Chapter 5 Case Study

Read in Chapter 5 the case study titledCase 5-4 GE Multibillion Insurance Charge

• Assume you are asked as part of an audit of GE's insurance business to assess fraud risks, what would you include in your report and why?
• At GE's annual meeting in November 2017, CFO Jamie Miller told shareholders that GE was likely to take a charge of more than $3 billion. Just fourteen months later GE announced a charge of $6.2 billion. Do you believe this indicates a failure on the part of KPMG to adequately evaluate the estimates of insurance claim reserves and risk assessment, or is it reflective of a change in economic circumstances that could not have been anticipated?
• According to the Financial Executives Research Foundation, "enhancing the effectiveness of corporate disclosures is of paramount importance to companies, investors, creditors, regulators and the capital markets at large. This has compelled many companies to take a fresh look at how effectively they 'tell their story.'"² Some worry that increased disclosures through different channels can be confusing and lead to "disclosure overload." What role should materiality play in determining what kinds of information should be disclosed and how frequently? What are the dangers from an audit perspective of having clients increasingly add to its disclosures, especially when estimates are involved? Did GE do the "right thing" when it warned of a $3 billion charge only to wind up taking a $6.2 billion charges?