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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 decision to issue an audit opinion modified to disclose going- concern uncertainties?
5. Do you believe that the events immediately following GM’s bankruptcy alleviated the concerns that led to the issuance of the going- concern uncertainty? What issues would auditors need to consider in evaluating the ability of General Motors Co. (the new GM) to continue as a going concern?
6. Many companies believe that a going- concern opinion is a self- fulfilling prophecy ( that is, when a company receives a going- concern opinion, customers will not purchase products with warranties, suppliers will not provide short- term credit, and investors and creditors will not invest or loan). Would GM’s going- concern opinion influence your decisions regarding either purchasing a car from GM or investing in GM’s stock? Is a going- concern a self- fulfilling prophecy?

SOLUTION

1. By examining the financial information in Exhibit GM 1, it appears that GM’s financial distress began in 2005. It was during this year that GM suffered its first negative operating loss and first net loss. Similarly, Exhibit GM 2 reveals that GM’s stock price significantly

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