What must be evaluated regarding accounting policies and estimates during the audit of Batteries Plus Bulbs?

According to the 2025 Batteries Plus Bulbs FDD, the company's management uses estimates and assumptions when they prepare their consolidated financial statements. These estimates and assumptions impact the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Because these figures are estimates, the actual results could potentially differ.

Specifically, the estimates are used in areas such as determining the allowance for uncollectible accounts receivable, valuing merchandise inventories, and accruing for product warranty claims. For accounts receivable, Batteries Plus Bulbs assesses the collectibility of customer balances. For inventories, Batteries Plus Bulbs states inventories at the lower of cost or net realizable value, using either the first-in, first-out (FIFO) method for Ascent or the average-cost method for Batteries Plus Bulbs operated stores. For product warranty claims, Batteries Plus Bulbs reviews its vendors, purchases, and warranty terms to estimate potential warranty liability.

During the audit, these accounting policies and estimates are evaluated to ensure they are reasonable and in accordance with accounting principles generally accepted in the United States of America. The independent auditor, Grant Thornton LLP, assesses the fairness of the presentation of Batteries Plus Bulbs's financial position, results of operations, and cash flows based on these accounting policies and estimates. This evaluation is a standard part of the audit process to provide assurance that the financial statements are reliable and fairly presented.