Gators Electronic
Succint:
Gator Electronics Inc. (“Gator”) is an electronics manufacturer that sells electronic products to third-party retail centers in approximately 100 countries. Gator is an SEC registrant.
You are planning to audit the current-year goodwill impairment analysis of Gator. Gator has performed its annual goodwill impairment analysis as of December 31, 20X3, with the assistance of an external valuation specialist, Management’s Expert. Gator elected not to perform the qualitative assessment for determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and proceeded with Step 1 of the quantitative two-step goodwill impairment test for all reporting units.
On the basis of the valuation prepared by Management’s Expert, Gator estimated that the fair value of all of the reporting units exceeded their respective carrying values and no Step 2 analysis was required or prepared.
The focus of this case study will be on the U.S. reporting unit.
The engagement partner has asked you to review Gator’s discounted cash flow analysis (part of Step 1 test in determining fair value of the reporting unit) to determine what audit procedures should be performed.
Auditing and reporting issues:
Due to the complexity of performing the annual goodwill impairment testing, most companies engage valuation specialists to conduct the analysis. The auditors also rely on the help of the valuation specialist to evaluate the underlying data and assumptions.
In this cases a misstatement arising primarily from recent market declines, the engagement partner has determined that goodwill for the US reporting unit is a material account balance as of December 31, 20X3 because it is quantitatively significant ($280 million) and qualitatively significant.
The engagement partner has asked you to review Gator’s discounted cash flow analysis to determine what audit procedure should be performed.
Reporting
Gator Electronics Inc. (“Gator”) is an electronics manufacturer that sells electronic products to third-party retail centers in approximately 100 countries. Gator is an SEC registrant.
You are planning to audit the current-year goodwill impairment analysis of Gator. Gator has performed its annual goodwill impairment analysis as of December 31, 20X3, with the assistance of an external valuation specialist, Management’s Expert. Gator elected not to perform the qualitative assessment for determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and proceeded with Step 1 of the quantitative two-step goodwill impairment test for all reporting units.
On the basis of the valuation prepared by Management’s Expert, Gator estimated that the fair value of all of the reporting units exceeded their respective carrying values and no Step 2 analysis was required or prepared.
The focus of this case study will be on the U.S. reporting unit.
The engagement partner has asked you to review Gator’s discounted cash flow analysis (part of Step 1 test in determining fair value of the reporting unit) to determine what audit procedures should be performed.
Auditing and reporting issues:
Due to the complexity of performing the annual goodwill impairment testing, most companies engage valuation specialists to conduct the analysis. The auditors also rely on the help of the valuation specialist to evaluate the underlying data and assumptions.
In this cases a misstatement arising primarily from recent market declines, the engagement partner has determined that goodwill for the US reporting unit is a material account balance as of December 31, 20X3 because it is quantitatively significant ($280 million) and qualitatively significant.
The engagement partner has asked you to review Gator’s discounted cash flow analysis to determine what audit procedure should be performed.
Reporting