What expertise was required during the audit of Budget's long-lived asset impairment?

According to Budget's 2025 Franchise Disclosure Document, the audit procedures for the impairment of long-lived assets, specifically concerning United States vehicles, required a high degree of auditor judgment and effort. This included the need to involve fair value specialists and other professionals within the auditing firm who possessed expertise in long-lived asset impairment.

The audit procedures encompassed several key areas. Auditors had to evaluate whether Budget's management appropriately identified events or changes in circumstances that indicated the carrying amounts of vehicle assets might not be recoverable. They also assessed management's determination of asset groups at the lowest level of identifiable cash flows. Furthermore, the auditors evaluated Budget's recoverability test by comparing the sum of undiscounted cash flows expected from the use and eventual disposition of the impacted vehicles to their carrying value. When applicable, the auditors also evaluated the fair value estimates for the impacted vehicles.

To address these critical audit matters, the audit procedures included testing the effectiveness of controls over management's identification of events or changes in circumstances, including their review of forecasted future cash flows. The auditors also evaluated management's methodology in determining the fair value estimate of vehicles. They tested the mathematical accuracy of management's analysis, compared relevant information to historical data, and assessed management's assumptions regarding expected rental revenue, operating expenses, and residual values at the time of disposition of vehicles. With the assistance of fair value specialists, the auditors evaluated the reasonableness of the valuation methodology applied and the fair value determined for vehicles by testing the methodology and measurable inputs used, as well as the mathematical accuracy of the calculation.

For a prospective Budget franchisee, this indicates that the valuation of vehicle assets and the assessment of potential impairments are complex processes requiring specialized expertise. The involvement of fair value specialists and other professionals highlights the importance of accurate financial reporting and the potential impact of asset impairments on Budget's financial statements. Franchisees should be aware of these factors and how they might affect the overall financial health of the company.