What was tested regarding the underlying source information used by management to identify quantitative indicators of impairment for Benihana?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
- 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 completeness and accuracy of the underlying source information used by management to identify quantitative indicators of impairment were tested. This indicates that during the audit process, the auditor, Deloitte & Touche LLP, verified that the data Benihana's management used to assess potential impairments of long-lived assets was both complete and accurate.
This testing is crucial because the impairment of assets can significantly impact a company's financial statements. If the underlying data is inaccurate or incomplete, it could lead to an incorrect assessment of whether an asset's value has been impaired, which in turn could misrepresent the company's financial health. For a prospective Benihana franchisee, this suggests that the financial reporting and asset valuation processes are subject to scrutiny and verification by independent auditors.
The audit procedures related to impairment of long-lived assets also included testing the effectiveness of internal controls over the company's long-lived asset impairment indicator evaluation and undiscounted future cash flow analysis. The auditor also evaluated the company's evaluation of impairment indicators by testing long-lived restaurant assets for indications of impairment, including evaluating locations with current period or projected losses. They performed 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. The auditor also inspected 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.
Furthermore, 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. This rigorous testing and evaluation process provides assurance that Benihana's financial statements are reliable and that potential asset impairments are appropriately identified and accounted for.