General Motors Corp., commonly known as GM, is an iconic American corporation. It was the world’s largest automobile 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 post annual losses since that time. During 2005 to 2007, the stock price slight increased until it disclosed its huge deferred tax assets. Since then GM’s stock price continued dropping and reached at a low of $1.45 per share on March 6, 2009. On March 4,2009, Deloitte & Touche issued an unqualified opinion with a going-on concern paragraph on GM’s 2008 financial statements. GM received $13.4 billion in government loans in December 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 bankruptcy. A new GM, known as General Motors Co., was created under the terms 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 reference to going-on concern on GM’s 2010’s financial reporting. Discussion Questions
1. From Exhibit 1, we can see 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 nearly 60% from $476,078 million to $186,182 million. However, in my opinion, 2005 is not the sign of GM’s 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 company’s net losses reached at $38,732 million. The huge deferred tax assets and constant huge losses make me consider that GM may encounter big financial distress in the following years. 2. Auditors should consider the following things in evaluating potential going-on concern uncertainties. (1)...
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