Who did Aplus utilize to estimate the fair value of the acquired property and equipment from Zenith Energy?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value of property and equipment acquired in the Zenith Energy acquisition
As described further in Note 3 to the consolidated financial statements, the Partnership acquired 16 refined product terminals on May 1, 2023, from Zenith Energy for approximately $111 million. The Partnership utilized a third-party valuation specialist to estimate the fair value of the acquired property and equipment, which was determined to be $110 million. We identified the estimation of the fair value of the acquired property and equipment as a critical audit matter.
The principal consideration for our determination that the estimation of the fair value of the acquired property and equipment is a critical audit matter is that there was estimation uncertainty due to significant judgments with respect to the valuation methodologies and assumptions applied by the third-party valuation specialist, including the market and cost approaches. This in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence related to management's assumptions. In addition, the audit effort involved the use of internal specialists to assist in performing these procedures and evaluating the audit evidence.
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.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, when Aplus acquired 16 refined product terminals from Zenith Energy on May 1, 2023, for approximately $111 million, they utilized a third-party valuation specialist to estimate the fair value of the acquired property and equipment. This fair value was determined to be $110 million.
The FDD indicates that the estimation of the fair value of the acquired property and equipment was considered a critical audit matter due to estimation uncertainty. This uncertainty stemmed from significant judgments regarding the valuation methodologies and assumptions applied by the third-party valuation specialist, including the market and cost approaches. This required a high degree of auditor judgment and subjectivity in evaluating management's assumptions.
To ensure the accuracy of the valuation, Aplus's audit procedures included testing the effectiveness of controls relating to management's review of the valuation methodologies and assumptions used by the third-party valuation specialist. Additionally, an internal valuation specialist was utilized to evaluate the qualifications of the third-party specialist, the process used by management to develop the estimate, the useful lives utilized by the specialist, the appropriateness of the replacement cost, and the estimates of fair values for assets based on comparable market data.