ACTG Group HW part3

pdf

School

University of Illinois, Chicago *

*We aren’t endorsed by this school

Course

500

Subject

Accounting

Date

Apr 3, 2024

Type

pdf

Pages

Uploaded by CoachJaguar4207

Part 3: Questions 11-20 November 3, 2023 11:59pm. 20 points 11. Who are the independent auditors for each company? What type of opinion did the auditors issue? Who is responsible for preparing the companies’ financial statements? (1) Independent auditors: GM: ERNST & YOUNG LLP Tesla: PricewaterhouseCoopers LLP (2) What type of opinion did the auditors issue? GM: ERNST & YOUNG LLP, opinions on the Financial Statements and Internal Control over Financial Reporting They have audited General Motors Company and subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In their opinion, General Motors Company and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. They also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, cash flows and equity for each of the three years in the period ended December 31, 2022, and the related notes and our report dated January 31, 2023 expressed an unqualified opinion thereon. Tesla: PricewaterhouseCoopers, opinion on the Financial Statements of Tesla They have audited the accompanying consolidated balance sheets of Tesla, Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income, of redeemable noncontrolling interests and equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). They also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In their opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period

ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in their opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. (3) Who is responsible for preparing the companies’ financial statements? GM: These financial statements are the responsibility of the Company's management. Tesla: The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9 **Maybe the sentence can be simplified? — The Company's management is responsible for these consolidated financial statements 12. How much did each company report on the balance sheet for accounts receivables? How much is owed to each company by customers? What is the difference between these two numbers? (1) How much did each company report on the balance sheet for accounts receivables? GM: Accounts receivable: 13,333M Tesla:Accounts receivable: 2,952 M (2) How much is owed to each company by customers? GM: how much is owed to each company by customers mean accounts payable: 27,486 M Tesla: how much is owed to each company by customers mean accounts payable: 15,255 M ** We can align with Q17 number of Accounts Receivable and Allowance for Doubtful Accounts such as Tesla: 753M in 2022 (3) What is the difference between these two numbers? Accounts Payable (A/P): The total amount of payments owed to suppliers or vendors for products and services already received. Accounts Receivable (A/R): The amount of cash owed to the company for products and services already delivered by customers that paid on credit rather than cash. 13. In order to comply with the Sarbanes-Oxley Act of 2002, what report is management required to file? What pages are the reports on?

GM: Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑ **Maybe delete the above statement and just write below answers? (1)Management's Report on Internal Control over Financial Reporting (2) Page 99 Tesla: Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or is issued its audit report. ☒ **Maybe delete the above statement and just write below answers? (1)Management’s Report on Internal Control over Financial Reporting (control (2)Page 90 14. List some elements of internal control you would expect management to have established (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. ** Should we based on the content of smartbook or 10-K?

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

15. Do you think a $100,000 misstatement on the balance sheet be considered material? Why or why not? ** This is the answer combination of Henry’s and Lucy’s, you can double check if the sentence is okay When evaluating whether a $100,000 misstatement on the balance sheet is material, several factors come into play. These factors include the relationship between the misstatement and the size of related balance sheet items, potential impacts on key performance indicators and financial ratios, and the overall context of the financial statements. Auditors may find cases where a misclassification or misstatement exceeding the overall materiality threshold between two asset lines on the balance sheet might not be considered material if the amounts involved are a small percentage of each line. However, if these two lines are significant, such as cash and accounts receivable used in key balance sheet ratios, the misstatement would likely be considered material. In my opinion, a $100,000 misstatement on the balance sheet is a significant error. This is evident from various perspectives, including financial management, internal and external audits. Such a fundamental error should not occur as it erodes trust in the finance department and the auditing team. Additionally, $100,000 is not an insignificant amount and can impact the company's financial reporting, influencing the decisions of investors and stakeholders. The significance of the amount also depends on the company's size and financial condition, with smaller companies likely to face relatively more significant consequences from such a misstatement. 16. Refer to the notes to the financial statements. How do the companies define cash and cash equivalents?

