Worksheet 1: Synopsis of Reacquired Franchise Rights
Verifying Mathematical Correctness of Reacquired Franchise Privileges Balance
It has been assumed that the beginning balance of reacquired franchise protection under the law was audited this past year. Therefore, changes (if any) to the bank account are audited in today's year so that an auditor can give an thoughts and opinions on the total amount of this asset. Reductions to the asset will tend to be anticipated to a deal, other disposal, or impairment. However, based on the situation facts, there is no sign of changes in today's year. The following were the procedures performed:
- Checking to see if the client reported any impairment - Predicated on the situation facts, Roman Holiday didn't identify or article any impairment in the reacquired franchise privileges in the current year.
- Ensuring that every Franchisee market documented the correct amount for the BV of Reacquired Franchise Rights - Roman Holiday break didn't sell or dispose any of its reacquired franchise protection under the law (reductions)
neither do they reacquire any new franchise protection under the law (additions) through the current year. This is why that there is no change in the documented amount for these property.
- Verifying that the business effectively added the booklet ideals of the reacquired franchise privileges to include all the senior franchise marketplaces (please make reference to Appendix A) - Upon reviewing the client-
prepared plan of reacquired franchise rights, the sum of the reserve values of these intangible assets, for each and every franchise market, totaled $127, 414, 000. However, there is a $2, 000 ($127, 414 - 127, 412)
deviation between the real total and the total amount that your client reported on its balance sheet ($127, 412, 000). Since, a planned materiality of $5 million has been used this deviation is immaterial and is
likely credited to rounding problems.
Based on these types of procedures performed and the immaterial deviation between your genuine total and the client's reported amount for the booklet value of the reacquired franchise privileges, we feel that the proper amount has been documented and therefore no further types of procedures are necessary.
Is the Indefinite life classification for the reacquired franchise rights correct?
According to SFAS 142, it identifies how goodwill and other intangibles are accounted for after their acquisition or in cases like this their reacquisition. Essentially, it requires the classification of intangible resources as having the certain or indefinite life. The main difference is that definite-life intangible investments are amortized in a structure depending on how so when the monetary benefits are anticipated to be received (e. g. : if expected consistently over each year then the direct line approach to amortization should be utilized). In determining set up indefinite-life classification for the reacquired franchise privileges is correct we must review through the requirements in SFAS 142 and see how it pertains to our consumer, Roman Holiday. Matching to SFAS 142, the estimation of the useful life of your intangible asset for an entity is based on an analysis of most pertinent factors, specifically the subsequent[i]:
The expected use of the property by the reporting entity
Case facts: Essentially, the goal of reacquired franchise privileges is to permit the franchisor (Roman Holiday break) to make use of their own brand in the precise senior franchisee market(s) that they reacquired the protection under the law from.
The expected useful life of another asset or several assets to which the useful life of the intangible asset may relate (such as mineral privileges to depleting investments)
Case facts: The band of possessions that the reacquired franchise protection under the law may relate to is the reacquisition of rights from existing and/or underdeveloped markets or restaurants. Beneath the contractual repurchase contract, which has a useful life of 14 years, Roman Trip is eligible for the utilization and benefit of these investments (e. g. : the to continue functioning existing restaurants and the right to acquire royalties from sub-franchises developed by the Senior Affiliate)
Any legal, regulatory, or contractual procedures that may limit the useful life
Case Facts: identical to part ii. (i. e. : The contractual contract has a useful life of around 14 years which is the same length of the underlying Mature Associate arrangement)
Any legal, regulatory, or contractual procedures that enable renewal or expansion of the asset's legal or contractual life without substantive cost (provided there exists evidence to support renewal or expansion and renewal or expansion can be achieved without material modifications of the existing terms and conditions)
Case facts: The Older Associate Contract has a good life between 10-20 years (approximately 14 years). These contracts are green if mutually agreeable to both get-togethers with no substantive costs or material modifications of the existing terms and conditions.
The ramifications of obsolescence, demand, competition, and other monetary factors (such as the balance of the industry, known technical advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels)
Case facts: Relating to analysts, the business's growth will decrease (indicating that the pizza industry is within its maturity level) within the next few years but will still go beyond industry averages. However, the majority of Roman Holiday's earnings growth, in recent years, is largely due to the reacquisition of franchise rights and existing restaurants instead of real expansion in the franchise itself. Therefore, Roman Vacation encounters stiff competition in this highly competitive industry. Furthermore, the company trading markets itself as a gourmet pizza restaurant in support of targets consumers prepared to cover a premium product. You can find may replace pizza places that consumers can go to such as Pizza Hut and Domino's Pizza unless Roman Getaway can continue to differentiate itself from these other restaurants (e. g. : bonuses and price discounts).
The level of maintenance expenditures necessary to have the expected future cash moves from the advantage (for example, a materials degree of required maintenance in relation to the carrying amount of the property may suggest a very limited useful life)
Case facts: There is absolutely no maintenance expenditures related to reacquired franchise rights except annual impairment loss, if any.
Based on these pertinent conditions & related case facts, we feel that the indefinite-life classification is incorrect. Instead, it will have a definite life of 14 years, which is consistent with the root Senior Associate agreement. Beyond 14 years the intangible property and its own related benefits will expire.
Worksheet 2: Auditee client impairment analysis
- SFAS 142 vs. SFAS 144
- Types of Auditing Methods to Evaluate Management's Assertions
- Client's Strategy in Estimating the FV of Reacquired Franchise Rights
- Verifying the mathematical reliability of the client's estimation the FMV of Reacquired Franchise Rights
Worksheet 3: Examination of key assumptions
- Key assumptions created by client in arriving at the FMV Estimate
- Comparison to external & inner information
- Which supplies the greatest level of assurance?
- Information sources
- Preparation of any document get to the client
- Evaluating of key assumptions
- Evaluation of appropriateness of key assumptions
Worksheet 4: Auditor impairment examination on e book value of reacquired franchise protection under the law for Az acquisitions
- Is Client's Impairment Assessment Appropriate?
- The role of specialists
- What would be included in a couple of working papers?
