Tesla's (TSLA) Accounting Practices Called Into Question Once Again

Tesla Motors (Nasdaq: TSLA) shares are active Friday as some of its accounting practices -- and overall reporting emphasis -- is called into question once again.

Bloomberg noted how Tesla's recent quarterly release put much of the focus on non-GAAP results versus GAAP numbers. Tesla posted adjusted Q3 net income of $16 million in the quarter, while that would have been a net loss of $38 million under GAAP standards. The U.S. SEC notes that companies should give equal or greater prominence to GAAP accounting standards following firms previously abusing reporting practices and putting more emphasis on non-GAAP numbers.

(Note: We've whittled the article down, but the full thing is worth a read. Link to the Bloomberg report is included above.)

Notably, Tesla doesn't address GAAP results until page three of its quarterly release. For example, the Company reported Q3 non-GAAP revs of $603.6 million, which was about 40 percent better than GAAP results after it was able to transition $171.2 million of liabilities into sales. That stems from a new financing program, in which Tesla owners are able to sell their car back to the company for guaranteed minimum amounts. Those revs can't immediately be recognized under accounting rules so the Company places those as deferred revenue and resale value guarantee liabilities.

Bloomberg cites one New York-based accountant at CFRA in saying that the adjustment might overstate demand and sales for Tesla (customers might not choose the company without financing) and adding-back the resale value guarantee assumes that no one will return the vehicle, which is a boon for non-GAAP revs.

In addition, the law firm that helped Tesla go public back in 2010 also wrote an article on best accounting practices, which was released in 2008. In part, the firm noted the above SEC mandate and said, For instance, if an issuer announces GAAP and non-GAAP earnings per share in its press release, it should report the GAAP earnings per share prior to the non-GAAP earnings per share. That doesn't appear to be the case at Tesla.

Tesla even admitted last March that it internal control over financial reporting had some issues and FY11 and FY12 cash-flow numbers were restated as a result. In the latest annual report, Tesla said, ‘If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse effect on the price of our common stock.

Tesla has said that it complies with all legal obligations regarding each earnings release and 10Q, according to a statement made to Bloomberg.

Shares of Tesla are lower in early trading. Another accounting article on Tesla can be read here.

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