CASE 2.4
GENERAL MOTORS COMPANY
Synopsis
Billy Durant created General Motors Corporation in 1908 when he merged several
automobile manufacturers that he had acquired over the previous few years. For most of the 20th
century, GM reigned as the largest automobile producer worldwide and one of the United States’
most prominent corporations. By the early years of the 21st century, however, GM’s dominance
of the automotive industry was waning in the face of stiff competition from several foreign
carmakers. In 2009, Toyota supplanted GM as the world’s largest automotive company in terms
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General Motors Company—Key Facts
116 Case 2.4 General Motors Company
1. Billy Durant, who worked as an itinerant salesman as a young man, became extremely
2. GM reigned as the world’s largest automobile manufacturer for nearly eight decades until
3. A key factor that contributed to GM’s downfall was the company’s significant pension
4. In the decades prior to GM’s bankruptcy filing, critics accused GM executives of
5. Accounting for pension-related financial statement items has long been a controversial
6. The FASB’s new standard still allowed companies to manipulate their pension-related
7. In early 2003, GM chose to apply a 6.75 percent discount rate to determine its pension
8. After initially contesting the 6.75 percent discount rate, GM’s audit firm, Deloitte,
eventually acquiesced and accepted that rate.
9. Deloitte agreed to approve the 6.75 percent discount rate after GM officials indicated that
they would include a “sensitivity analysis” in their company’s 2002 financial statements
demonstrating the financial statement impacts of a range of different discount rates including
6.75 percent rate.
10. In a subsequent complaint filed against GM, the SEC maintained that the company’s
Case 2.4 General Motors Company 117
12. In July 2009, the “new General Motors” (General Motors Company) emerged from
Instructional Objectives
2. To identify specific audit procedures appropriate for long-term accrued liabilities such as
pension liabilities.
4. To demonstrate the importance of insisting that audit clients include appropriate
disclosures in their financial statement footnotes regarding significant accounting estimates.
Suggestions for Use
While developing this case, I reviewed several auditing textbooks to gain insight on the type
and extent of the textbook treatment typically given to the topic of pension liabilities and related
financial statement items. I was surprised to find almost no coverage of that topic. Given the
Suggested Solutions to Case Questions
1. Listed next are examples of general audit procedures that could be applied to a
company’s reported pension obligation or liability and/or its related pension expense. This list is
not intended to be comprehensive by any stretch of the imagination. The purpose of this question
118 Case 2.4 General Motors Company
a. 1. Audit objective: To determine whether the client’s pension obligation is recorded
in the financial statements at the appropriate amount. (“Valuation and allocation”
assertion regarding period-ending account balances.)
b. 1. Audit objective: To determine whether the client’s pension obligation is recorded
in the financial statements at the appropriate amount. (“Valuation and allocation”
c. 1. Audit objective: To determine whether the client’s pension obligation is recorded
in the financial statements at the appropriate amount. (“Valuation and allocation”
d. 1. Audit objective: To determine that all disclosures that should have been included
in the client’s financial statements have been included. (“Completeness” assertion
e. 1. Audit objective: To determine that financial information is appropriately presented
and described and disclosures are clearly expressed. (“Classification and
2. AU Section 336, “Using the Work of a Specialist,” discusses the general circumstances under
which auditors should consider retaining the services of an independent expert during the course
Case 2.4 General Motors Company 119
“The auditor’s education and experience enable him or her to be knowledgeable about
business matters in general, but the auditor is not expected to have the expertise of a person
trained or qualified to engage in the practice of another occupation or profession. During the
3. In retrospect, it appears that there was significant evidence suggesting that the 6.75
percent discount rate was a poor choice by GM. However, as always, the information that was
available in the public domain in developing this case was certainly only a fraction of the
information that was likely relied upon by Deloitte in arriving at the decision to accept the 6.75
4. Notice that a footnote to this case provides several key financial benchmarks that would