The Great Depression dealt a devastating blow to Billy Durant. During the depths of the Depression in 1936, Durant, a high school dropout who was born a few months after the outbreak of the Civil War in 1861, was forced to declare bankruptcy. Like millions of Americans, the tough-minded and resilient Durant survived the Depression by becoming a jack-of-all-trades, a “job” that he had mastered as a young man. During his early twenties, the free-spirited Durant had worked as an itinerant salesman traveling from town to town peddling patent medicines. During the latter days of the Depression, Durant, who was in his late seventies by this time, made ends meet by managing a bowling alley. After suffering a stroke in 1942, he and his wife subsisted on a pension provided to him by a company that he had once managed. Durant died a few years later in 1947.

If one considered only the early and later years of Durant’s life, his life story would not be particularly compelling. However, in the 50-year span between working as a traveling medicine man and managing a bowling alley, William C. “Billy” Durant created an organization that would become the United States’ biggest corporation and have the largest workforce of any company worldwide.

Durant made a fortune in the late 1880s and 1890s manufacturing horse-drawn carriages, a business that he had launched in 1886 on \($3,000\) of borrowed money. In the early days of the 20th century, Durant realized that the horseless carriage would soon supplant his company’s product. Over the next few years, Durant invested much of his personal wealth in several automobile manufacturers, most notably the Buick Motor Company. In 1908, Durant merged those companies to create General Motors Corporation (GM).

For 77 years, from 1931 through 2008, GM reigned as the number one automobile manufacturer worldwide. Only a few months after that long run ended, GM, just like Billy Durant some seven decades earlier, filed for bankruptcy.1 GM’s bankruptcy filing in June 2009 had been foreshadowed by the going-concern audit opinion issued on its 2008 financial statements a few months earlier by Deloitte & Touche, its longtime audit firm.

Pensions & Panic Similar to many companies, GM was victimized by the economic crisis triggered in late 2008 by collapsing housing prices and the implosion of the subprime sector of the mortgage industry. That crisis quickly spread to other sectors of the U.S. economy, including the large automotive industry. Panic and fear caused millions of distraught U.S. consumers to delay or cancel “big-ticket” discretionary expenditures, such as purchases of new automobiles.

Questions:-

1. Auditing standards don’t specifically discuss the audit procedures that should be applied to a client’s pension-related financial statement amounts. Identify five audit procedures that would be relevant to those items. For each audit procedure that you list, identify the related audit objective.
2. Under what general circumstances should auditors retain outside experts to assist them in completing an audit? How could an expert be useful in auditing a client’s pension-related financial statement items?

3. Do you believe that Deloitte behaved properly by accepting GM’s decision to apply a 6.75 percent discount rate to its pension liabilities? What, if any, other steps or measures should Deloitte have taken under the circumstances?
4. Did the choice of the 6.75 percent discount rate in 2002 have a material impact on GM’s financial statements? Defend your answer.