General motors, accounting theory and receivership Essay

Accounting hypothesis is a wide ranging and complete analysis and practice of counsel report and modern monetary write up. This melt hatful is accomplished through provision of a theoretical framework that assists in appreciating and understanding the purpose of various score practices. Business wise, the hypothesis provides its gene linkage with modern accounting marches and the impacts of the procedures on strain per digitance or military operations.The theory is preferred because it goes beyond the theory, idea and thought analysis to incorporate holistic views of the influence of cultural and historical regulations and impacts on real world business environment (Madsen, 1999, p. 12). Receivership is a scenario under which gives an order to place a situation under pass receivers in true so that preservations for affected fellows can be through through it. In a case where a conjunction is flunk, actions brought onward by its creditors can place the business under receivership. The business does non cease to operate but is theatered to receivers management.In some(prenominal)(prenominal) cases, the court appoints a person to liquidate, rehabilitate, conserve or administer assets belong to the insolvent corporation, in efforts make ultimately to relief or hold dear creditors. It therefore doesnt adept to termination of corporate charter, but serves as a solution to financial difficulty. The dominion controller of the retention subject to legal action is known as the receiver. In most cases, receivership is wanted as an specialordinary remedy (Dubin, 1947, p. 10). This is because it is us4d to take care of a stead when it is required for prosecution of jurisprudencesuit.This is especially when a danger is perceived that the property whitethorn be removed or dissipated form the courts legal power in a failure to appoint a receiver. It is a procedure that altogether takes place through a court order, utilization solitary(prenomin al) in exceptional circumstances. It whitethorn involve of non the consent of the proprietor of the property. everyday Motors is a ac confederation in the United States of America, dealing with force based accessories, facilities and equipments. It is a company that is recognized as an deliverance removal company non only in US but withal in the worldwide miserliness.However of late, the future of the company is hard to tell because it is subjected to several challenges of receivership, a process that is not only affecting its financial constancy but also shaking its social fabric. United States uses a elemental form of financial training in assessing the viability of corporations (Gordon, 2005, p. 17). In its capital markets, the normal purpose financial storys used include profit and loss statements, symmetry sheets, statements of cash flows and statements of changes in equity.The nation also obtains extra information from footnotes. The extra information may i nclude accounting procedures and policies utilized in preparing the financial statements, composition and the nature of balances museed in the financial documents and other disclosure and matters that may be considered relevant for fairness to be upheld in the financial reinforcement process. US securities registrants also make periodic, quarterly and annual fillings (Belkaoui, 1991, p. 34).These fillings provide auxiliary and additional information tie ining statistical analysis, descriptions of significant risk factors, major operation locations and units, properties and plants, services and products and companys business. The legal framework also requires operations to do with managements discussion and analysis, assessment of liquidity risks and liquidities and plastered appendageary schedules. Critical consideration and analysis of the above information gives a corporations financial status and its ability to serve the creditors and satisfy the requirements by the law (Ch effins, 1997, p.15). The question on whether General Motors is in full consideration of respectable aspects in the process of receivership is subject to various influences. To some point, it may be good and fail at some points. This is because the receivership process has got some benefits to some(prenominal) the company itself and the shareholders, meaning that the process may lead to estimable cause of treatment. On the other hand, the process has its own disadvantages to itself and stakeholders, this re attesting the degree of ethical deviation.For the clipping being, the company has received a mounting pressure to convince upper-case letter that the bankruptcy of the company does not turn out catastrophically to the subject economy. It is anticipated that if this happens, millions of job opportunities give be lost, tax payers ordain fill to pay more than $100 billion and therefore lead the economy into a severe depression. Because of this threat, Barrack Obama, Harry Reed and Nancy Pelosi put one across called for an gondola bailout of the company (Rae, 1959, p. 16). The decision to get into a receivership supports the argument that the company is ethical to some extend.This is because receivership is the alternative of bankruptcy which is worse. Bankruptcy paralyses every thing in a company and soils the continuity of the company, stakeholders and the national economy as a whole. Surrendering to receivership deal is showing the extend to of the company towards their stakeholders, national economy and the spherical economy. In one special consideration, if the company failed to engage in a receivership deal, all dealers and suppliers from all over the globe would be jobless (Bonbright, 1982, p. 19).To chip from employee assaults, receivership make sure all employees are not pay clear up and the operations of the company continue running though under courts monitory. The control by court gives forecast and protects the rights of the stak eholders. Reflecting unemployment as a worldwide challenge, it fog be bad for companies to advocate and engage in business strategies that outgrowth unemployment. Again, the business ethics are tied to respect and compensation of employees as a major priority, because it is believed they form the production propellers.Without employees, an organization can scarcely run and this is the reason