Tesla p.60: Cash and Cash Equivalents All highly liquid investments with an original maturity of three months or less at the date of purchase are considered cash equivalents. Our cash equivalents are primarily comprised of money market funds and certificates of deposit. **just change the sentence: Cash and Cash Equivalents: All highly liquid investments with an original maturity of three months or less at the date of purchase are classified as cash equivalents and consist of money market funds and certificates of deposit. GM p.58: Cash and cash equivalents subject to contractual restrictions and not readily available are classified as restricted cash. Restricted cash is invested in accordance with the terms of the underlying agreements and include amounts related to various deposits, escrows and other cash collateral. Restricted cash is included in Other current assets and other assets in the consolidated balance sheets. **should we add the first sentence in blue?: Cash equivalents are defined as short-term, highly-liquid investments with original maturities of 90 days or less. Certain operating agreements require us to post cash as collateral. Cash and cash equivalents subject to contractual restrictions and not readily available are classified as restricted cash. Restricted cash is invested in accordance with the terms of the underlying agreements and include amounts related to various deposits, escrows and other cash collateral. Restricted cash is included in Other current assets and Other assets in the consolidated balance sheets. 17. Calculate accounts receivable turnover and average days to collect accounts receivable for both companies for the past two years. Assuming both companies use the percent of receivables allowance method, what is the estimated percentage of uncollectible accounts for each company? Comment on each company’s ability to collect cash. ***Questions ask for past 2 years data, below only 2022. TESLA: Account Receivable: Year 2022: 2,952 ● AR Turnover ratio= total of sales/ AR ● AR Turnover ratio= 81,462 / 2,952= 27.59 ● Accounts receivable turnover is 27.59 ● Average days to collect accounts receivables: ● 365/ 27.59= 13.22

● Estimated percentage of uncollectible accounts: 753/2952=0.255 GM: ● AR Turnover ratio= 156,735/ 33,623= 4.66 ● Accounts receivable turnover is 4.66 ● Average days to collect accounts receivables: 365/4.66= 78.32 ● Estimated percentage of uncollectible accounts: As of December 31, 2022 and December 31, 2021, we had $753 million and $627 million, respectively, of long-term government rebates receivable in Other non-current assets in our consolidated balance sheets. TESLA: https://www.sec.gov/Archives/edgar/data/1318605/000095017023001409/tsla-20221231.htm #:~:text=Depending%20on%20the%20day,our%20consolidated%20balance%20sheets. 18. Refer to the notes to the financial statements. What method of depreciation does each company use? Tesla: Tesla uses the straight-line depreciation method to calculate the depreciation of its vehicles. p.62 GM: GM uses the straight-line depreciation method p.60 19. Compare the types of long-term assets owned by the two companies. Compare the estimate of useful life of the assets made by the two companies. What differences and similarities do you see? Tesla: • Type of Assets: Tesla's long-term assets predominantly include its manufacturing plants (like the one in Fremont, California, and the Gigafactories in Shanghai, Berlin, and Texas). They also have significant investments in technology and R&D, given their focus on

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

electric vehicles, energy products, and autonomous driving tech. • Estimate of Useful Life: Tesla uses the straight-line method for depreciating its property, plant, and equipment. The estimated useful life for buildings and building improvements ranges between 5 to 40 years, machinery and vehicle equipment ranges between 2 to 7 years, and computer hardware and software ranges between 1 to 5 years. General Motors (GM): GM: • Type of Assets: GM's assets primarily consist of manufacturing plants worldwide, equipment, and machinery for producing vehicles, including those for internal combustion engines and electric vehicles. Additionally, GM has investments in technology, especially since they are also moving towards electrification and autonomous driving. • Estimate of Useful Life: GM generally uses the straight-line method for depreciation. The estimated useful lives for buildings and building improvements typically range from 5 to 40 years, machinery and equipment range from 3 to 15 years. Differences: 1. Asset Composition: Tesla's asset base leans heavily towards electric vehicles and associated technology, whereas GM's asset base, while now including electric vehicles, has a significant legacy in assets associated with internal combustion vehicles. 2. Investment in R&D: Tesla might proportionally invest more in R&D compared to GM, given its focus on innovation, autonomous technology, and energy products. 3. Depreciation Estimates: While both companies use the straight-line method, their estimates for useful life can vary based on the specific assets they hold. Similarities: 1. Depreciation Method: Both companies predominantly use the straight-line method for depreciation. 2. Move to Electrification: Both companies are investing heavily in electric vehicles and associated technology. 20. What was the original cost of Property, Plant and Equipment for each company? What was depreciation and amortization expense for each company in the most recent year?

** For Tesla, there is Note 8 – Property, Plant and Equipment, Net (P.70) as below screenshot, should we use this table as PP&E is $32,589M; and depreciation is -9041M Tesla: ● Property, plant and equipment, net: $23,548 ● Depreciation and Amortization: $3,747 ● ● GM: ** What’s the answer?