answer question 3-6

GM Running on Emty11 GM: Running on Empty? Founded in 1908. General Motors Corp. (GM) is truly an icon American competition. From 1931 through 2005, GM was the world's largest manufacturer, und in 1955. become the first company in any industry to report more than 1 is M's peaked at 51 percent in 1962. GM's dois in the market was such that many the company be subject to scrutiny under antitrust laws.ts 1971.former Presidente made the statement "how what's good for General Moreally is good for America GM's net income reached an all-time high of 56.7 billion in 19 and the women to generate positive net income through 2004. In 2005, things began to change. Med net loss of more than 10 billion and continued to post loses through 2008, who 531 billion in that year. (GM's cash flow from operations in 2008 was negative 512 billion A summary of various measures of GM's financial codice for thesis your period from through 2008 is presented in GM Exhibit 1.? BIT 1 Financial General (amounts in 2007 2003 Total assets $448507 Stockholders' equity 25.268 Revenues 182.543 Operating income 2.862 Net income Cash flow from operations 7,600 Source: General Motors Corp00-3000 2008 59000 36.154 2004 $479,503 27.726 198.571 12.081 2.805 13.061 2005 07.07 14.597 192,605 2005 $186.152 15.445 207.349 0.668 (1978) (1759 10.567 16.856 14.90 38.7323 7.731 21284 30.860 12.069 Because of concerns with the ultimate impact of GM's financial struggles on the world economy, GM received $13.4 billion in government loans in December 2008. President Barack Obama's administration pledged interim financing to allow GM to develop a restructuring plan. requested then-CEO Rick Wagoner to resign, and announced a plan to replace at least 6 of the 12 members of GM's board of directors. All of these events occurred in a market in which the economic conditions sharply decreased demand for automobile purchases. Not surprisingly, GM's stock reached a low (at that time) of $0.75 per share on May 29, 2009 (for comparison, GM's stock traded between $27 per share and $94 per share from 1983 to 2001). GM's high, low, and closing stock prices for the period 2003-2008 are summarized in GM Exhibit 2. In its March 4, 2009, report on GM's financial statements, GM's auditors (Deloitte & Touche) concluded that GM's financial statements were fairly presented in conformity with GAAP. $50.00 T2 ow, and $50.00 rices: Corp. $40.00 Close $30.00 High Low $20.00 $10.00 2006 2007 2008 $0.00 2003 2004 2005 Roach Dua Services Her Dexport to include the following page The incasts for the year ended December Mam's plans concerning the music Nothit. The consolidated financial In April 2009, GM Chief Executive Officer Frederick Tritur Henderson who sa Wagner casting plastove GM. Under this plan, the debtowo budholde, the United Auto Workers, and the US government which total 5744 the three groups would be reduced by 544.6 billion in exchange for a percent in the emerging company. In addition, the terms of this plan called for the closure of 2 On June 1, 2009, the one thinkable happened: GM filed for Chapter 11 bankruptcy. Us hedeficitudinality to reficient to the terms of the bankruptcy plan cities were created an "old GM subsequently majority owned by the US government ca 60 percent stakel, with the Canadian govt es regarding Grocess poing con include wyses that might result from the outcome of this uncertainty GM'S REORGANIZATION GM's dealer Motors Lamidation Company, a public company that was fou hrands in the proces are (11.7 percent), United Auto Workers (175 percent, and GMC consecured bondholders (10 per Buick Cadillac Chevrolet, and GMC brands. General Motors Co. emerged from bankruptcy cent) owning large minority stakes. The new GM (known as General Motors Co.) received began its operations on July 10, 2009, just 10 days after the filing. A brief profile of GM (the.com bined entity pecbankruptcy) and General Motors Co. (the new GM that emerged posthunkrupty) A BOOST FOR THE AUTO INDUSTRY On July 1, 2009, the US government announced the Car Allowance Rebate Program (popularly known as the "Cash for Clunkers" program) to provide incentives for the automobile industry. In tially, S1 billion was appropriated for this program, but overwhelming demand from consumers resulted in an additional $2 billion allocation when the original funds were exhausted. More than 690,000 transactions were rebated under this program, 17.6 percent of which were for General Motors Co. automobiles. Despite this program, GM's 2009 retail sales were down 17 percent from 2008 EPILOGUE In November 2010, GM returned to public company status with an initial public offering that raised $23.1 billion, one of the largest such offerings in the history of the United States at that time: GM's stock price closed at $34.19 that day. Deloitte & Touche's opinion on GM's 2010 Dettons Employees Brands Dealers Manufacturing plants General Motors Corp. (prebankruptcyl 5176 91,000 8 5.900 47 General Motors Co. (postbankruptcyl 548 68.500 3.600 34 Plan Seeks a Safo presented in conformity with GAAP and moderne tech financial statements (issued on March 1, 2011) concluded a fi Montmart 13 GM had previously faced. GM has returned to profily with reported det controlling interests and preferred dividendes af 62.502.562 i 2010 above its public offering price, to $34.96 per Share On June 5.2013 Gems has fout yourses bankruptcy), GM rejoined the S&P 500, replacing Kleine following is acquisition by Berkabire Hathaway. In 2014, GM was forced to recall over 29 million tomobiles, sumber that exceeded the combined sales for 2005 through 2014. Most notable among the defects prompting these seca were faulty ignition switches that prevented airbags from deploying in the event of a crash (GM was aware of this potential fault prior to announcing the recall.) In September 2015, GM entered into a deferred prosecution agreement with the US Depart ment of Justice, paying $900 million. However, GM still has significant potential ability related to the defective ignition switches. Through January 2016, a total of 121 putative casion suits are pending against GM related to these recalls, alleging diminution in value of the vehicles punitive damages, and injunctive and other relief. In addition, a total of 244 personal injury cases are pending against GM alleging injury or death as a result of the defects. To date, GM has taken total charges of $2.0 billion against net income in 2014 and 2015 und has recognized a liability of $66 million for future payments as of December 31, 2015 In spite of these matters, GM has remained highly profitable, reporting net income of $3.9 billion in 2014 and $9.7 billion in 2015. And, it has received unmodified opinions from its auditors (Deloitte & Touche), with no mention of this potential liability in their reports. DISCUSSION QUESTIONS 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 concer uncer tainty 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-concem 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 (i.e., when a company receives a going-concern opinion, customers will not purchase products with warran- ties, suppliers will not provide short-term credit, and investors and creditors will not investor loan). Would GM's going-concern opinion influence your decisions regarding either purchas ing a car from GM or investing in GM's stock? Is a going-concer a self-fulfilling prophecy