Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Brief survey of costs from Volkswagen’s diesel fiasco.

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Haven’t talked about the massive Volkswagen diesel fraud much on this blog. Just don’t have enough time to cover every business fiasco. Time for a brief recap of the financial cost of the cheating mess.

Here is a fast tour from the guilty plea in 2017 to the latest estimate of total costs in 2019.

3/10/17 – Wall Street Journal – Volkswagen Pleads Guilty to Criminal Charges in Emissions-Cheating Scandal.  Good recap of the VW confession:

Key tidbits:

  • Guilty plea to criminal charges of conspiracy to defraud U.S., wire fraud, violations of Clean Air Act, and obstruction of justice.
  • $2.8B criminal fine
  • $1.5B civil fine
  • Typical plea agreement would prohibit claiming any of those fines as a tax deduction, thus those are after tax amounts
  • $20B total estimated cost in U.S. alone
  • VW admitted a decade long conspiracy
  • 600,000 vehicles on the road in US had software that would evade emissions monitoring during a test
  • 7 VW executives have been indicted personally; if I understand the article’s phrasing correctly, one is awaiting sentencing after a guilty plea, one is in custody awaiting trial (apparently no bail), and five are living in Germany with uncertainty whether the long arm of US law will be able to reach them.

9/29/17 – Wall Street Journal – Volkswagen Takes New $2.9 Billion Hit From Diesel Scandal – Just to be clear, that $2.94B is the new charge to expenses just for the quarter. The total reserve is $29.67B according to the article. Graph in the article says cash outflow was $3B in 2016, $5B in first quarter of 2017, and another $7B in the second quarter.

5/2/19 – Wards Auto – Volkswagen’s Dieselgate Costs Top $33.6 Billion – Additional charge of $1.1B in the first quarter brings the total cost for the diesel fiasco to $33.6B.

For context, article says the operating profit (before interest and taxes, i.e. EBIT) was $4.4B in first quarter of 2019 and $4.7B in first quarter of 2018.

Average the current and prior year quarter’s gives an average of $4.55B a quarter. Annualized that suggests the annual EBIT is about $18.2B a year.

So the faking of diesel engine performance has blown about 1.8 years of EBIT, or one year 10 months worth of earnings before interest and taxes. It is just my opinion, but it seems to me stockholders ought to be furious at the waste of their equity.

9/24/19 – Wall Street Journal – The Long-Term Cost of Volkswagen’s Emissions Scandal – Total cumulative provision is reported at $33B, a slight decline in the last two quarters.

Article lists the following costs by year:

  • €16.2 – 2015
  • €5.2 – 2016
  • €3.2 – 2017
  • €3.2 – 2018
  • €1.0 – 2019
  • €28.8 – subtotal of above
  • €30.0 – approximate total reserve

Those amounts do not include any provision for lawsuits by investors in the US and Canada claiming €9.6B as compensation for damages.

Written by Jim Ulvog

December 27, 2019, 7:00 am at 7:00 am

Posted in Fraud, Other stuff

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