What internal controls related to long-lived asset impairment indicator evaluation and undiscounted future cash flow analysis were tested during the Benihana audit?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
Our audit procedures related to impairment of long-lived assets included the following, among others:
- We tested the effectiveness of internal controls over the Company's long lived asset impairment indicator evaluation and undiscounted future cash flow analysis.
- We evaluated the Company's evaluation of impairment indicators by:
- Testing long-lived restaurant assets for indications of impairment, including evaluating 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 evaluated the reasonableness of management's undiscounted future cash flows analysis by comparing management's projections to (1) the Company's historical results, (2) internal communications to management and the Board of Directors, (3) external communications made publicly by management, and (4) industry data.
- 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 audit procedures included testing the effectiveness of internal controls over the company's long-lived asset impairment indicator evaluation and undiscounted future cash flow analysis.
The audit also involved evaluating the company's assessment of impairment indicators. This included testing long-lived restaurant assets for indications of impairment, specifically evaluating locations with current period losses or projected losses. Auditors made inquiries of management regarding the processes and assumptions used to identify potential impairment indicators, and they assessed the consistency of these assumptions with evidence obtained from other areas of the audit.
Furthermore, the auditors inspected minutes of the board of directors, the company's public statements, operating plans, and industry data to identify any evidence that might contradict management's assumptions. The reasonableness of management's undiscounted future cash flows analysis was evaluated by comparing management's projections to the company's historical results, internal communications to management and the Board of Directors, external communications made publicly by management, and industry data. The completeness and accuracy of the underlying source information used by management to identify quantitative indicators of impairment were also tested.