When evaluating the reasonableness of impairment indicators for Benihana, what steps were taken to test long-lived restaurant assets?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
entified the determination of possible triggering events for long-lived assets as a critical audit matter because of the significant assumptions management makes when determining whether events or changes in circumstances have occurred indicating that the carrying amounts of long-lived assets may not be recoverable. This required a high degree of auditor judgement.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to evaluation of long-lived asset impairment indicators included the following, among others:
- We tested 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,
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the audit procedures related to the evaluation of long-lived asset impairment indicators included several steps. These steps were taken to test the reasonableness of the company's evaluation.
First, the effectiveness of internal controls over the company's long-lived asset impairment indicator evaluation was tested. Then, long-lived restaurant assets were tested for possible indications of impairment, including searching for locations with current period losses or projected losses. Inquiries of management were performed regarding the process and assumptions used to identify potential indicators of impairment, and the consistency of the assumptions with evidence obtained in other areas of the audit was evaluated. Minutes of the board of directors, the company's public statements, operating plans, and industry data were inspected to identify any evidence that may contradict management's assumptions. Finally, the completeness and accuracy of the underlying source information used by management to identify quantitative indicators of impairment was tested.
These procedures are designed to ensure that Benihana is accurately assessing the value of its long-lived assets and that any potential impairments are identified and addressed in a timely manner. For a prospective franchisee, this indicates that the franchisor's financial statements are rigorously audited, which can provide a degree of confidence in the financial health and stability of the company.