GM: Running On Empty? 1. The sign of GM’s impending financial distress is first seen in 2005. GM reported a net loss of more than $10 billion and has continued to post annual losses since that time with losses reaching almost $31 billion in 2008. GM's cash flow from operations in 2005 was a negative $16.8 billion. Reviewing GM’s stock price, we can see that the stock price also decreased dramatically started in 2004 to 2008. In 2005, GM’s stock traded around $19 per share and reached the lowest of $1.45 per share on March 2009.
2. Auditors are required to consider evidence obtained and accumulated throughout the audit and make an overall evaluation as to whether substantial doubt exists with respect to the ability of the client
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I believe that Deloitte & Touche should have issued a going-concern opinion prior to 2008. The sign of GM’s impending financial distress is first seen in 2005. GM reported a net loss of more than $10 billion and has continued to post annual losses since that time with losses reaching almost $31 billion in 2008. GM's cash flow from operations in 2005 was a negative $16.8 billion. Reviewing GM’s stock price, we can see that the stock price also decreased dramatically.
4. A number of economic factors in the United States during 2008 might have accelerated Deloitte & Touche’s decision to issue an audit opinion modified to disclose going-concern uncertainties. Chief among the many factors was a dramatic change in the ability to create new lines of credit, which dried up the flow of money and slowed new economic growth and the buying and selling of assets. There were other factors as well, including the cheap credit which made it too easy for people to buy houses or make other investments based on pure speculation. Cheap credit created more money in the system and people wanted to spend that money. The housing market decline also caused a chain reaction in the economy. Individuals and investors could no longer sell their homes for a quick profit causing massive losses in mortgage backed securities and many banks and investment firms began bleeding money.
5. In my
The assessor will need to decide whether the evidence produced is sufficient, authentic and current.
- The successor should review previous audits in order to whether problems exist that may impact the successor’s acceptance of the audit. Also, the successor should review previous audits in order to have confidence in the current/past figures presented on the client’s financial
Knowledge about risks related to the company evaluated as part of the auditor 's client acceptance and retention evaluation; and the relative complexity of the company 's operations. ( Auditing Standard No. 9 //. (n.d.).
Evaluating the Reasonableness of the Accounting Estimates, and Determining Misstatements: the auditor shall evaluate, based on the audit evidence, whether the accounting estimates in the financial statements are either
There are four things that an auditor needs to assess prior to performing an audit:
What economic factors existing in the United States during 2008 might have accelerated Deloitte & Touche's decision to issue an audit opinion modified to disclose going-concern uncertainties?
4. What economic factors existing in the United States during 2008 might have accelerated Deloitte & Touche’s
During the time of recession, there were many contributing factors that lead to the overall fall of the stock market. The collapse of the housing market bubble is single handily the biggest determining factor in the 2008 stock market plunge (Fry, Ebsco). Mortgage and credit lenders were partaking in unethical business practices that were going unnoticed during this time. These lenders tend to focus on balancing the level of risk and return in the market but
The Great recession occurred in America in 2007 when the economy began to decline. The cause of the recession can be contributed to many different sources, but it is clear that the main causes of the recession were deregulation, the “housing bubble”, corruption of “gatekeepers”, derivatives, the strategies of K street markets, and private debt.
The Recession of 2008 was caused by two major faults: the use of subprime lending and changes in banking culture leaning towards self interest within the banking industry.
d. “The auditor's reliance on substantive tests to achieve an audit objective related to a particular assertion may be derived from tests of details, from analytical procedures, or from a combination of both. The decision about which procedure or procedures to use to achieve a particular audit objective is based on the auditor's judgment on the expected effectiveness and efficiency of the available procedures. For significant risks of material misstatement, it is unlikely that audit evidence obtained from substantive analytical procedures alone will be sufficient (PCAOB, AS 2305.09).”
Grand Metropolitan PLC is the world’s largest wine and spirits seller. It mainly operated in London, USA. In 1991, it beats market expectation with a 4.8% increase in pretax profits, and the company Chairman stated that company’s goal “to constantly improve on”. Despite the great performance in the world recession in 1991, the price of GrandMet shares was 10% below the average price/earnings ratio of the companies in the Standard & Poor’s 500 index. And more important, rumors had that GrandMet, valued at more than $14 billion in the stock market, maybe a takeover target. The management dilemma is to understand why the company’s stock is traded below of what considered being the right price and whether the company is truly
When analyzing the DuPont model, we determined that GIS has a higher profit margin, low asset turnover ratio, and low financial leverage versus the industry average, leading GIS not to perform with the same efficiency as the Industry Composite. GIS’s return on equity (ROE) was 28.25% in 2011, dipped to 24.41% in 2012, and then rose to 27.80% in 2013. GIS three-year average ROE of 26.82% is below the industry three-year median of 30.78%. This is largely attributable to a decrease on Equity due to the acquisitions that began on 2011. GIS asset turnover ratio remained steady for the past three years with a median of 0.79; however, competitors achieved a higher asset turnover ratio, of 1.07. The three-year average equity multiplier of 3.21 shows that their financial leverage is slightly lower compared to the industry median of 3.33, which indicates that the company relies less on debt rather than equity to finance its assets.
As auditors, they have the responsibility of not only requesting a confirmation, but they should also follow up on necessary procedures to make sure that this process is accurately completed. Their duty is to be able to have control over this process from beginning to end in order to be able to rely on the evidence requested.
Auditors having the appropriate competence and capabilities to perform the audit, and follow ethical requirements, and maintain professional skepticism throughout the audit.