When testing the effectiveness of The Standardx's controls over management's goodwill impairment analyses, what specific elements of management's analysis were included?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the projected future cash flows, discount rate, and capitalization rate included the following, among others:
- We tested the effectiveness of the Company's controls over management's goodwill impairment analyses, including those over management's selection of the projected future cash flows, discount rate, and capitalization rate.
- We evaluated the reasonableness of management's projected future cash flows associated with the reporting unit by comparing them to (1) historical results, (2) internal communications to management and those charged with governance of the reporting unit, and (3) forecasted information included in analyst and industry reports for the Company and its peer companies.
- With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate and capitalization rate by (1) testing the source information underlying the determination of the discount rate and capitalization rate, (2) testing the mathematical accuracy of the calculations, (3) developing a range of independent estimates and comparing those to the discount rate selected by management, and (4) evaluating the reasonableness of inputs included in the capitalization rate.
Source: Item 23 — Receipts (FDD pages 85–132)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, the audit procedures included testing the effectiveness of the company's controls over management's goodwill impairment analyses. This included management's selection of the projected future cash flows, discount rate, and capitalization rate.
The auditors evaluated the reasonableness of management's projected future cash flows by comparing them to historical results, internal communications to management, and forecasted information included in analyst and industry reports for The Standardx and its peer companies.
With the assistance of fair value specialists, the reasonableness of the discount rate and capitalization rate was evaluated by testing the source information underlying their determination, testing the mathematical accuracy of the calculations, developing a range of independent estimates and comparing them to the discount rate selected by management, and evaluating the reasonableness of inputs included in the capitalization rate. This thorough process aims to ensure the accuracy and reliability of The Standardx's financial reporting related to goodwill impairment.