Mini- Case Going- Concern Reporting

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Mini- Case: Going- Concern Reporting. Refer to the mini-case “GM: Running on Empty” on page C11 and respond to questions 1– 6. 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…
b. Other indications of financial difficulties (default on loan or similar agreements, arrearages in dividends, denial of usual trade credit from suppliers, restructuring of debt, noncompliance with statutory capital requirements, the need to seek new sources or methods of financing, or the need to dispose of substantial assets). c. Internal matters (work stoppages or other labor difficulties, substantial dependence on the success of a particular project, uneconomic long-term commitments, or the need to significantly revise operations). d. External matters (legal proceedings; legislation; loss of a key franchise, license, or patent; loss of a principal customer or supplier; or uninsured or underinsured catastrophe). 3. This is a question that requires judgment on the part of the student. Clearly, while the losses in 2005 are of concern given GM’s consistent profitability to that point, 2005 may have been viewed as an abnormal year and the loss judged to be a one-time occurrence. While GM had also experienced a net loss in 2006, the amount of this loss was lower than that in 2005 (likely because of the spin-off of GMAC). In both years, GM showed negative cash flow from operations, raising more questions as to GM’s ability to continue as a going concern. In 2007, GM’s net loss reached
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