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?
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.
Source: Auditing and Assurance Services Textbook page C11-C13.
2. In
Moreover, in 2008, Mortgage companies Fannie Mae and Freddie Mac bailout. Fannie Mae and Freddie Mac hold or guarantee more than $5 trillion, or half, of the nation’s mortgages, became government agencies again.
According to About News, November 2008 was the end of investment banking. Goldman Sachs and Morgan Stanley, two of the most successful investment banks on Wall Street, became regular commercial banks, ending an era of deregulation and high risk.
By the end of 2008, the stock market crashed. The Dow was down 34%, closing at 8,816.62. Other indices did worse: the S$P declined 38% and the MSCI Europe Index was down 45%.
Source: Amadeo, Kimberly. Top Ten Economic Issues in 2008 – Year in Review. About News. http://useconomy.about.com/od/criticalssues/p/2008_Economy.htm
5. Do you believe that the events immediately following GM's bankruptcy have 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?
After filling bankruptcy, two entities were created: the old GM and new GM. The new GM , a private company that is majority owned by the US Government (a 69% take), with the Canadian government, United Auto Workers, and GM unsecured bondholders owning large minority stakes. The new GM received the Buick, Cadillac, Chevrolet, and GMC brands. Moreover, on July 1, 2009, the US Government