How does Aplus determine the appropriateness of the replacement cost by confirming the inputs utilized were reasonable for the underlying assets?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
Our audit procedures related to the estimation of the fair value of the acquired property and equipment included the following procedures, among others. We tested the effectiveness of controls relating to management's review of the valuation methodologies and assumptions applied by the third-party valuation specialist. In addition to testing the effectiveness of controls, we also performed the following:
• Utilized an internal valuation specialist to evaluate:
Table of Contents Index to Financial Statements
- the qualifications of the third-party valuation specialist engaged by the Partnership based on their credentials and experience,
- the process used by management to develop the estimate, including valuation methodologies and assumptions used by the third-party valuation specialists and whether they were acceptable for the underlying assets and applied correctly,
- the useful lives utilized by the third-party valuation specialist by comparing to industry standards and estimates,
- the appropriateness of the replacement cost, by confirming the inputs utilized were reasonable for the underlying assets,
- the estimates of fair values for assets which were valued based on comparable market data and the appropriateness of the replacement costs, by performing independent market research and analyses.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, the audit procedures related to the estimation of the fair value of acquired property and equipment include utilizing an internal valuation specialist. This specialist evaluates the appropriateness of the replacement cost by confirming that the inputs used were reasonable for the underlying assets.
Specifically, the internal valuation specialist assesses the process management uses to develop estimates, including the valuation methodologies and assumptions used by third-party valuation specialists. They check if these methodologies and assumptions are suitable for the assets in question and if they have been applied correctly. The specialist also compares the useful lives of assets, as determined by the third-party specialist, against industry standards and estimates.
Furthermore, for assets valued using comparable market data, the internal specialist performs independent market research and analyses to verify the fairness of the values and the appropriateness of replacement costs. This comprehensive evaluation helps Aplus ensure the accuracy and reliability of its financial reporting concerning acquired property and equipment.