Explorer

The firm performed certain substantive procedures to evaluate the significant assumptions underlying the cash-flow forecasts but did not obtain sufficient appropriate audit evidence regarding the issuer's ability to carry out its cost-saving strategies to achieve these forecasts. (AS 2502.26 .28 .31 and .36)

The forecasts the issuer used in its analyses to assess goodwill for possible impairment for this one reporting unit assumed significant revenue growth for certain years and improved gross margin percentages. The firm concluded that the forecasted revenue growth rates were reasonable without performing any substantive procedures to evaluate the issuer's ability to carry out certain of its planned strategies to achieve the forecasts beyond inquiring of management. The firm's procedures to test the forecasted gross margin percentages were not sufficient because they were limited to inquiring of management about the issuer's planned strategies and comparing the forecasted gross margin percentages to the actual gross margin percentages of another reporting unit. (AS 2502.26 .28 .31 and .36)

For one of its reporting units the issuer used a cash flow forecast to evaluate the goodwill and an intangible asset for possible impairment. Based on this evaluation the issuer recorded an impairment charge related to these assets. The firm did not sufficiently evaluate the reasonableness of the issuer's forecast because its procedures were limited to comparing certain amounts from the forecast to the corresponding amounts in a forecast prepared earlier in the year and inquiring of management about the variances. (AS 2502.26 and .28)

The issuer used the fair value of the acquired business at the acquisition date to record a goodwill impairment at year end. The following deficiencies were identified: - The firm did not evaluate whether the impairment of goodwill was the result of an error in the initial valuation at the acquisition date. (AS 2810.30)

The firm's approach for testing the fair value measurement of goodwill was to review and test management's process. The following deficiencies were identified: · The firm did not evaluate historical differences between earnings declines experienced by the issuer and those included in an industry market report that was used to support certain assumptions. (AS 2502.26 .28 .31 and .36)

The firm's approach for testing the fair value measurement of goodwill was to review and test management's process. The following deficiencies were identified: · The firm did not perform any procedures to test the accuracy of a report that was used to support certain assumptions. (AS 2502.26 .28 and .39)