This appendix includes examples of issues auditors may consider in the audit of the analysis of fair value measurements in a Step 1 impairment test. The questions are grouped by general questions and valuation approaches.
1. How is the industry defined and what is the relevant SIC/NAICS code? Where other industries were considered?
2. Are the entity/industry young or mature? In what life cycle stage is the entity/industry?
3. Is the entity cyclical in nature? How does the current economic outlook impact the entity's operating outlook?
4. Are any nonoperating or nonrecurring items included in the entity's historic financial statements? Are there any discontinued operations?
5. Are third party appraisals available for material fixed assets? If so, has the required return or pricing multiple been considered?
6. Has the capacity of fixed assets been considered as it relates to the current levels of production? Has excess capacity been identified? Does excess capacity indicate economic obsolescence?
7. Are there other indications of economic obsolescence?
8. Has an enterprise level tax shield been calculated?
9. How is the reporting unit defined? Does the entity have a single reporting unit, or multiple reporting units?
10. At what level is goodwill being tested? Is it recorded at the parent or acquired subsidiary level?
11. Do the projected cash flows used in the impairment analysis match the reporting unit being ...