How did the auditors evaluate the reasonableness of Benihana's evaluation of impairment indicators?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
Our audit procedures related to the evaluation of long-lived asset impairment indicators included the following, among others:
- We tested the effectiveness of internal controls over the Company's long lived asset impairment indicator evaluation.
- We evaluated the reasonableness of the Company's evaluation of impairment indicators by:
- Testing long-lived restaurant assets for possible indications of impairment, including searching for locations with current period losses or projected losses
- Performing inquiries of management regarding the process and assumptions used to identify potential indicators of impairment and evaluating the consistency of the assumptions with evidence obtained in other areas of the audit
- Inspecting minutes of the board of directors, the Company's public statements, operating plans, and industry data to identify any evidence that may contradict management's assumptions
- We tested the completeness and accuracy of the underlying source information used by management to identify quantitative indicators of impairment.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the auditors evaluated the reasonableness of the company's assessment of impairment indicators for long-lived restaurant assets through several procedures. These procedures are designed to ensure that Benihana's management appropriately identifies and addresses potential impairments. The auditors' work in this area is considered a critical audit matter due to the significant assumptions and judgments made by management.
Specifically, the auditors tested long-lived restaurant assets for possible indications of impairment, which included searching for locations with current period losses or projected losses. They also made inquiries of Benihana's management regarding the processes and assumptions used to identify potential indicators of impairment. The auditors then evaluated whether these assumptions were consistent with evidence obtained in other areas of the audit.
In addition, the auditors inspected minutes from the board of directors meetings, Benihana's public statements, operating plans, and industry data. This inspection was done to identify any evidence that might contradict the assumptions made by management. The auditors also tested the completeness and accuracy of the underlying source information used by management to identify quantitative indicators of impairment. These steps provide a multi-faceted approach to assess the reasonableness of Benihana's impairment evaluations.
For a prospective Benihana franchisee, this detailed audit process suggests a thorough and careful approach to financial reporting and asset management by the company. It indicates that potential financial risks related to asset values are closely scrutinized, which can provide a degree of confidence in the financial stability of the Benihana franchise system.