as to why General Motors has been regarded as ethical for giving employees the best treat the company could afford during this financial challenge (Gordon, 2005, p. 17). If General Motors could not strike this deal, it is a possibility that it would withdraw tough up and exchange to other companies that may be foreign or domestic help. In this case, stakeholders would impart lost everything, workers would have lost and management fired.This is a clear indication that receivership is attributed to less stigma. The decision of rushing to this line of management has been seen to release the stigma of the management, country and the clients in question. This is because the operations are nonetheless on and under strict surveillance by court judicial system (Gordon, 2005, p. 16). Therefore, America as a nation, its citizens and stakeholders still have hopes that the company will reinstall its functioning. According to the accounting theory, it is always advisable to be a risk taker but to certain limits.Once the balancing of the accounting divide fails, it is also provided that accountants or administration should surrender and allow advanced crown of thorns data analysis. This is a measure made to minimize the exposure to risks that may render an organization non functional. Business receivership annexs chances of a troubled business survival. To vivify the proceedings of the business almost to normalcy level, it is essential to put in place new management to help discover the errors of the old management. This increases the luck of the business survival (Bonbrig ht, 1982, p. 19).The reason as to why many mountain may believe that GM is not serving its function and failing is because the American economy itself is under its steepest drop in 20 old age time, recording foreclosures at highest levels, stock market performing the poorest for five long time and a decaying consumer bureau. It should be understood that the cause of the GMs challenge is also contributed to by the economic environment of the country and also the global economy, which is in a recession. It is said that General Motors is in the verge of bankruptcy. In December 2008, the consumer assurance in the company has dropped to its lowest levels possible.Because of these difficulties, the federal government announced that the economy has been in a recession as from December 2007. This company apply for this protection from creditors because according to how the situation was, a red ink had mount an issue which was realized through a cash flow develop and amid falling sales . The company made the unavoidable choice in efforts of file court intervention in dealing with urgent liquidity crisis and therefore seeks for transformation towards sustainability. According to the stock market, the companys shares had dropped with nearly 85 percent and were in turn suspended.The company was unable to meet its payroll department department in December 2008. GM is observed to have small domestic rivals but its state is closely being watched to face amid turmoil in auto industry. The failure of this company has also been ignited by the global financial crisis that has plunged the demand for vehicles (Rae, 1959, p. 17). According to the nature of accounting, it is described as a process of communicating, measuring and identifying economic information to facilitate decisions by the information users and permit informed judgments to take place.This has been taken as a statement of basic accounting theory, supporting the ideology that economy or entrepreneurial progre ss is a concern of stakeholders, and information should be exposed with a lot of freedom and accuracy. In regards to the General Motors, the move to receivership is a strategy to allow access to documents and pave way for new judgments to be made but separate entities. This is highly appreciated in the theory of accounting because it improves the creativity of the company in management activities and help reconstruction of the company. misadventure to communicate information is not ethical.This is because if GM was not ethical it could only give up at times of complete insolvency or bankruptcy. on a lower floor the accounting theory, measuring and communicating information involves observation of events and transactions of the unswerving and measuring the transactions as well. Financial report is hence released, which serves as a message to help the healing process. After the interpretation of the message, an earth figure of the firm is obtained and then used as a basis of de cision making. The adjustments that are possible in case of the above company will be based on accounting discoveries and recommendations.The allowance of experts into the scrutiny process is a show of responsiveness to the reform process and the willingness to be reverse (Rae, 1959, p. 17). As the above takes place, the receiver has acted as the referee of the proceedings, playing a trustee duty to the court. This receiver has maximized the value of General Motors Company and its assets. The receiver is also taking the best ways possible to protect shareholders and creditors knobbed in the saga of this company. With time, the receiver may often liquidate the assets and shut it down but this is not the case in the united stases of America.The fate of the company therefore rests on the possibility of the company coming back operation, the substance of remaining money and the causes of the business problems. If events prove that there is no hope for the company in the long run, the acting receiver would make sure that every partner involved benefits from the scrape value of the venture. If it is finally rule the company should be sold as a going concern, the terms tag can improved because for the value added by the receiver. This description makes receivership of its concern more sensitive to its creditors, clients and creditors (Bonbright, 1982, p.18). With all the above arguments describing General Motors as ethical, the bridle-path that the company followed to this cold is on the other hand questionable both in human resource management and financial accounting. If the company was so ethical, much(prenominal) difficulties could be detected earlier and protected. It will be then very accurate that the company should have participated in financial fraud. shammer and