “There’s no impact upon benefits received by either our current employees or retirees,” he stated. “There’s no impact on the funding status.”

The changes made to the ‘mark to market’ pension accounting procedure for other huge American corporations have typically made investors look at the previous quarterly special items at the business’ underlying performance.