Mini- Case Going- Concern Reporting Essay
1. Reviewing GM’s financial information in GM Exhibit 1 and its stock price in GM Exhibit
2 , when do you first see signs of GM’s impending financial distress? 2. In referencing professional standards, what factors should auditors consider in evaluating potential going- concern uncertainties?
3. Considering your response to questions 1 and 2, do you believe that the going- concern uncertainty was warranted? Do you believe that Deloitte & Touche should have issued a going- concern opinion prior to 2008?
4. What economic factors existing in the United States during 2008 might have accelerated Deloitte & Touche’s …show more content…
4. The following general economic factors in 2008 may have contributed to Deloitte & Touche’s decision to issue an opinion modified for going-concern uncertainties: • High oil prices, which resulted in high gasoline prices that reduced consumer demand for trucks and sports utility vehicles. • The international credit crisis, which resulted in increased difficulty for GM’s customers in obtaining credit, reducing demand for all vehicles. • The general worsening of the U.S. economy (including extensive layoffs and increases in unemployment), which reduced consumer demand for all vehicles.
5. While it is far too early to comment on GM’s potential success, these events following the GM bankruptcy may alleviate some of the concerns of Deloitte & Touche:
a. Increased access to consumer credit and a more positive U.S. economy, which may increase demand for vehicles.
b. The terms of the restructuring plan, which provided the following potential benefits to GM: (1) additional capital, (2) organization of the less viable GM brands under Motors Liquidation Company, and (3) reduced levels of debt, employees, dealers, and manufacturing plants (GM