material misstatement is believed to have led the company to this saga, completely going against accounting ethics of transparency, accuracy and accountability.At international levels, the company is said to have defied from accounting theory by either overstating revenues, understating set downs, omitting some liabilities, overstating assets, failure in transactions, disclosure and accounting events, mischaracterization, disclosures that may be misleading in concerns of MD&A, products and services, liquidity and liquidity risks or in supplemental information. Inclusively, the country may also have created mistaken assets, omitted actual liabilities or improper reflect of transactional timing.The above frauds are all outlawed in the financial accounting theory, which the above company may not have adhered to, leading to the present massacre (Rae, 1959, p. 16). Still to show discontentment of the company as far as accounting theory is concerned, receivables and revenues recognized prematurely should be abandoned a special treatment in the accounting process, an error that General Motor sis believed to have committed and thus failed to meet its payroll in December 20 08. The cost of production of the company has been observed to increase before the fall magnified and collapsed the functioning of the company.Through accounting theory, this may have been caused by deferring the reconnection of costs or purchases, improperly overstating the value of inventories or improper treatment of overhead or indirect expenses. According to the margin call of the General Motor employees, there must have been a slow down recognition of associated provision expenses before this downfall. Contingencies have been detected in form of judicial proceeding reserves, product and warranty liability reserves sales takings allowances and doubtful accounts allowances.According to the nature of the controversy in the companys financial statements, creation of fictitious probably took place. It involved recording of associated fictitious receivables, fictitious revenues, fictitious inventory and therefore underestimation of cost of goods sold (Madsen, 1999, p. 13). Accoun ting theory and practice of accountants firmly argue against exclusive frauds, which definitely drive corporations and businesses to the situations comparable to the ones of General Motors.The exclusion concerns liabilities and other obligations such as contingencies, guarantees and commitments, all of which affect the balance sheet status. The effect of such exclusions is understatement of expenses such as environment cleanup expenses, litigation expense provisions, judgment liabilities, litigation reserves debt losses such as undisclosed commitments, guarantees and debt related contingencies. This sept also incorporates direct charge off reserves and impairment of loose assets like partnerships, joint ventures and equity investments.All the above exclusive frauds lead to overstatement of liquidity measures and understatement of companys total liabilities and interest expense (Dubin, 1947, p. 11). As far as accounting theory is concerned, the company is believed to have defied t he provisions of the theory with big margins. This is because if the company had carefully taken into concern the above errors, the turmoil could not have resulted. Again, even if it could occur, the margin could not be alarming. The accounting discrepancies that many leaders in America have felt brought the company down are pushing them to propose a complete turmoil of the company.The above fraud description illustrates that receivership of the company was not the best precautionary measure to take, but instead accounting theory prescriptions should consistently have been upheld by the company and thus prevent this fall. This centre that the company is not as ethical as people may be thinking. Ethics are attributes in which every member of a certain setting performs or delivers his or her responsibility with all inexpensive sincerity and fairness. This involves consideration of the cultural expectations when in such environment, social aspects and the crabbed work ethics.If frau ds comparable to the ones above take place, this means that a instalment of the staff is not sincere and so non ethical. Therefore it may also make sense to say the company is not so ethical (Belkaoui, 1991, p. 35). To add on this, an ethical institution is always the interest of the public because of the confidence they attach to them. The subsequent and rapid drop in the confidence of this company is an indication that it wasnt an ethical organization which citizens could understand the scenario as a normal challenge and therefore continue supporting it.Because receivership is a lame way of solving the problem, the structural framework has to be built if the company happens to revive as a going concern. If efforts to revive the company fail, it would also be wise to go for the bankruptcy option. Together with the disadvantages of this option, it may ultimately emerge as stronger form with lower cost structure. To supplement this, the government can undertake a bailout to add new capital, commute management, write down the debt and preserve most of the jobs.To conclude, receivership of General Motors can not be seen as a solution as per now but it is time to tell, especially according the economic trends. Still, it is hard to tell whether the company is ethical, since it posses both weak and strong elements of ethical practices (Cheffins, 1997, p. 15). Bibliography Belkaoui Ahmed (1991). Accounting in the duple economy. Westport, CT Quorum Books pp. 34,35. Bonbright James (1982). The holding company Its public significance and its regulation. new-made York McGraw Hill Books pp. 18,19. Cheffins Brian (1997).Company law Theory, structure and operation. New York Clarendon Press, Clarendon pp. 15. Dubin Robert (1947). United automobile (CIO), prevalent motors and Studebaker. Science Research Associates United States, pp. 10, 11. Gordon Robert (2005). Business leadership in the large corporation. New York Brookings Institution pp. 16,17. Madsen Axel (1999). The deal maker How William C. Durant made general motors. New York John Wiley & sons pp. 12, 13. Rae John (1959). American automobile manufacturers The first forty years. Chilton, Washington pp. 16, 17.