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Analysis in Merger Boeing-Mcdonnell

In: Business and Management

Submitted By cintytazul
Words 481
Pages 2
TO: Members of Review Board
DATE: March 1st, 2014
SUBJECT: Boeing Merger
This memo reports the findings of the accounting practice methods, business ethics and other production problems that happened around merger process with McDonnell-Douglas.
Based on a comprehensive review, I find reasonable cause to believe that Boeing did not handle its cost overruns, production problems, and the merger with McDonnell-Douglas in a transparent and/or ethical manner. Details that support my findings are as follows:

• Merger with McDonnell-Douglas
Lack of transparency surrounded the merger of Boeing with McDonnell-Douglas. Executives of Boeing were utterly concerned in finalizing merger with reluctant McDonnell-Douglas’ officials that they act on it taking the questionable decision of concealing serious production and financial problems.
• Production Problems
Boeing was not prepared to handle increase in production resulted from the merger with McDonnell-Douglas, which cause serious production problems. Its production methods were not up-to-date to handle increase in production and new products, these problems were compounded even more with high overtime, part shortages and an overall low morale in its productions lines.
• Financial Information
Under special aerospace industry rules that are part of generally accepted accounting principles (GAAP), abnormal costs must be recognized in the quarter in which they are incurred, therefore the expenses incurred from the company's production problems should have been booked in the quarters they were incurred and reflected in the profit numbers for those quarters. Instead Boeing shielded itself with the use of “program accounting method”, which even though is common in the aircraft industry, in this situation did not present a fair picture of the financial situation of the company at that period.
• Ethical Behavior

Program accounting method was used to conceal production problems and cost overruns with the purpose to convince reluctant executives of McDonnell-Douglas of a favorable financial situation that did not exist at that moment, with the purpose to secure a merger based on misleading information.
Accounting program method it is widely used by airline manufacturers to defer large upfront development and so-called learning curve costs across the entire expected production run for a particular aircraft, but in this particular case, misled shareholders. Unfortunately, the accounting system used by Boeing was used as a tool to manipulate numbers, cover up cost overrun and book savings based on unrealistic speculations.
Boeing’s Accountants and top Executives should share responsibility for not handling the financial information in a transparent manner. Their actions not just resulted in defaulting their shareholders, but due to the lack of integrity of their actions, they compromised the credibility of a company to the view of shareholders, industry and public in general.
As an additional note, I would have to express my serious concern on how the auditors assessed the accuracy of the information and why they did not uncover Boeing’s shady decisions prior to the merger.

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