Ford Motor Company is taking a one-time $800 million charge to earnings in its 2014 fourth quarter because of continued inflationary and currency problems with Venezuelan operations.
Ford said in an 8-K filing with the Securities and Exchange Commission that its Venezuelan operations can’t pay dividends and other obligations denominated in U.S. dollars because Venezuela exchange control regulations have produce an “other than temporary” breakdown in currency exchange between the Venezuelan bolivar and the U.S. dollar. Ford says the currency woes have constrained parts availability, which is making it difficult to maintain normal production.
The currency and resulting supply problems have led Ford, in accordance with accounting standards, to switch its Venezualan operations to the cost accounting method, which has produced the one-time charge of $800 million, the company reported to the SEC. Financial results in future periods will not include Venezuelan operations results. “We will record cash and recognize income from our Venezuelan operations to the extent we are paid for parts we sell to them or receive dividends from them,” Ford said.
The SEC has been warning companies to pay attention to currency and inflationary issues in Venezuela and adjust accounting accordingly through its interaction with the Center for Audit Quality’s SEC International Practices Task Force. Where companies are feeling the effects of inflationary and currency problems, the SEC is calling on companies to provide disaggregated financial information about Venezuelan operations and heavy disclosure about exchange rates, foreign exchange gains or losses, impairment losses, net monetary assets and liabilities, and more.
While Venezuela has been on an inflationary watch for some time, SEC staff provided the CAQ international practices committee with some guidance on other countries where companies should keep a close eye on inflationary conditions, including Belarus, Iran, Sudan, South Sudan, Malawi, and Argentina.