What specific inquiries of management were performed regarding the process and assumptions used to identify potential indicators of impairment for Benihana?
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 specific inquiries of management regarding the process and assumptions used to identify potential indicators of impairment. These inquiries were part of evaluating the reasonableness of the company's assessment of impairment indicators.
Specifically, the auditors evaluated the consistency of management's assumptions with evidence obtained in other areas of the audit. This suggests that the auditors cross-referenced the information provided by management with other data and findings gathered during the audit to ensure accuracy and reliability. The audit also involved testing long-lived restaurant assets for indications of impairment, including evaluating locations with current period losses or projected losses.
Additionally, 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. This step indicates a thorough review of various sources of information to validate the assumptions made by management in assessing impairment indicators. This multi-faceted approach would provide a more comprehensive understanding of the factors influencing potential impairments and ensure that management's assessments are well-supported and consistent with available evidence.
For a prospective Benihana franchisee, this detailed audit process suggests that the financial health and asset valuation of existing restaurants are rigorously scrutinized. This could provide some assurance that the brand's financial reporting is reliable and that potential risks related to asset impairment are carefully assessed.