General Motors Essay Example for Free

General Motors EssayGeneral Motors Corp., commonly known as GM, is an iconic American corporation. It was the worlds largest car manufacturer from 1931 to 2008. GM was a winner in the automobile market until 2005, when it reported a net loss of more than $10 billion and continued to governance agency annual losses since that time. During 2005 to 2007, the commonplace price slight improverd until it disclosed its huge deferred tax assets. Since because GMs stock price continued dropping and reached at a low of $1.45 per allocate on March 6, 2009. On March 4,2009, Deloitte Touche issued an unqualified opinion with a going-on uphold paragraph on GMs 2008 financial statements. GM received $13.4 billion in government loans in celestial latitude 2008 and has requested another $16.6 billion. In April 2009, a restructuring plan was created to save GM. On June 1, 2009, GM filed for Chapter 11 unsuccessful person. A new GM, known as General Motors Co., was created under the term s of bankruptcy plan. General Motors Co. began its operations on July 10,2009. In November 2010, GM went public with an initial public offering that raised $23.1 billion. This time, Deloitte did not make role to going-on concern on GMs 2010s financial reporting. Discussion Questions1. From Exhibit 1, we can externalise that since 2005, GM is suffering from losses and it had negative cash flows from operations except for 2007. In 2006, its total assets shrank close to 60% from $476,078 million to $186,182 million. However, in my opinion, 2005 is not the sign of GMs impending financial distress. It is in 2007 when it disclosed its huge deferred tax assets, which made the stock price dropped abruptly. And it is also in 2007 when the companys net losses reached at $38,732 million. The huge deferred tax assets and constant huge losses make me shoot that GM may encounter big financial distress in the spare-time activity years.2. Auditors should consider the following things in evalua ting potential going-on concern uncertainties. (1) contemplation of conditions and events such as negative trends of operating losses, working roof deficiencies, negative cash flows, adverse key financial ratios. (2) Consideration of managements plan such as plans to dispose assets, plans to borrow money or restructure debt, plans to reduce or delay expenditures and plans to increase ownership equity. (3) Consideration of financial statement effects whether they are adequate and what are the possible effects. (4) Consideration of the effects on the scrutiniseors reports.3. In my opinion, the going-concern distrust is not warranted. No one could call what will happen in the future. Auditors do not have the responsibility to predict future events. Therefore, the going-concern uncertainty is just a substantial doubt based on historical data and past events, more or less reasonable estimates and managements plans. From the exhibit 1, we can find that GM suffered losses since 2005 . However, I do not think it necessary to issue an audit opinion modified to disclose going-concern opinion preceding to 2007 when its losses reached at $38,732 million. A going-concern opinion should be issue when substantial doubt exists. Although it suffered losses since 2005, at that place was no sign that management would file the chapter 11 bankruptcy protection and it was likely that the US government would provide financial support for the GM. So it is not adequate to add the going-concern paragraph in my tip of view.4. The Great Recession which began in December 2007 and lasted to September 2008 might have accelerated Deloittes last to issue an audit opinion modified to disclose going-concern uncertainties. The financial crisis resulted in collapse of large financial institutions, the bailout of banks by national governments, downturns in stock markets around the world, etc. The financial crisis made GMs problems more difficult because it could not pay its debt and it b ecame harder for it to refinance. Therefore, at this point, the going-concern uncertainty for GM was substantially increased, which led to an audit opinion with modified going-concern paragraph.5. The Car Allowance Rebate Program released on July 1, 2009 did help the new GM. The computer program provided incentives for the automobile industry with more than 690,000 transactions rebated under this program. Although GMs sale were down 17% from 2008, it got rid of 70% debt, abandoned 4 unprofitable brands and 13 manufacturing plants, cut off 22,500 employees and 2,300 dealers. These measures helped the new GM cut down its costs and got through its tough time. And there was no sign that any going-on concern uncertainty existed. What auditors should consider about the going-concern is pretty much the same as in question 2.6. GMs going-concern opinion would somewhat influence my decisions regarding purchasing a car from GM or investment in GMs stock. And this may be part of the reason w hy GM stock dropped after 2008. In my point of view, going-concern is a self-fulfilling prophecy. However, it is not the going-concern opinion caused the company to file a bankruptcy protection. The companys problem such as inefficient benefit plan had been existed there for a long time without solving. The going-concern opinion just revealed the problem and accelerated its demise. And this eventually made the self-fulfilling prophecy exercise true.