Describe briefly the accounting standards guidance, as summarized by the SEC, re- lated to recognition and disclosure of a loss contingency.

Both transaction-related and balance-related audit objectives include objectives related to presentation and disclosure. Visit the website of the United States Securities
and Exchange Commission (SEC) and locate the Accounting and Auditing Enforcement
Release (AAER) No. 3850 issued on January 18, 2017 against General Motors (GM).
a. What was the problem with GM products that led to the underlying accounting issue investigated by the SEC?
b. Describe briefly the accounting standards guidance, as summarized by the SEC, re-
lated to recognition and disclosure of a loss contingency.
c. What were the two different approaches used by GM to accrue for estimated losses
related to product recalls?
d. What breakdown in internal controls triggered the failure to adequately disclose the
vehicle recalls?

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